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An ERP system that is implemented well can help you save a considerable amount of time in your day-to-day work. This time could then be used to focus on more value-added and strategic tasks.
Whether the focus is on indirect tax, direct tax or transfer pricing, the objective is to have a clear picture of the possibilities and the choices that need to be made to ensure that the ERP transformation takes place as optimally as possible for tax purposes.
Following a proper data set-up and by further automating your tax process, the following time benefits can be achieved:
Which solution fits your company best? We can advise you and perform a cost-benefit analysis. Whether the focus in your organisation is on indirect taxes, direct taxes or transfer pricing, we can support you with the possibilities and choices to optimally set up the ERP system.
As indirect tax is a transactional tax and thus intertwined in your ERP system, it is important to think about indirect tax when implementing or upgrading/changing your ERP system in order to avoid a lot of manual effort at the end of a reporting period when preparing the VAT returns. The first step is to have a clear picture of your business model and all the relevant transactional flows (goods and services) in the different countries. Together with the corresponding VAT / GST treatment per flow (GST / VAT treatment, percentage, reporting obligations, invoicing requirements etc), this will be the basis for the ERP rules / set-up.
Next to this, there are other indirect tax relevant topics for an ERP implementation: a harmonised set-up of tax codes, master data, automatic VIES validation of VAT numbers, determining the VAT determination per transaction, whether or not to integrate a Tax Control Framework into your ERP environment, whether or not to implement a tax engine and to what extent a compliance solution will help achieving the Tax departments KPI’s.
There are multiple possibilities to create efficiencies and hence reduce time and accelerate the tax closing cycle by means of a proper set-up of your ERP system. In this respect, it is extremely important to carefully consider the data requirements for tax. Two of the most important topics to pay attention to are (i) the tax sensitization of your Chart of Accounts: by ensuring a proper set-up of your Chart of Account (‘CoA’), significant benefits can be achieved in collecting the required data and (ii) the set-up of a tax ledger: depending on the amount and complexity of your (temporary) book to tax differences it may be beneficial to set-up a tax ledger to further automate these differences.
By having a proper data set-up in place, you can also consider any possibilities to further automate your tax accounting process and calculations and hence, reduce the time needed to prepare the tax calculation. Given the fact ERP systems generally do not provide for a native tax accounting module, many companies consider the use of any bolt-on solutions that work side-by-side with the core ERP system and provide supplementary functionality. There are multiple solutions available in the market.
For many companies, transfer pricing related processes are highly time-consuming for both the tax and finance function. From an ERP system perspective, this has two main reasons: a) the data required to perform transfer pricing calculations is not readily available in the ERP system and b) the calculation process for monitoring and adjusting transfer prices to ensure compliance with the transfer pricing policy is performed manually.
In our experience, there are almost always opportunities available to attain time savings in the transfer pricing process by incorporating transfer pricing requirements into the ERP system configuration. For example, a situation we frequently see is that companies are not able to distinguish inter-company transaction types that are subject to different transfer pricing policies from the system. Inter-company services which attract different profit mark-ups are a common example, e.g. the distinction between a group administrative support service and a higher value group engineering service. Ensuring that different inter-company transaction types can be readily identified and that the (financial) data (e.g. specific cost centers, counterparts, etc.) linked with these transaction types is also explicitly labelled and identifiable, will reduce the time spent identifying and extracting data for the transfer pricing monitoring and adjustment process.
Having configured the ERP system to provide the required transfer pricing data inputs as much as possible, further time savings can be achieved by automating (parts of) the transfer pricing calculations performed to monitor and adjust transfer prices. These calculations generally occur outside the core ERP system. Depending on the IT strategy of the company, different solutions are available for consideration, from specific transfer pricing engines to the application of ERP profitability and cost monitoring modules, configured to apply transfer pricing logic to identified intercompany flows. PwC can support your company in evaluating the options available and preparing a business case to support this.