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Knowledge sharing
Tuesday, May 26, 2015
Determine the exact amount of risk or saving
Monday, May 25, 2015
VAT Control Framework
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Sunday, May 24, 2015
Phenix Consulting BV
Phenix Consulting, a joint venture between LiNKiT Consulting and the KEY Group, specializes in the delivery of a range of SAP consultancy and implementation services from a tax, financial and control perspective.
Background
Phenix Consulting comprises 6 partners and a team of 30 consultants all with strong, international business experience across a variety of SAP environments. The strength of Phenix Consulting is built on bringing together two businesses with different - but complementary - strengths to provide integrated business solutions for clients.The KEY Group’s strengths lie where business control, information technology and tax come together, whereas LiNKiT Consulting has particular expertise in finance and control - specifically in business consulting, SAP implementation and the development of innovative business and software solutions.
The establishment of Phenix Consulting strengthens our position in the SAP consultancy marketplace. All of our clients benefit from the synergies realized by LiNKiT and KEY Group working together – more so than either company could provide individually.
These synergies result from our ability to exploit economies of scale, focus resources & expertise and with a critical mass that supports broader geographic delivery.
The combined resources of the two companies allow us to deploy not just experienced, talented consultants but also draw on our intellectual property & copyrights, and the strong leadership skills from both the LiNKiT and KEY Group leadership teams.
Phenix Consulting continually strives to develop innovative SAP products and broaden our product lines. Examples of our innovative products include:
- eBilanz Cockpit - This is a solution for the mandatory filing of the German e-tax balance and has now been successfully implemented at 60 medium-sized and multinational companies.
- SAF-T Filing – Across the globe many multinational companies are facing challenges in complying with the mandatory SAF-T filing requirements. SAF-T is the OECD's Standard Audit File for Tax Purposes that is being adopted as common practice for tax administrations and will be the basis for IT-based audit tools to help to combat fraud and tax evasion. We developed a lean and flexible solution which extracts relevant data directly from SAP systems and transforms the data into the XML format in compliance with the legal requirements.
- eBilanz Cockpit and SAF-T integration - With access to the full capabilities of the eBilanz Cockpit we are currently developing a SAF-T cockpit which will be fully integrated with SAP. It includes individual templates that satisfy the data and format requirements of each country and provides an analytical reporting library to support monitoring controls for finance and tax. This will subsequently be the basis for development of an ERP independent solution.
Saturday, May 16, 2015
Tax engines questions to ask before you commit
Determining the VAT liability and VAT recovery of businesses’ transactions (the system’s indirect tax functionality) can be automated within Enterprise Resource Planning (ERP) systems such SAP and Oracle, or by way of a manual processes.
Multinationals run often various versions of ERP systems without harmonization. The ERP set-up is often per business unit and thus multiple kernels per country are more likely than not. In the last decade, companies have increasingly automated their business processes. The most common method is by using an Enterprise Resource Planning (ERP) system. Such a set up can be hugely complex. This is definitely the case where it relates to European based indirect tax.
As manual processes are subject to human error, automation could - under circumstances - result in performance improvements and savings.
A third party tax engine might be a solution than improving the indirect tax functionality of its own ERP systems when the organization uses multiple ERP systems. Interfacing via a bolt-on could be an alternative.
In practice, configuration (the amount depends) is needed when companies deal cross border and/or complex business model are set up such as a centralized principal structures. This could cause difficulties in running exception reports to look for missed opportunities, under claimed VAT and potential fraudulent transactions. A lot of (manual) work is required when reconciling the periodic VAT compliance reports from these different sources (divisions, different systems).
As the 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 often inefficient due to the amount of rework (‘hidden factory’).
That option means that part of the system functionality is actually outsourced.
Multinationals run often various versions of ERP systems without harmonization. The ERP set-up is often per business unit and thus multiple kernels per country are more likely than not. In the last decade, companies have increasingly automated their business processes. The most common method is by using an Enterprise Resource Planning (ERP) system. Such a set up can be hugely complex. This is definitely the case where it relates to European based indirect tax.
As manual processes are subject to human error, automation could - under circumstances - result in performance improvements and savings.
A third party tax engine might be a solution than improving the indirect tax functionality of its own ERP systems when the organization uses multiple ERP systems. Interfacing via a bolt-on could be an alternative.
In practice, configuration (the amount depends) is needed when companies deal cross border and/or complex business model are set up such as a centralized principal structures. This could cause difficulties in running exception reports to look for missed opportunities, under claimed VAT and potential fraudulent transactions. A lot of (manual) work is required when reconciling the periodic VAT compliance reports from these different sources (divisions, different systems).
As the 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 often inefficient due to the amount of rework (‘hidden factory’).
'Remediate own ERP system' or purchase a 'third party solution’
Indirect Tax functionality can be automated (full or to a certain extend) in a company’s own ERP system. The problem might be that multiple ERP systems are used and that interfacing via a third party tax engine is considered an alternative.That option means that part of the system functionality is actually outsourced.
Some important questions from a tax software selection to ask
Written by Richard Cornelisse, one of the articles published on Global Indirect Tax Management
Data analysis for VAT and GST
Business challenge
Data analyses of various market players are generally standard analyses that are generated by a data dump from SAP. Extracting data from a SAP environment is often not possible due to lack of the proper authorization. Moreover, the extraction of data is limited to a specific number of document numbers per extraction. This requires the same extraction to be executed over 30 times when an extensive amount of data is to be retrieved.Retrieving data in multiple steps brings the risk of the format of the data not always being identical. As a result, there are no unequivocal results available and many manual adjustments are necessary.
In the case of extensive data, SAP often breaks off the analysis, because runtime limits are exceeded. In addition, due to restriction of the size of reports in SAP, created data files cannot always be copied to a pc.
Solely standard analyses are possible, which does not sufficiently take into account the complexity of business models and specific risk domains.
Best practice data analytics
The risk domains should be salient. Knowledge for enabling fully automated VAT determination and building an integrated Tax Control Framework is crucial in data selection. Besides that it is important that only VAT relevant data is retrieved that is necessary for this analysis. Providers of data analysis use for example third party software tools, so the data can be extracted from SAP in a uniform manner.With this, problems regarding performance, format of reports and interpretation of data could belong to the past and guarantees the quality and integrity of data by means of:
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Written by Richard Cornelisse, one of the articles published on Global Indirect Tax Management
When is standard SAP (in)sufficient?
When is Standard SAP sufficient?
Standard SAP itself is only processing a transaction within one specific company code and the consequence is that standard SAP VAT determination logic and functionality for VAT determination should therefore only work for:- AB scenarios
- Cross border intercompany
- AB scenarios: electronic invoices via EDI/iDoc
- Local ABC scenarios (e.g all legs in France)
- ABC scenario with a static business model (for instance leg B-C triggers always the same VAT treatment)
When is Standard SAP insufficient?
However, standard SAP VAT determination logic and functionality for VAT determination does not work for complex dynamic business models (e.g. Principal-Toller-Agent model) with for example multiple VAT registrations, pick up and drop shipments, chain transactions between legal entities (ABC / ABCD scenarios).Further explaining the root cause
The SAP VAT determination logic was developed a long time ago (1980s) and except for the “plants abroad” logic, SAP’s VAT determination logic has not changed much. This stands in con-trast with the VAT rules and business models as these have changed significantly.The VAT landscape and rules have gone from fairly simple to rather complex. Cross-border transactions changed from solely export to a new category within the EU: Intra community transactions (goods and services) with distinct rules and new formalities to manage.
New business models have resulted in an increase of intercompany transactions, the use of chain transactions, drop shipments and pick up transactions.
These are causing IT bottlenecks to implement as Standard SAP VAT determination logic and functionality do not work for these complex dynamic business models.
The root cause is that both Standard SAP and bold-on tax engines exclusively focus on transactions within a single company; it only assesses the underlying individual transactions and fails to link the current transactions to the VAT results of previous transactions.
When more than 2 parties are involved, the VAT treatment depends on the VAT treatment of the prior transactions:
- ABC (D) transactions involving supplies of goods and which are transported to another Member State or Member States. In that case it is important to identify in which part of the chain the intra-EC supply and local supply or supplies take place (see below 'Cross border drop shipments')
- ABC transactions involving 3 parties in the supply-chain, which are identified for VAT purposes in three different EU countries, and for which the goods are transported directly from EU country A to EU country C. Under certain additional country specific requirements (not harmonized amongst the EU member states) such a transaction may qualify as triangulation, so that the re-spective “simplified triangulation rule” would be applicable
- ABC (D) transactions involving a supply of goods which are exported to a place outside the EU. In this case, it is important to identify in which part of the chain the export takes place in order to determine the impact on the VAT qualification of the other parties in the chain transaction (see Import / Export transactions ABC transactions)
- ABC (D) transactions involving a supply of goods which are imported to a place inside the EU. Again, it is important to identify in which part of the chain the export takes place in order to determine the impact on the VAT qualification of the other parties in the chain transaction (see Import / Export transactions ABC transactions)
That could be the case if party B request party A to deliver the goods directly to party C in another Member State (i.e. see below drop shipments). Standard SAP will determine the VAT qualification based on the ‘ship-from’, ‘ship-to’, ‘material’ and ‘customer tax classification’ information in SAP.
It will for instance not take into consideration the multiple VAT registrations from party B.
That would mean that not only the transaction A-B but also B-C cannot be derived correctly. From a legal perspective only one transaction can qualify as a zero rated intra-EC supply. In such ABC cases, one of the 2 transactions should be charged with local VAT.
An exception exists - second bullet above - when the supply chain fulfills all requirements of the simplified triangular. Under these strict conditions both transactions could be zero VAT rated.
The supplier is responsible for ensuring that all the conditions for applying the zero VAT rate are met.
Financial impact
If not the supplier does not meet the conditions for using the sero VAT rate, the tax authorities will seek to recover tax due from this supplier via a levy of a tax assessment.If the applicable VAT rate is 25%, the tax assessment will be 25/125 of the consideration charged and thus impacts the business KPI EBITDA (profit margin erosion). This assessment has to be increased with interest and penalties to determine the total tax burden.
Without adjustment of Standard SAP setting, an incorrect VAT treatment would be determined causing non compliance risks.
Specific areas of attention
Cross border drop shipment
Specific considerations about triangulation- DK company code sells to DK customer
- Stock is not available and is purchased from NL Company code with NL stock location
- Direct shipment from Plant NL01 to customer
Root cause: Standard SAP is not able to link the VAT treatment of AP and AR as data is gath-ered at company code level and cannot be linked to AP and AR
Simplified triangulation
Specific considerations about drop shipments- Country specify rules apply when triangulation is allowed (country by country deviation). Different local rules apply when Party B is VAT registered in ship-to country where the customer receives the goods
- If the supplier (plant or third party) is not set up in SAP the ship-from location will not be known during billing and sales
- Standard SAP requires manual intervention
Import / export transactions ABC transactions
Specific considerations about export/import- Define the correct legal partner for VAT
- Determine the correct ship-to country
- Differentiate between export/import and out of scope
Customer pick up
Specific considerations about customer pick up- Country specific rules apply when a customer picks up the goods and the goods leave the country
- 0% VAT rate for intra EU is only allowed if supplier can prove that goods have left the country
- If proof is not available the tax authorities could assess the supplier for VAT
Services
Specific considerations about services- Default place of supply rule should be the country of establishment of your customer
- Standard SAP: place of supply is by default ship-to
- Default rule has exceptions (e.g repair services connected to immovable property)
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