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About In House Tax

About In House Tax

This weblog is a news and views site for tax professionals within the UK and international in-house tax community.  You will find information about appointments and people moves in and around the in-house tax market, issues affecting the in-house tax professional, opinions on the state of the tax job market, updates on tax technology, and other general thoughts of the day.

Hope you find it useful.

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Location: St Albans, United Kingdom

This site has been developed by Simon Godley, who also runs the niche tax recruitment company Talentpool Selection . Simon spends a lot of his time placing tax specialists into FTSE companies, large in-bound groups and some professional services organisations. He also recruits and is well networked around the UK tax technology and VAT markets.

Tax News

The Pursuit of VAT Automation

Thursday, 9 May 2013

By Simon Godley 
(taken from a recent Tax Technology article)

Many large companies are now investing heavily in technology to maximise on tax automation, in particular for VAT and indirect tax automation. Of course, VAT is a crucial tax running through the GL, AP and AR environments of virtually all businesses, and so it is incredibly important that it is set up correctly – for maintaining and processing accurate data which can be fed into VAT compliance requirements demanded by international tax authorities. In order to do this, large multinational companies will firstly look to their ERP system, and try to identify best ways of manipulating and configuring these systems to eventually throw out the most accurate VAT calculations and data, and for most companies this needs to happen across many operating entities and countries.

So what works best for this? What can be done within the ERP system (SAP or Oracle) to try and process correct VAT data? And are there other technologies that companies could consider? What is the best approach to ensure you are getting your ERP to produce great VAT results?

Ryan Ostilly, Commercial Director of Tax Technology for Meridian Global Services has plenty of expertise in this area:
“Automating VAT determination in SAP is a common challenge that we find across many of our large clients. This is because standard SAP doesn’t contain the required functionality to manage the VAT complexities of a typical multinational. This is a well known issue, and most companies try to find a solution internally. Of course, business and IT don’t talk the same language, so over the years, amid a constantly changing business and legal landscape, the home grown solution often devolves into a patchwork of separate development and configuration tweaks that are difficult and costly to maintain. Moreover, there are still many residual gaps in functionality which require manual intervention from non-tax staff. This exposes the business to increased tax compliance risks."
"We see this time and time again. The key reason is that internal solutions are often designed around a set of expected results, rather than around a framework of VAT rules."
“As the level of tax risk and maintenance effort increases Tax and IT may look at external solutions to solve their needs. One option could be the deployment of an external tax engine – however this many not be viable for various reasons. There is also the option of implementing a tax engine directly within SAP itself, which would house all the simplified tax determination logic using standard SAP techniques. This latter option is where Meridian has been very active.
"We have developed a complete VAT determination solution with all the relevant VAT rules built in, which can be deployed directly into an existing SAP system. This works very well for multinational organisations operating across many countries who desire better control over their VAT compliance in SAP, but do not have the time, budget and resources to develop this themselves."

Som Prakash, a specialist SAP-VAT implementation consultant, describes the situation from his viewpoint:

“In recent years, indirect tax compliance and accuracy have become one of the prime agendas in corporate board room discussions. One of the pivotal reasons being the increasing number of audits and heavy penalties by cash starved local Governments.

Multinational companies having complex supply chain models, with goods/services crossing borders could attract multiple compliance issues if the transactions are not dealt properly in their ERP system. SAP’s Plants abroad is an out-of-box solution for this for EU enterprises, registered for VAT in multiple different countries. SAP also caters to more complex tax decisions like in the US where Tax is levied by multiple authorities in a single transaction.

In the drive for complete automation of tax decision and compliance, now more and more companies are going for Tax Engines which integrates with ERP system in real time.”

So it would seem that large organisations are under some pressure from external factors i.e. demands of tax authorities to have robust VAT system processes, and this is now high on the finance agenda. There are many approaches that can be taken to find the best solution, although it seems clear that the ERP system cannot handle all the transaction complexities found within a large international group with intricate supply chains etc, and so other tax engine based technologies need to be considered.

That said, a lot of these decisions on technologies will come down to cost and available IT budgets, and installing a tax engine into an international group is a large investment. So I suspect that before taking the plunge, a lot of companies will lean heavily on their ‘old school’ Excel workbooks. Excel is very much open to risk of error, so I think a lot of companies will be managing a technology / risk ratio before tax engines become more of a mainstream piece of kit.

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posted by Simon Godley


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