Higher quality of your tax information following a proper set-up of your ERP system

An ERP system can help you to enhance the quality of your tax reporting provided that it properly links the data needed. It can enable you to comply with tax compliance requirements and further improve the data quality that is required to improve the tax reports and tax returns.

Compliance and quality improvements

It is very important to think carefully about the set-up of your ERP system during an ERP implementation, so that you can both meet critical tax compliance requirements and improve your tax processes and reporting - regardless of whether your focus is on indirect taxes, direct taxes or transfer pricing.

The quality of tax reporting depends on the quality of the data that can be extracted from the ERP system. We therefore support you in ensuring the quality of the underlying data for each type of tax.

The following steps will help you improve the quality of your tax reports:

  • Accurate data input.
  • Tax calculation schedules that meet the requirements of all group GAAP and local GAAP.
  • Reviewing ERP master data (customer, vendor, material, G/L, etc.) and ensuring accuracy for VAT and direct tax determination.
  • Automation of transactions in the ERP system to eliminate manual errors.

Indirect tax

Real-time reporting requirements

The latest trend of increasing stricter (real-time) indirect tax reporting and filing requirements by governments and tax authorities (both in EU as well as non EU countries), requires a lot from an organisation. Currently, tax departments spend a considerable amount of time on manual corrections before filing their VAT returns to the tax authorities. In light of the (upcoming) real time electronic reporting obligations, manual corrections of filings cannot be made anymore and the data coming from your ERP system should be first time right. This makes it increasingly important to implement a sophisticated indirect tax setup in your systems to comply with these real time reporting requirements. 

Determine VAT treatment automatically

In order to achieve this, it is crucial to set-up your ERP system in the right way from an indirect tax perspective. It is key that in your ERP system(s) all relevant data is available correctly, complete and on time for both internal and external compliance reporting purposes. For instance, business flows should be set-up in your ERP system in such a way that it is possible to determine the indirect tax treatment automatically. In addition, to achieve a lean tax foundation in your ERP, a global base set-up is key where tax requirements such as invoice requirements and tax codes are harmonised as much as possible. Obviously it is important to have your master data setup correctly as incorrect master data may lead to incorrect VAT determination and thus incorrect reporting. This data includes for example: material tax classifications, VAT registration numbers of customers and commodity codes. 

Tax engine or compliance solution

In case tax determination and/or reporting directly out of your ERP system is not feasible, a tax engine and/or compliance solution might be an option.There are many vendors that provide software helping companies with the Indirect Tax Reporting. Especially, in the case where you have multiple ERP systems and reporting needs to be consolidated, these software packages can be very helpful. Some solutions even include additional benefits next to the reporting part including workflows, audit trails, data analytics and connections to portals of various tax authorities.

Direct tax

Easy access to desired information

Data in your ERP system must be accurate, complete, consistent, reliable, up to date and valid to be able to extract the quality of data needed to prepare proper tax calculations for the financial statements and tax returns. If data is not properly captured or unusable, the outcome of your tax calculation will be incorrect per definition. It is therefore important to correctly set up the general ledger accounts and master data underneath the transactional data. 

Next to that, in order to collect all required information in case of questions from or disputes with the tax authorities, it is necessary to set-up your ERP system in such a way that you can easily access and extract (audit proof) information. 

Standard chart of accounts

In this respect it is helpful to set-up a standard chart of accounts in order to achieve consistency and qualitative good financial information. As an example, a standard chart of accounts enriches your data set by allowing you to break down all transactions during a specific period into subcategories. Sufficient general ledger detail will also enable automation of book to tax differences to support both the tax provision and compliance process and hence, to reduce manual effort, to improve the quality of your calculation. In addition, you should ensure master data rationalisation and harmonisation. In case of several ledgers, for example the company code, profit centre, and cost centre master data needs to be aligned in order to drive legal entity-basis and branch trial balance, balance sheet, and P&L reporting.

Lastly, the automation of the settlement of intercompany transactions, as well as creation of elimination entries for consolidation will increase the tax legal entity consolidation transparency.

Transfer pricing

Accurate basis of the information

Complex supply chains have made entity financial segmentation more intricate and companies are increasingly faced with complex tax and TP regulatory requirements. To face all those challenges and to make sure that the company is compliant, the basis of the information should be accurate and the quality should be guaranteed. Since an ERP system provides a lot of information for the company and given it is one of the most important sources for transfer pricing, small changes/ updates in the system can have a great impact on the ongoing transfer pricing compliance and quality. 

Management of risks

The management of the risks involved in inter-company transactions is very important. By providing traceable and auditable solutions with strong process controls as well as good coordination and collaboration among stakeholders the risks can be managed. Moreover, cost and/ or profit indication and linking of an allocation methodology to an ERP to alleviate excel-based calculation will reduce compliance effort and improve accuracy associated with incorrect on-charges and cost / profit allocation. Additionally, it is possible to build a functionality within ERP to have transfer pricing related trial balance populated to simplify ongoing monitoring. This reduces the effort in monitoring the product/ service price for inter-company transactions and can reduce the frequency and magnitude of year-end adjustments. 

Integrate requirements in ERP

In any case there are possibilities to integrate more transfer pricing requirements in the ERP system. The efficiency gain offered by these solutions significantly reduces manual efforts and human error as well as improving the process cycle time.

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Ron Sperling

Ron Sperling

Partner, PwC Netherlands

Tel: +31 (0)65 350 24 79

Joanna Gniadecka

Joanna Gniadecka

Senior Director, PwC Netherlands

Tel: +31 (0)68 328 49 20

Marleen van Buren

Marleen van Buren

Director, PwC Netherlands

Tel: +31 (0)68 257 92 77