Grant Thornton - Global Tax Automation Talkbook

Global indirect tax automation
A suite of technology solutions
to improve VAT/GST compliance

Indirect tax automation | November 2014
© 2014 Grant Thornton UK LLP. All rights reserved.
Contents
Section Page
The context: global indirect tax environment 3
The problem: existing systems 4
The problem: symptoms and pressure points 5
Suite of solutions 6
Rule and rate determination using tax engines 7
VAT return compliance: in-house 8
VAT return compliance: outsourced 9
Global compliance management 10
ERP implementation or upgrade 11
Process weakness and compliance risks 12
How Grant Thornton can help 13
Why Grant Thornton? 14
Contacts 15

© 2014 Grant Thornton UK LLP. All rights reserved. 3
The context: global indirect tax environment
Global footprint and international supply chain
requiring multiple VAT/GST registrations
Regulatory pressures to demonstrate controls
eg SEC ruling in Highland Hudson case
Pace and quantum of tax rule
changes eg the EU 'VAT package'
New VAT/GST regimes eg
Malaysia GST in April 2015
and proposed GST in India,
VAT in Egypt and UAE
Penalty regimes focused on behaviour,
systems and controls eg UK
Increased co-operation between tax
authorities eg MOSS and VIES
Senior accounting officer rules eg UK
More sophisticated audits using data interrogation
e.g. Australia
Standard audit file requirements (SAF-T)
Frequency of tax rate
changes eg US sales tax
New invoicing requirements eg
EU Invoicing Directive 2013
Increased administrative requirements
eg e-filing of returns, sales lists
Changes to reporting requirements eg
proposed standardised EU VAT return
Tax Control Frameworks e.g.
Netherlands and Singapore
BEPS
Taxation of the digital economy

ERP systems generally have limited functionality in relation to VAT/GST including:
The issue: existing systems
 limited and finite number of tax codes and tax tables
 limited exception reporting
 limited automated tax determination
 limited controls, allowing manual overrides
 struggles with cross-border requirements
 tax reporting currencies and use of mandated exchange rates
 manual and lengthy process to update rates and rules
 inability to provide summary data for reporting in relevant format
 difficulty in running reports and queries
 detailed localisation of ERP required.
 struggles with state and municipal taxes
The above problems are exacerbated where there are
multiple or legacy systems and multiple VAT/GST registrations.

Limitations within existing systems can lead to the following symptoms and pressure points for a business:
The problem: symptoms and pressure points
 too many spreadsheets (and an overreliance)
 increased manual intervention leading to human error
 regular errors in tax liability
 deficiencies and delays in reporting
 increased voluntary disclosures and penalties
 delays in input tax recovery
 invalid tax invoices
 lack of visibility over global compliance
 difficulty in demonstrating controls
 difficulty in cash flow planning
 time consuming manual changes in systems by the IT department for
every change in liability and rate.
The above pressure points often result in the tax team
spending more time on compliance coupled with an
increased reliance and spend on advisers and
consultants.

There is no 'one size fits all' automated indirect tax solution.
Instead, there is suite of solutions available (from different software solution providers and consultants) which are each designed to relieve specific
pressure points in the global VAT/GST compliance process. This talkbook is designed to set out the pressure points at each stage of the VAT/GST
compliance cycle and the various options at a high level to help facilitate an impartial commercial discussion around tax automation and technology
solutions.
6
Suite of solutions
Workflow
management tools
VAT return
compliance tools
Tax engines ERP tax
optimisation
Data mining and
interrogation
Outsourcing
Technology shouldn't be deployed in isolation and instead it should be implemented alongside best practices as part
of a wider tax control framework, encompassing Technology, People, Process and Data..

Pressure point
Difficulty in determining and charging the correct rate of VAT/GST to
charge due to:
 multiple VAT/GST registrations
 large and varied product file/SKUs
 global customer base
 mixture of B2B and B2C supplies and need to validate registrations
 complex place of supply rules and difficulty identifying taxable situs
 complex transactions due to supply chain or business model
 limited tax codes within ERP
 frequent VAT/GST rate changes
 IT having to be involved in changes to tax codes leading to delays
 complexity in jurisdictions with state and municipal taxes
 certain customers having exemption from tax
7
Rule and rate determination
Solution
Tax engine – a third party solution which bolts onto the ERP,
billing systems or middleware that will, based on the information
sent to it (registrations, business status, customer status, nature of
goods/services, tax nexus etc), determine the relevant VAT/GST
rate and instruct the system to charge that rate (along with any
required detail eg VAT number/invoice narrative).
Rates, rules and other information eg invoicing narrative or
jurisdictions, are maintained by the third party provider in the engine
database and regularly updated (automatically if cloud hosted or
through accepting regular updates if hosted locally).
Tax engine solutions include ONESOURCE indirect tax
determination and Vertex O-Series.

Pressure point
Difficulty in preparing and submitting VAT returns due to:
 multiple VAT registrations
 too many spreadsheets
 manual process with multiple adjustments
 exchange rate calculations required
 multiple ERP/billing systems
 key transaction data held in different systems
 lack of audit trail or transparent process
 standard VAT return file to be submitted.
8
VAT/GST return compliance: in-house
Solution:
VAT/GST return compliance tool – a third party standalone
software tool which allows users to import multiple data files from
different systems, and a VAT return is automatically generated based
on the transactional data flowing through to the relevant boxes.
The solution can provide additional functionality such as VAT
number validation and exception reporting, identifying possible
errors before a return is finalised and filed. The solution provides
additional transparency and controls by limiting human intervention.
In certain jurisdictions, VAT returns can be filed online direct from
the software. Businesses that currently outsource their VAT
compliance may wish to carry out a cost-benefit analysis of bringing
compliance back in-house using compliance tools.
Solutions include Vertex Indirect Tax Returns, ONESOURCE
indirect tax compliance and Avalara IVAT.

Pressure point
Multiple VAT returns prepared by one or more providers – outsourcing
the problem but not necessarily providing the solution to:
 lack of audit trail
 manual process
 reliance on spreadsheets
 time spent on preparation or review
 cost of compliance
 increasing shift to e-filing of returns.
9
VAT/GST return compliance: outsourced
Solution:
Outsourcing using a VAT return compliance tool – outsourcing
VAT compliance to a third party provider using a third party
standalone software tool. The provider can import multiple data files
from different systems which are provided by the business, and a
VAT return is automatically generated based on the transactional
data flowing through to the relevant boxes.
By using functionality such as VAT number validation and exception
reporting, the provider can identify possible errors before a VAT
return is finalised and filed. The solution provides additional
transparency and controls by limiting human intervention. The
compliance process is streamlined and can produce greater
economies of scale, often leading to a reduced per-return fee. VAT
returns can generally be filed online direct from the software.
Grant Thornton Netherland's pan-European VAT compliance
centre uses iVAT and Grant Thornton US's North American sales
tax compliance centre in the US uses Vertex Sales Tax Returns.

Solution:
Workflow management tool – a third party solution that allows a
user to define different workflows for tax and accounting processes,
therefore automating the processes. A workflow management tool
can provide a dashboard, showing a tax calendar and traffic light
status of required filings. Review and escalation processes are
automated, whereby email notifications can be automatically
generated when each task is completed or delegated. A dashboard
allows a high level view of the global compliance picture, allowing a
head of tax or indirect tax director to view upcoming deadlines, real-
time status updates and VAT/GST payable or receivable by
jurisdiction or registration.
Workflow management tools include ONESOURCE workflow
manager, and Quickr.
Pressure point
Difficulty in maintaining visibility of global indirect tax compliance
due to:
 multiple VAT/GST and sales tax registrations across globe
 mixture of in-house, outsourced and co-sourced compliance
 multiple teams across different locations and time zones
 manual review and escalation process
 workpapers held locally
 no single report for tax cashflow planning
 lack of single tax filing calendar
 no single blueprint of current registration footprint , processes and
process owners
 no single standard operating procedure or process for compliance
10
Global tax compliance management

Pressure point
Limitations in VAT/GST functionality within a newly implemented or
upgraded ERP solution due to:
 limited IT budget made available for tax design and set-up
 IT consultants often failing to understand complexity of global
VAT/GST requirements
 incorrect conditions and rules set-up
 insufficient reporting capabilities
 limited localisation for country specific requirements
 lack of requisite granularity of customer, vendor and material master
data required to determine tax
 constraints on currency and foreign exchange rates
 lack of awareness or understanding of core native functionality
 insufficient training and identification of super users
11
ERP implementation or upgrade
Solution:
ERP tax optimisation – ensuring the VAT/GST functionality of
the ERP system is set up correctly and optimised. This may include
adding additional tax codes. ERP optimisation would also include
localisation of the ERP system, ensuring the system is correctly set
up to meet local country compliance requirements. Where tax
requirements can 't be met within the native ERP, People, Process
and Technology should be evaluated as possible solutions to gaps.
It is worth investing the time, effort and resource into the tax set up
of an ERP to ensure scalable best practices are in place, for example:
common naming conventions for tax codes
tax sensitive GL accounts
automated tax determination
clean and complete master data
granular tax reports
standard operating procedures
tax control framework implemented
super users identified and trained
VAT/GST number validation

Pressure point
Concerns over possible historic VAT/GST errors which may be
indicative of wider weaknesses and deficiencies in systems, processes
and data.
This creates risk due to:
 frequent errors and disclosures to tax authorities
 inconsistent tax determination and policy
 inability to demonstrate controls
 increasing use of diagnostic tools and date-mining by tax authorities
12
Process weakness and compliance risks
Solution:
Data mining and interrogation tool – a third party solution
deployed to identify systematic errors and historic but slicing and
dicing transactional data and running exception tests.
IDEA is a powerful analysis and interrogation tool that can be used
to data mine VAT data. The solution was initially developed by
Grant Thornton member firms, and is now used by tax authorities
including HM Revenue and Customs (HMRC) for UK VAT audits
and investigations. A VAT module with a series of exception tests
(which can be replicated for use in multiple jurisdictions) has also
been developed. IDEA can also identify cash saving opportunities eg
unrecovered input tax from 'hidden VAT' on AP.

We can assist our clients with:
 impartial discussion of possible solutions
 business case development
 solution scorecard and vendor selection
 facilitation of introduction to solution providers
 arrange demonstration of solutions.
 tax technology strategy and roadmap
 data analytics and interrogation
13
How Grant Thornton can help
We can also assist with every stage of the
implementation process, including:
 project management
 analysis & develop requirements
 gap analysis
 tax research
 classification and taxability of goods/services
 design and data compilation
 system integration, configuration and realisation
 testing and debugging
 training and preparation
 go-live and post-production support
We can also provide outsourced compliance:
 locally produced returns by Grant Thornton International member firms
 pan-European VAT returns centrally
 North American sales tax returns centrally
 Global VAT/GST compliance outsourced locally but coordinated
centrally by our Global Reporting Solutions teams

Grant Thornton has helped a variety of clients define their
international indirect tax policies (VAT, GST and sales
taxes) both within their ERP systems, as well as in a third
party tax engine like Vertex O-Series and ONESOURCE
(both of which we have received specialist training and are
certified implement of their indirect tax solutions).
However, we provide impartiality and are product agnostic, focusing on
providing a solution to the relevant pressure point – enabling a genuine
commercial discussion about pressure points and solutions.
Grant Thornton's international network of member firms brings both
the technical skillsets as well as the VAT/GST technical experience to a
single project team. Our technical experience is critical in understanding
the systems and their functionality and to design a comprehensive
interface for each solution which minimises redesign and changes for
future country rollouts. Our VAT/GST and technical skillsets are
essential for understanding our clients' requirements and configuring the
solution to ensure indirect tax compliance across the various countries
in which the business operates.
Why Grant Thornton?
14

Email taxautomation@uk.gt.com or please contact the following individuals:
Contacts
Alex Baulf
Associate Director
Grant Thornton UK LLP, London, UK
T +44 (0)20 7728 2863
E alex.baulf@uk.gt.com
Greg Rosser
Managing Director
Grant Thornton LLP, Houston, USA
T +1 832 476 5050
E Greg.Rosser@us.gt.com
15
Mark Rems
Partner
Grant Thornton LLP, Philadelphia, USA
T +1 215 701 8849
E Mark.Rems@us.gt.com
Rich Hofrichter
Partner
Grant Thornton LLP, Charlotte, USA
T +1 215 701 8849
E Rich.Hofrichter@us.gt.com

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