The effectiveness and efficiency of VAT compliance could be measured by the amount of time and resources it takes to produce your VAT return. Automation of a company's VAT compliance process can reduce risks or optimize tax planning (e.g. working trade capital, refunds, bad debts, etc.). Designed or implemented badly, it can burden and result in rework ('hidden factory') within an organisation.

Below is a SAP example, but we are also experienced in other ERP systems and tax engines. For a successful implementation in most cases the specific technical elements (SAP, Oracle, PeopleSoft, JD Edwards, Microsoft Dynamics AX) are not most important. The interpretation of a company's business model and translation of the VAT requirements to a correct functional model is the first critical success factor.

SAP Implementation - introduction

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.

SAP VAT history

The SAP VAT determination logic was developed a long time ago (1980’s) and except for the “plants abroad” logic SAP’s VAT determination logic has not changed. This in contrast with the VAT rules and business models. A brief overview of some of these changes:

  • The EU VAT laws have been more harmonized (EU VAT directive)
  • Substantial increase of cross border transactions
  • Businesses are registered for VAT in multiple countries
  • Businesses are operating more often under complicated principal structures
  • Increased number of (integrated) intercompany and supply chain transactions

As a result, there has been a huge increase in the complexity for the SAP system to meet all VAT requirements, which leads to necessary modifications to the standard SAP VAT for many multinational businesses.

Modifications of already very complicated SAP systems create a risk for maintenance and half-hearted solutions. At the same time, tax authorities across the world both sharpen their focus on non-compliant taxpayers and increase their focus on reviewing ERP systems as a source of VAT compliance risks. Businesses have to ensure that the VAT determination logic in the SAP systems is correct, easy to implement and remains VAT compliant.

Our distinguishing capability

KEY Group possesses practical experience and understands ERP's possibilities, but also its limitations and thus the capability to free up resources, reduce manual activities and manage risks.

With respect to the possibilities, we can express the wishes to the external ERP consultant in his own language and we can demonstrate how these can actually be achieved in ERP system. 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 have 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. We developed our own normative decision trees for effective communication resulting in effective workforce and less risks.

What we offer

We combine technical knowledge with industry understanding and knowhow of technologically advanced tools and methodologies available in the market or developed by ourselves. We identify risk areas and sustainable planning opportunities for indirect taxes.

Reporting accuracy and efficiency are achieved via well designed VAT function into Enterprise Resource Planning (ERP) systems, tax engines or third party compliance software.

For questions please contact us.

 Our skill-set

Roadmap SAP VAT functional design

See for our qualities: A senior team with additional experience and talent

Further detailed information

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?

Lack of support by management means that any improvements in quality are often temporary. The aim is that management will be encouraged not only to support change, but to become actively involved in making it happen.

Identify the key processes of their organization, measure their effectiveness and efficiency, and initiate improvement of the worst performing processes.

In order to allocate resources to risk and cost saving areas that matter, we determine together the level of risk appetite that the company considers (non)acceptable.

Having defined acceptable levels of risk leads to resources not having to spend time on further reducing risks that are already at an acceptable level.

If the startpoint is a zero measurement we could show that this beginning could have an end game: how a tax strategic plan for the short and long term should look like and what needs to be done to get there.

A split should exist of roles, functions and responsibilities between tax department and the business are well documented in manuals, procedures and working instructions.

A typical multinational today might look like a Rube Goldberg contraption—a complex of moving parts that must connect one to another for tax, regulatory, and reporting purposes.