There shall be no fee for renewal of a licence granted to a Customs House Agents authorized under the Authorised Economic Operator Programme.

To view the full text of the notification, please follow the link

In case of Customs Cargo Service provider authorised under Authorised Economic Operator Programme, the approval granted by the Commissioner of Customs may be extended for a further period of ten years at a time which was earlier restricted to five years only.

To view the full text of the notification, please follow the link

SCHEDULE-I

To view the full text of the notification, please follow the Link

To view the full text of the notification, please follow the Link

1. In middle- and high-income countries, there’s a negative association between economic growth and the share of personal income tax and social security contributions in the tax mix (and a positive one for value-added and sales taxes).
2. The share of corporation tax in the overall mix doesn’t have a significant relationship with economic growth.
3. The authors couldn’t find a significant association between growth and any particular kind of tax in low-income countries, apart from a negative one for trade taxes.

Now, via Mark Herkenrath, comes a note of an IMF conference “Taxation and Economic Growth in Latin America”.  The note asserts that “Tax Policy Can Help Spur Economic Growth”, so the question, in the light of the evidence from the previous paper, is how?

The answer seems to be:

Taxation plays an important role in promoting economic growth: it generates the revenue needed to finance governments’ economic development policies and creates a framework for development of private sector activities. However, growth objectives must be balanced with those to promote an improved distribution of income.

In his opening speech to the conference, IMF Deputy Managing Director Naoyuki Shinohara continues:

Strengthening fiscal frameworks require building stronger and more reliable revenue bases. This is necessary to help countries weather global shocks (and limit income volatility that comes with increased commodity dependence), but also sustain growth over the medium term. A stronger revenue base would provide a more stable source of income to finance much needed public investment in the region. Better designed tax structures could encourage growth while promoting equity.

It’s definitely interesting that the IMF is saying that tax revenue can promote economic growth by financing public spending. This is not a trivial assertion.

An interesting question emerging from the difference between the two quotes above is whether equity and growth are competing objectives in fiscal policy, or whether there are tax policy reforms that achieve both. In the “related links” is a blog post that notes that the impact of fiscal policy on income distribution in OECD countries has diminished since the mid-1990s. It goes on to attribute this trend to “the reduction in the generosity of social benefits (particularly unemployment and social assistance benefits) and lower income tax rates, especially at higher income levels.” Furthermore, it says:

The increase in inequality in advanced countries pales into insignificance when compared to the gap in inequality between developing and advanced economies. Much of this higher income inequality can be explained by lower levels of taxation and public spending…as well as their greater reliance on less progressive tax and spending instruments.

Those ‘less progressive’ instruments, as illustrated in Chart 3 of the blog (click to enlarge), appear to be indirect taxes (top, yellow) and forms of public spending other than social benefits (bottom, yellow).

Looked at together, these various documents seem to show that the IMF thinks it’s quite hard to reconcile the competing demands of equity and growth on the tax side of the fiscal equation. Lower personal income tax rates make wealthier countries more unequal, but lower personal income tax revenue is also associated with higher economic growth; reliance on “less progressive” indirect taxation is associated with higher rates of growth, but also higher inequality.

I wasn’t quite sure how the post’s eventual recommendation for developing countries follows from this analysis:

On the tax side, the focus should be more on broadening tax bases rather than increasing tax rates, through reduced tax exemptions, closing loopholes and improving compliance.

Lower personal income tax rates have led to increased inequality, and developing countries should aim to raise more tax revenue from “more progressive” sources such as income tax, yet raising income tax rates would be a bad idea. There’s a similarly ambiguous remark in the conference note:

Gilbert Terrier, deputy head of the IMF’s Fiscal Affairs Department, emphasized that a key challenge in the region will be to increase the revenue productivity and structure of the personal income tax so that it can contribute to growth-enhancing public expenditure while helping attain distributional goals.

When considering the impact of a particular tax on growth and equity, the question of how progressively it is levied is crucial, rather than simply discussing which tax is best. This is perhaps the take-home point.

Thomson Reuters’ in-house tax experts monitor changes in tax laws for over 175 countries. Highlights from the global Q3 2012 report released today include:

• Sixty-nine state, county, city and transit sales tax increases were implemented in the U.S., compared with 97 in Q3 2011.
• There were 20 VAT increases globally, up from 14 in Q3 2011.
• In the U.S., the average state sales tax remained the same at 5.48 percent in Q3 2012.
• Spain increased its standard and reduced VAT rates from 18 percent and 8 percent to 21 percent and 10 percent.
• In China, Beijing joined the VAT Pilot program in September.
• Two Indian states increased their standard rates. In Kamataka, rates rose from 14 percent and 5 percent to 14.5 percent and 5.5 percent. In Punjab, they rose from 12.5 percent and 5 percent to 13.5 percent and 5.5 percent.

To download full report

Read more: Thomson Reuters | Global Indirect Tax Changes Up 62 Percent in Q3.

Still so sure you want a Kindle for Christmas?

The Amazon VAT dodge.

“Add to Wishlist – 1% VAT!”

(In Dutch)

For nearly every company, the accuracy and efficiency of local-country VAT compliance is nearly completely dependent on the functionality of the underlying ERP system.

Operational malfunctions in a system that is used to manage VAT compliance can lead to substantial financial risks.

There are countless examples of the mismatching of VAT treatment of purchases and sales in chain transactions, double payments of VAT and “forgotten” manual adjustments to the VAT filing, all attributable to shortcomings in SAP’s automated VAT solution.

Errors in the basic VAT configuration of ERP systems can also carry consequences for an organization. Without the proper VAT rules, many systems are incapable of processing transaction information correctly, so that transactions may become blocked. This has a great impact on logistics processes, invoicing processes and financial processes.

Tax and financial departments are under increasing pressure to reduce the costs of compliance processes. One result of this is the increasing transfer of VAT-relevant processes from national tax supervision to Shared Service Centers. These Shared Service Centers are not generally manned by tax specialists. They trust the functionality of the group’s ERP system to determine, calculate and report local VAT.

Our added value is that we help clients free up resources, reduce manual activities and manage risks.

Distinguishing capability

The KEY Group possesses considerable practical experience and understands SAP’s possibilities, but also its limitations.

With respect to the possibilities, we can express the wishes to the external SAP consultant in his own language and we can demonstrate how these can actually be achieved in SAP. In practice, we note that certain functionality intended for the support of indirect tax objectives does not get used – due either to reluctance (not within budget) or to a lack of knowledge in this area.

From an indirect tax standpoint, the realization that you are part of a larger team in which each of the participants has other priorities is key. This means that effective communication and agreements are essential. Instructions must be understandable and so short and compact that they can also be used as a reference framework and material for the tests.

In practice, Excel is often used to record all transactions and to indicate what the VAT treatment, etc., should be for each transaction individually. This cannot be imported and is difficult to evaluate for this reason. Moreover, the use of Excel carries the risk of making copy/paste errors.

The question is: what is the best format for providing instructions to other work streams and for making the test phase efficient and effective? It turns out in practice that decision trees are a particularly effective communication resource with the IT consultant. In addition, an SAP implementation is not “Plug and Play.”

SAP has its limitations and not all transactions can be implemented in the systems in an automated fashion.

For example, in the standard configuration, it is not always possible to have SAP automatically determine the VAT treatment of chain transactions within a concern or with third parties (3 parties or more).

One of the solutions is to work with assumptions and to implement these in the system. This means that a VAT treatment is no longer deduced using information present in the system.

Assumptions may be incorrectly implemented during the actual execution or may undergo a change after “going live.” An incorrect VAT treatment is the potential risk.

The advisor should be asked which functionalities are available in the market for still achieving full automation without making use of assumptions.

If this solution is selected, periodic audits are still essential since the risks exceed the company’s risk tolerance. This results in extra man-hours, representing additional costs.

As of January 1, 2013, invoicing requirements will be harmonized and the legal objections of practical thresholds will be removed. From an SAP perspective, there is still an important battle to be fought for the system’s processing of VAT.

From within the standard SAP settings, how do you get iDocs/OBCD to handle VAT treatment automatically? For complex business models with VAT registrations in various countries, SAP’s standard iDoc/OBCD design does not allow the derivation of the proper tax code for AP for cross-border transactions. In which countries should the acquisition be reported? This is another question to ask the adviser.

The indirect tax objective of an SAP implementation should not be only that everything functions at the moment of “going live,” but that the maintenance and logic of the structure and the persistence of that logic in case of changes have been considered.

Example:

In a given country, tax code VI is used for the standard VAT rate at the moment of “going live.” This means that a print can be made of the standard VAT rate used in various countries using the simple tax code selection, essential for monitoring the function and for the selection of the proper tax code for AP coding.

If a rate increase occurs, a tax code for the new standard rate must be created – VD, for example – one that deviates from the chosen standard. VAT rate increases are a worldwide trend and the result is that the logic of the tax code structure will no longer be present after the increase. This increases the chance of errors when selecting the correct tax code.

So the question is: how do you implement the rate changes in SAP without this having an impact on the logic of your tax code structure?

Examples of possible errors in SAP

• Not making use of the proper partner functions in SAP for a supplier who provides services in multiple countries and invoices VAT locally. Result: the standard VAT calculation generates incorrect results.
• Missing/improper VAT registration numbers in customer master data, such that invoicing requirements are not satisfied for cross-border transactions.
• Master data is adjusted and tested in the test environment, but the changes are not included in the final upload to the production system.
• The logic of the tax code structure is disrupted by VAT rate changes, something that could have been prevented using the SAP configuration.
• When performing reverse charge bookings, VAT rate changes do not get changed.
• For cross-border A-B-C transactions, a VAT mismatch between the VAT on procurement and the VAT on sales arises for party B.
• Blocked so-called iDoc (electronic interface documents) because of errors in the OBCD design.
• Suppliers with invoices in other currencies and the VAT amount in Euro, so that the booked VAT amount is incorrect due to an incorrect exchange rate.
• Incorrect derivation of VAT registration numbers for cross-border transactions caused by incorrect SAP configuration.

Related Topics:

• ‘Indirect Tax Automation’ And ‘Plug And Play‘
• Tax Engines – Questions to Ask Before You Commit
• Demonstrate the reliability of your tax administration yourself
• Indirect Tax Trends
• Tax Professionals: A Different Way of Working
• SAP review

LinkedIn | Twitter | Facebook

(In Dutch)

For nearly every company, the accuracy and efficiency of local-country VAT compliance is nearly completely dependent on the functionality of the underlying ERP system.

Operational malfunctions in a system that is used to manage VAT compliance can lead to substantial financial risks.

There are countless examples of the mismatching of VAT treatment of purchases and sales in chain transactions, double payments of VAT and “forgotten” manual adjustments to the VAT filing, all attributable to shortcomings in SAP’s automated VAT solution.

Errors in the basic VAT configuration of ERP systems can also carry consequences for an organization. Without the proper VAT rules, many systems are incapable of processing transaction information correctly, so that transactions may become blocked. This has a great impact on logistics processes, invoicing processes and financial processes.

Tax and financial departments are under increasing pressure to reduce the costs of compliance processes. One result of this is the increasing transfer of VAT-relevant processes from national tax supervision to Shared Service Centers. These Shared Service Centers are not generally manned by tax specialists. They trust the functionality of the group’s ERP system to determine, calculate and report local VAT.

Our added value is that we help clients free up resources, reduce manual activities and manage risks.

Distinguishing capability

The KEY Group possesses considerable practical experience and understands SAP’s possibilities, but also its limitations.

With respect to the possibilities, we can express the wishes to the external SAP consultant in his own language and we can demonstrate how these can actually be achieved in SAP. In practice, we note that certain functionality intended for the support of indirect tax objectives does not get used – due either to reluctance (not within budget) or to a lack of knowledge in this area.

From an indirect tax standpoint, the realization that you are part of a larger team in which each of the participants has other priorities is key. This means that effective communication and agreements are essential. Instructions must be understandable and so short and compact that they can also be used as a reference framework and material for the tests.

In practice, Excel is often used to record all transactions and to indicate what the VAT treatment, etc., should be for each transaction individually. This cannot be imported and is difficult to evaluate for this reason. Moreover, the use of Excel carries the risk of making copy/paste errors.

The question is: what is the best format for providing instructions to other work streams and for making the test phase efficient and effective? It turns out in practice that decision trees are a particularly effective communication resource with the IT consultant. In addition, an SAP implementation is not “Plug and Play.”

SAP has its limitations and not all transactions can be implemented in the systems in an automated fashion.

For example, in the standard configuration, it is not always possible to have SAP automatically determine the VAT treatment of chain transactions within a concern or with third parties (3 parties or more).

One of the solutions is to work with assumptions and to implement these in the system. This means that a VAT treatment is no longer deduced using information present in the system.

Assumptions may be incorrectly implemented during the actual execution or may undergo a change after “going live.” An incorrect VAT treatment is the potential risk.

The advisor should be asked which functionalities are available in the market for still achieving full automation without making use of assumptions.

If this solution is selected, periodic audits are still essential since the risks exceed the company’s risk tolerance. This results in extra man-hours, representing additional costs.

As of January 1, 2013, invoicing requirements will be harmonized and the legal objections of practical thresholds will be removed. From an SAP perspective, there is still an important battle to be fought for the system’s processing of VAT.

From within the standard SAP settings, how do you get iDocs/OBCD to handle VAT treatment automatically? For complex business models with VAT registrations in various countries, SAP’s standard iDoc/OBCD design does not allow the derivation of the proper tax code for AP for cross-border transactions. In which countries should the acquisition be reported? This is another question to ask the adviser.

The indirect tax objective of an SAP implementation should not be only that everything functions at the moment of “going live,” but that the maintenance and logic of the structure and the persistence of that logic in case of changes have been considered.

Example:

In a given country, tax code VI is used for the standard VAT rate at the moment of “going live.” This means that a print can be made of the standard VAT rate used in various countries using the simple tax code selection, essential for monitoring the function and for the selection of the proper tax code for AP coding.

If a rate increase occurs, a tax code for the new standard rate must be created – VD, for example – one that deviates from the chosen standard. VAT rate increases are a worldwide trend and the result is that the logic of the tax code structure will no longer be present after the increase. This increases the chance of errors when selecting the correct tax code.

So the question is: how do you implement the rate changes in SAP without this having an impact on the logic of your tax code structure?

Examples of possible errors in SAP

• Not making use of the proper partner functions in SAP for a supplier who provides services in multiple countries and invoices VAT locally. Result: the standard VAT calculation generates incorrect results.
• Missing/improper VAT registration numbers in customer master data, such that invoicing requirements are not satisfied for cross-border transactions.
• Master data is adjusted and tested in the test environment, but the changes are not included in the final upload to the production system.
• The logic of the tax code structure is disrupted by VAT rate changes, something that could have been prevented using the SAP configuration.
• When performing reverse charge bookings, VAT rate changes do not get changed.
• For cross-border A-B-C transactions, a VAT mismatch between the VAT on procurement and the VAT on sales arises for party B.
• Blocked so-called iDoc (electronic interface documents) because of errors in the OBCD design.
• Suppliers with invoices in other currencies and the VAT amount in Euro, so that the booked VAT amount is incorrect due to an incorrect exchange rate.
• Incorrect derivation of VAT registration numbers for cross-border transactions caused by incorrect SAP configuration.

Related Topics:

• ‘Indirect Tax Automation’ And ‘Plug And Play‘
• Tax Engines – Questions to Ask Before You Commit
• Demonstrate the reliability of your tax administration yourself
• Indirect Tax Trends
• Tax Professionals: A Different Way of Working
• SAP review

LinkedIn | Twitter | Facebook

(In Dutch) The most important task of SAP’s indirect tax functionality is to determine the VAT consequences of each transaction. To do this, the system must have all relevant VAT information such as the VAT qualification, VAT rate and reporting and invoicing requirements.

Relevant variables may change after the implementation of the functionality:

1. VAT information (new master data)
2. Other types of transactions (e.g. change in the business model)
3. Legislation (a different VAT rate or VAT rules).

An SAP review tests the working of the VAT configuration under the influence of such changes. The SAP review can demonstrate that the VAT configuration must be improved or that additional control measures should be added to the Tax Control Framework.

The review can also bring errors and risks to light, allowing a more focused analysis to take place. After the quantification and evaluation of the risks and errors, they are assigned to the risk profile in order to be able to test against risk tolerance.

The KEY Group uses its data analysis application for this.

Depending on the client’s requirements, the following VAT-relevant subjects can be studied in SAP during an SAP review:

Depending on the client’s requirements, the following VAT-relevant subjects can be studied in SAP during an SAP review:

• Scope
• Risks
• VAT treatment, correctness and the logic of the tax code structure and attributes such as VAT rate, the defined tolerance percentage when calculating VAT paid, the setting for EU-relevant VAT reporting.
• Incorrect VAT rates and reporting (filing and/or ICL listing)
• Conditions tables, records and decision tree logic
• Incorrect VAT treatment/code and returns
• The derivation from VAT registration numbers on the invoice of the partner functions used – sold_to, ship to, payer and bill_to.
• Incorrect VAT number on the invoice, no 0% rate possible
• VAT code descriptions for invoices
• Incorrect sales invoices
• iDoc tables, if applicable
• Incorrect VAT treatment/code and returns

Click for a summary of common SAP errors.

Related Topics:

• ‘Indirect Tax Automation’ And ‘Plug And Play‘
• Tax Engines – Questions to Ask Before You Commit
• Demonstrate the reliability of your tax administration yourself
• Indirect Tax Trends
• Tax Professionals: A Different Way of Working

Robbert Hoogeveen is COO of the KEY Group

LinkedIn | Twitter | Facebook

(Dutch version) There is a global trend toward increasing VAT rates and broadening the grounds for charging VAT. Governments increase their tax revenues in this way as a measure of combating increasing budget shortages due to the financial crisis and/or for financing the reduction of direct taxes (corporate tax, income tax, etc.).

Since indirect tax revenues rise in comparison with total tax revenues, the tax authorities pay more attention to indirect taxes than they did previously. After all, there’s more to be gotten here – resulting in a higher priority.

There is also large-scale VAT fraud within the European Community. Actively combating VAT fraud is a priority for the European commission and local governments. New measures are being taken such as the introduction of individual liability for not remitting VAT if the buyer knew or should have known that he was buying from a fraud. To prevent such a condition of liability, the ability to demonstrate that sufficient control measures have been taken is essential.

In the Netherlands, the tax authority often uses statistical sampling as a control method during a VAT audit. The severity of the additional tax bill is determined based on the number of errors found.

Foreign tax authorities cooperate intensively in the Fiscalis program. The Fiscalis program will be continued under the name of Fiscus and has a budget of 770 million for the period between 2014 2020! Knowledge in the area of risk management is shared actively.

Data analysis is known to be used for rapid insight into exactly where the risks lie and what the quantitative impact is of these risks. In this way, the tax authority can perform its audit of the books in a more directed manner. Compared with sampling, data analysis has the benefit of no longer missing a significant treatment error.

Data analysis is already used in a number of countries. It is expected to become a standard audit method in the near future.

Both data analysis and sampling can be used by multinationals as a pre-audit to test the functioning of the  tax control framework.

There is, namely, an expectation that tax authorities will start testing the tax control framework for its adequate functioning in the future. In the Netherlands (horizontal supervision aka horizontal monitoring) and England (Senior Accounting Officer sign-off), there are examples of such initiatives.

The OECD also promotes such ’enhanced relationship’ between tax authorities, taxpayer and advisers, where ex post facto audits may be limited by instituting both a proactive and a cooperative relationship with the tax service.

The aforementioned developments are extra reasons to give the right priority to indirect tax management and to formulating annual  indirect tax objectives as part of the company’s tax strategy.

It is essential here that the tax function also be empowered to actually achieve these objectives.

The KEY Group has developed normative frameworks and applications that not only provide rapid insights into the risks and savings opportunities but that also quantify them. By writing a problem statement, the reporting method optimizes senior management’s sponsorship.

(In Dutch) The time of the taxman’s interminable audits of company tax records would appear to be on its way out. The emergence of horizontal supervision (aka ‘horizontal monitoring’) and the complementary use of sampling and data analyses make it possible to demonstrate the reliability of your tax administration yourself. This provides opportunities for companies to avoid additional taxes and tax penalties.

The (Dutch) tax authority’s Company Plan for 2008-2012 was recently published. In this, special attention is given to the impact of technology on the tax authority’s work activities and range of tasks. One of the objectives and ambitions formulated by the authority was the strengthening of supervision in the coming years. They want to realize this ambition by broadening their supervision. Horizontal supervision, directed actions, enforcement communication and cooperation with other enforcement agencies should be considered here.

Increasingly, the tax authorities view the responsibility for monitoring as a joint responsibility with the fiscal partners. These include entrepreneurs, accountants and tax advisers. In its 2008-2012 Company Plan, the tax authority indicates that research will be conducted into the question of whether agreements can be made about the content and quality of the work activities performed by accountants and tax advisers. There is even the possibility that a type of certification for certain groups of professionals will play a role in the future.

Sampling and data analysis

Against the background of supervision being a joint responsibility of the tax authority on the one hand and the company and tax advisers on the other, certain activities that used to be performed by the tax authority will now have to be done by the taxpayer himself. Generally, companies turn to advisers for this. One good example of an activity that can be done by the company itself or its adviser is conducting sampling and data analysis for timely signaling and management of tax risks.

At this moment, the tax authority conducts its vertical audits using monetary samples whereby, based on the selection of a number of elements (euros), the likelihood that certain tax entries have been drawn up reliably can be ascertained to a high degree. Data analysis is another alternative for conducting efficient audits. In recent years, possibilities in the area of data analysis have been refined and grown quickly so that large volumes of data can efficiently be investigated in their entirety. Data analyses can also usually be performed with the same software with which samples are selected. Data analysis is still not much used by the tax authority, but this will change in the near future based on the indicated Company Plan for 2008 2012. This change must become part of a company’s tax strategy.

Horizontal supervision

Sampling methodologies and data analysis play an important role in the framework of horizontal supervision. Horizontal supervision was introduced in 2005 by the tax authority as a new method for monitoring companies. As the name indicates, horizontal supervision is to be contrasted with vertical supervision. Vertical supervision is the tax authority’s traditional method monitoring where the tax authority assesses ex post facto (by way of audits, etc.) whether the companies have honored their tax obligations. If this is not the case, a correction is applied, often many years later and often accompanied by (occasionally severe) penalties.

Horizontal supervision involves mutual trust between the taxpayer and the tax authority. In the aforementioned Company Plan for 2008-2012, this is expressed as follows: “The principle is that monitoring is approached as the joint responsibility of all the partners in the fiscal chain. (…). The purpose of the cooperation is to try to resolve problems beforehand as much as possible and to prevent double work in the chain. By working in this manner, the taxpayer gets certainty earlier and fewer time-consuming audits need be conducted after the fact.” With horizontal supervision, companies must notify the tax authority beforehand of (significant) tax risks. In return, companies can be certain about their own tax position earlier than would otherwise be the case. Horizontal supervision is therefore an important instrument for a company in the context of its risk management. After all, the company knows which potential risks exist and, by notifying the tax authority of these, clarity is quickly achieved about the amount of tax to be paid. There are no more skeletons in the closet, as it were. For the (financial) management of a company, this is, of course, very important.

Tax Control Framework

But how does a company derive insight into its own tax risks? If a company has no insight into its tax risks, it can’t notify the tax authority of these, of course. So the company will have to acquaint itself with its own risks in one way or another. The so-called Tax Control Framework (TCF) plays an important role in this context. A TCF is an instrument for internal risk management, specifically aimed at the tax function within a company. A TCF is usually an integral component of a company’s Business- or Internal Control Framework. A TCF ensures that processes within an organization are structured so that tax risks are visible in a timely manner.

The application of sampling techniques makes it possible for companies not only to identify tax risks, but also to qualify these risks for tax purposes along with the quantification of any risks that may arise from this. By identifying risks, a plan of attack can be drawn up with which these risks can be managed – both for the future and for the past.

Against the background of Horizontal Supervision, companies see themselves increasingly forced to be more proactive in their communication with the tax authority about tax risk areas and to include these in the optimization of their own Tax Control Framework.

By conducting VAT ‘pre-audits’ and by using data analysis and sampling techniques, among other methods, the following benefits can be achieved:

• Improvement of the work relationship with the tax inspector (after all, by using the same audit techniques as the tax authority, the first stumbling block in any future discussion about the results of an audit is already removed);
• Companies get rapid and efficient insight into the nature and size of their tax risks in a statistically valid manner;
• The quality of the external accountant’s work activities will increase because he can spend less time testing fiscal risk in the areas of indirect taxes and salary deductions, for example;
• Reduction in the number of ‘vertical’ audits and cost savings from the deployment of one’s own resources;
• Decrease in penalties.

At first, this would appear to be a strange development: companies and advisers who take over certain supervisory and/or audit tasks from the tax authority… and this while most companies are only audited by the tax authority roughly once every five years.

However, the above shows that companies can achieve interesting benefits from the concept of horizontal supervision where work can take place in “real time” and tax risks can be managed. It is then a logical step within this concept to perform sampling and data analyses oneself instead of having the tax authority do this. In other words: conducting sampling and data analysis oneself (or having it done) is a fine way of keeping the tax authority at a distance without this having a negative impact on the relationship with the tax authority. What’s more, our experience has shown that it only serves to improve their relationship with the tax authority. What more could a company want?

KEY Group’s company website.

The Current State of many multinationals

(In Dutch) Determining the VAT liability and VAT recovery of business transactions (the system’s indirect tax functionality) can be automated within Enterprise Resource Planning (ERP) systems such as SAP and Oracle, or by way of manual processes. Such determination logic can be hugely complex.

Multinationals often run various versions of ERP systems without harmonization. The ERP is often set up per business unit and thus multiple kernels per country are likely.

This can cause difficulties in running exception reports to look for missed opportunities, underclaimed VAT and potentially fraudulent transactions. A lot of (manual) work is required when reconciling the periodic VAT compliance reports from these different sources (divisions, different systems).

As ERP systems do not have flexible reporting solutions, multiple spreadsheets are often used to reconcile VAT numbers. Manual processes are subject to human error and are often inefficient due to the amount of rework (‘hidden factory’).

‘Remediate own ERP system’ or ‘Third Party solutions’

Indirect Tax functionality can be automated (fully or to a certain extent) in a company’s ERP system. The problem may arise that multiple ERP systems are used and that interfacing via a third-party tax engine must be considered as an alternative. That option means that part of the system functionality is actually outsourced.

Some important questions to answer during tax software selection are:

• Does remediation of own ERP systems close any gaps?
• Is setting up a single ERP platform within the company a practical solution?
• Are third-party solutions available to harmonize multiple ERP systems?
• What is the advantage of a third-party solution compared to upgrading own ERP system(s) (GAP versus SWOT analysis: complexity of business model, number of tax codes needed now and in the future, resource requirements to manage the rules and VAT rates, monitoring and controls)?
• Is a third-party solution required for determination and calculation of indirect tax or only for the reporting?
• What reporting functionality does my organization need?
• Are the risks of outsourcing functionality known, documented and managed?
• Are the liability clauses of the third party known and evaluated?
• Is the financial position known of this third party?
• Is the market position known of this third party (sustainability, competitor’s strength)?
• What is the feedback from customers (references and credentials)?
• How many staff does this third party employ?
• What is the company’s history with respect to upgrades of its technology in response to trends in the tax market and client needs (number of upgrades)?
• Is the solution compatible with the existing ERP environment?
• Is the IT architecture of the third-party solution compatible with the existing IT landscape?
• Is the interface of the solution “approved/supported” by the ERP system supplier (i.e. SAP Netweaver partner)?
• What level of configuration / customization will be required in the ERP system and/or third-party solution?
• How much time does it normally take to implement a country, region or even a big bang roll out?
• Does the third party have a roadmap for implementation that includes each others’ roles, responsibilities and milestones?
• Which countries and indirect taxes are supported by the third-party solution?
• What is the impact on the company’s own resources?
• What does the price tag look like (initial fee, configuration fee, license / usage fee, maintenance fee, etc.)?
• What level of support does a vendor provide in case of troubleshooting, mandated updates, irregular maintenance, etc?

These are some important questions that need answering in order to make sure that the technology is a right fit for contributing value to the organization’s business objectives.

Related Topic Systems: ‘Indirect Tax Automation’ And ‘Plug And Play‘

Robbert Hoogeveen is COO of the KEY Group

LinkedIn | Twitter | Facebook

Operational malfunctions in a system that is used to manage VAT compliance can lead to substantial financial risks.

There are countless examples of the mismatching of VAT treatment of purchases and sales in chain transactions, double payments of VAT and “forgotten” manual adjustments to the VAT filing, all attributable to shortcomings in SAP’s automated VAT solution.

Errors in the basic VAT configuration of ERP systems can also carry consequences for an organization.

Without the proper VAT rules, many systems are incapable of processing transaction information correctly, so that transactions may become blocked.

This has a great impact on logistics processes, invoicing processes and financial processes.

Tax and financial departments are under increasing pressure to reduce the costs of compliance processes. One result of this is the increasing transfer of VAT-relevant processes from national tax supervision to Shared Service Centers.

These Shared Service Centers are not generally manned by tax specialists.

They trust the functionality of the group’s ERP system to determine, calculate and report local VAT.

Our added value is that we help clients free up resources, reduce manual activities and manage risks.

Distinguishing capability

The KEY Group possesses considerable practical experience and understands SAP’s possibilities, but also its limitations.

With respect to the possibilities, we can express the wishes to the external SAP consultant in his own language and we can demonstrate how these can actually be achieved in SAP.

In practice, we note that certain functionality intended for the support of indirect tax objectives does not get used – due either to reluctance (not within budget) or to a lack of knowledge in this area.

From an indirect tax standpoint, the realization that you are part of a larger team in which each of the participants has other priorities is key.

This means that effective communication and agreements are essential.

Instructions must be understandable and so short and compact that they can also be used as a reference framework and material for the tests.

In practice, Excel is often used to record all transactions and to indicate what the VAT treatment, etc., should be for each transaction individually.

This cannot be imported and is difficult to evaluate for this reason. Moreover, the use of Excel carries the risk of making copy/paste errors.

The question is: what is the best format for providing instructions to other work streams and for making the test phase efficient and effective?

It turns out in practice that decision trees are a particularly effective communication resource with the IT consultant. In addition, an SAP implementation is not “Plug and Play.”

SAP has its limitations and not all transactions can be implemented in the systems in an automated fashion.

Examples of possible errors in SAP

• Not making use of the proper partner functions in SAP for a supplier who provides services in multiple countries and invoices VAT locally. Result: the standard VAT calculation generates incorrect results.
• Missing/improper VAT registration numbers in customer master data, such that invoicing requirements are not satisfied for cross-border transactions.
• Master data is adjusted and tested in the test environment, but the changes are not included in the final upload to the production system.
• The logic of the tax code structure is disrupted by VAT rate changes, something that could have been prevented using the SAP configuration.
• When performing reverse charge bookings, VAT rate changes do not get changed.
• For cross-border A-B-C transactions, a VAT mismatch between the VAT on procurement and the VAT on sales arises for party B.
• Blocked so-called iDoc (electronic interface documents) because of errors in the OBCD design.
• Suppliers with invoices in other currencies and the VAT amount in Euro, so that the booked VAT amount is incorrect due to an incorrect exchange rate.
• Incorrect derivation of VAT registration numbers for cross-border transactions caused by incorrect SAP configuration.

Richard Cornelisse, CEO KEY Group, Robbert Hoogeveen, COO KEY Group and Arjan Hassing, CFO KEY Group

In times of economic growth, there is a tendency to achieve increases in scale through acquisitions. In business services, the emergence of the Big4 is an example of this.

The economic recession causes companies to adjust to new market circumstances: demand decreases, fees come under pressure and employee productivity slides, causing the focus to shift to general cost savings and making downsizing necessary.

One complicating factor is that the traditional way of working and the way in which business services are offered is no longer relevant. In times of recession, inefficiency becomes all the more visible when profits fall and there is no room for innovation.

In addition, poor results have an adverse effect on the cooperation among disciplines: employees focus on self-preservation and not on existing or new forms of cooperation.

The tide can be shifted by reinventing oneself and by realizing behavioral changes among employees. The challenge is to change people who have been successful with their traditional way of working for years.

These are difficult and time-consuming processes that are possible only with close management and the involvement of the leaders.

It is no chimera to consider a future involving significant offshoots and where the term Big4 ceases to exist.

The question has been asked more than once and is more relevant today than ever. Does the – relatively less profitable – auditing of financial statements and consultancy still fit under the umbrella of joint profit distribution?

Not only does regulation lead to change, so do the personal motives of the stakeholders. In times of continued economic recession, are people still willing to support each other financially when certain company components consistently underperform?

Time will tell.

The founders of the KEY Group didn’t want to wait for this. Adjustment to changed circumstances and innovation is in our DNA.

It is an essential component of the corporate image that we have in mind. Change is not a threat but a challenge and it can’t happen quickly enough.

Now is the moment to link up with new trends and markets. We comprise a select group of people who share the same vision and we believe that the future lies in a “cloud” of collaborating experts in the areas of business control, information technology and indirect tax.

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