Data analytics

The Dutch tax authorities announced on May 19, 2015 that 5,000 of its 30,000 employees will lose their current job, while at the same time 1,500 specialized data analysts will be hired as tax returns will be automatically assessed via data analysis.

This is not exceptional as in various European countries taxpayers are already obliged to submit electronic audit files to the tax authorities. This trend will continue due to the availability of data analysis software and the increased focus on VAT compliance by tax administrations. It is also expected that tax authorities will request more and more data from the taxpayers.

With the tax authorities using more and smarter data analysis to assess the compliance of organizations’ tax submissions, the challenge for organizations is to ensure the data submitted is in compliance with VAT regulations.

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.

What we offer

We combine our VAT, IT and business process expertise into an effective and complete data analysis.

Our expertise and tooling

We start with understanding the supply chain model of the organization and the VAT risks and opportunities that come along with the implemented model.

This will be the basis for defining data analysis solutions.

The transactional data is checked for irregularities by subject matter experts with vast expertise of VAT complex business models and automation of VAT logic in ERP, tax engines and SAP add-ons. Our objective of data analysis is to identify VAT risks and VAT opportunities.

An example

Defects in the area of e-invoicing, iDocs and exchange rates will normally not be found via standard analysis. Although the perception is that these processes are VAT compliant by default, we have discovered VAT errors - incorrect exchange rates for VAT - at various multinationals.

This could result in substantial amount of rework, adjustments and VAT assessments by tax authorities.

Understanding the business and the transaction processing is a pre-requisite for the execution of effective and efficient data analysis. Using data analysis as a pre-audit could provide insight into both risks and opportunities at hand.

Data analytics can contribute to improving business performance

  • Cost reduction: by identifying potential cost savings and limiting expenses (for instance by tracing VAT that was erroneously not deducted)
  • Risk analysis: tracing incorrect VAT determination or reporting incorrect returns
  • Compliance: by identifying possibilities to improve the quality and efficiency of internal control

For questions please contact us.

 Our skill-set

Take aways 

  • Set up a project charter that will take effect preferable during feasibility but ultimately during design
  • Write a business case and problem statement
  • Define scope of the project
  • Define objectives and goals of the project
  • Involve stakeholders and define priorities
  • Set measurable milestones
  • Ensure that the right sponsors provide buy-in.
  • Identify (project) risks and how to manage them
  • Jointly validate and refine the project plan and develop a roadmap to success
  • Hold regular meeting to track progress of the various work streams

We combine technical knowledge with industry understanding and knowhow of technologically advanced tools and methodologies available in the market or developed by ourselves.

  • Focus on tax processes that could be improved
    • Manual process: same data requests are made by different stakeholders
  • As Is assessment
  • Anticipate future changes and the data needed
    • What are tax trends?
    • What is happening locally and what should be considered across jurisdictions where you operate?
    • Anticipate new stakeholders and their data needs or requests (internal and external)
  • Define scope and actions for short, mid and long term
  • Write business case for change
  • Realize sponsorship for implementation
  • What tax data is requested and by whom?
  • What tax process can be improved and what can be automated?
    • CIT, VAT, tax data warehouse
  • What is the Return on Investment?
    • Hard saving: process improvement
    • Meeting (new) tax requirement
  • What systems are in use: SAP, Oracle, etc
    • By which entities?
  • How many end-use computing tools (e.g. excel spreadsheet) do we have?
  • How do we avoid an ad-hoc solution?
    • Understand the bigger picture
    • Real problem and not the symptom

Technology-related tax risk: understand and address the potential harms and benefits of (new) technology.

Ascertaining proper IT support for ensuring efficient, timely and reliable reporting.

VAT should be considered in every aspect of the process, from concept through completion and beyond. Managing by design — looking at any process or transaction from end to end and factoring in all the requirements and controls essential to designing and optimizing a compliant VAT process.

We speak the language of the business and IT and no translation is needed.

VAT should be considered in every aspect of the process, from concept through completion and beyond.

Looking at any process or transaction from end to end and factoring in all the requirements and controls essential to designing and optimizing a compliant VAT process.

The key to success in the management is the ability to translate tax knowledge into workable business processes.

With indirect taxes intertwining through the day- to-day operations of a company—raising sales invoices, moving inventory, paying suppliers, collecting cash—indirect tax risk can have a distinct and domino-like effect on the commerciality of an organization.

More than 80% of businesses are still using spreadsheets to manage their VAT compliance in at least one jurisdiction in which they operate, despite tax authorities around the world investing in better tools.

The SAF-T standard, originally created by the OECD (similar as BEPS), is intended to give tax authorities easy access to the relevant data in an easily readable format for both corporate income tax as VAT.

What if there are glitches in your data, input errors, empty fields, awkward descriptions in fields or apparent inconsistencies?

Identify the lowest performing indirect tax processes that have the most direct impact on the company’s business and tax objectives. These are then targeted for improvement. Generate and select a set of solutions to improve the performance.

The tax department risk management strategy differentiates between strategic, operational, financial and compliance risks and contains detailed action plans for managing these risks. Managing risk is about making decisions at all levels of an organization, to limit the effect and likelihood of threats happening and to increase the effect and likelihood of opportunities.

Assess that tax advice given is also correctly implemented:

  • Factual pattern has not change
  • Procedures and risk monitoring functions accordingly
  • Configured in system(s) or manual processes
  • etc.

And impact of changes in business, laws and regulations on implemented tax planning.

In order to quickly gain insight into the level of tax risks (i.e. calculation of the potential assessment), statistical sampling can be used. By selecting a few elements (euros), the reliability of the composition of tax items can be determined to a high degree of certainty.

If not correct, the tax authorities might 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. This assessment will be increased with interest and penalties to determine the total tax burden.

In order to solve a problem, we also have to identify it completely, and not just settle for the most apparent symptom of that problem.

In order to fix a problem, we have to first understand the root cause thoroughly. We have to accept the possibility that the problem involves far more than what is immediately apparent and will require more work than is estimated at the beginning. 

Define the causes of defects, measure those defects, and analyze them so that they can be reduced.

  • How did the results happen?
  • Why did they happen?
  • What specifically caused them to happen?

An ERP review should highlight where the VAT configuration could be improved or if additional control measures should be added to the business’s Tax Control Framework.

In order to get senior management's buy-in for change and accept indirect tax priorities it is important that proper visibility exist of the amount of VAT/GST under management in the key jurisdictions.

To avoid any reputation damage and negative publicity around taxes, through building a tax control framework.

The internal tax function should always have insight into the areas for attention through this logbook. The risk register should contain the following labels: number, name of the risk, risk definition, cause for the risk to occur, risk category and the risk owner.

  • Apple’s and Coca Cola’s tax assessment might exceed $2,5 bn
  • Material and reputational risk
  • Will ‘tax assurance’ mandatory be reviewed by External Auditors
  • What information will be requested?
  • What will be the impact on Internal Audit?
  • How will review likely take place (e.g. Big Data discussions)
  • What is the overlap with tax authorities tax audit approach?

Ascertain that unacceptable but existing tax risks will be identified.