Driving Value & Efficiency from Complex Supply Chains, Indirect Taxes & Data

Transcription

1 Driving Value & Efficiency from Complex Supply Chains, Indirect Taxes & Data Global Indirect Tax Services Focus Session 2016 Latin America Tax Summit, Rio de Janeiro 29 February

2 Our Journey Doing Business in LATAM the Inbound Perspective Beyond Regulation, Policy Reform An Overview Of Regional Trends in Compliance, Regulatory Change and Global Trade A Case Study Complex Supply Chains, Managing Risk & Delivering Value Indirect Tax, Transfer Pricing and Global Trade Coffee Break! A Focus on Data Analytics & Cross Border Supply Chains DRAFT Closing Remarks Global & Regional Overview of Indirect Tax Trends & Challenges Opening & Welcome

3 New Publication UPDATE A VAT-focused survey of 29 countries of the Americas region, including U.S. and Canada English and Spanish

4 Global & Regional Overview of Indirect Tax John Bain, KPMG in Canada Tim Gillis, KPMG in the US Marcus Vinicius, KPMG in Brazil 4

5 Global Overview of Indirect Tax 5

6 Global Taxes in 1900 & Property Taxes -- Excise Taxes -- Customs Levies -- Postal Fees Property Taxes -- Excise Taxes -- Customs Levies -- Postal Fees -- Business Income Taxes -- Individual Income Taxes -- Value-Added Taxes -- Sales & Use Taxes -- Social Security Contributions -- Payroll & Workforce Taxes -- Other Consumption Taxes

7 Shift to Indirect Taxation OECD Tax Revenue by Tax Type as Percentage of Total Taxes on income, profits and capital gains Social security contributions Taxes on payroll and workforce Taxes on property Value added taxes Sales tax Source: OECD, Revenue Statistics

8 Consumption Taxes Compared to Other Revenues OECD Average Tax Revenue by Sector as Percentage of Total Taxation (2012) 1% 0% 11% 2% 24% Personal Income Taxes Corporate Taxes Other Income Taxes Social Security Contributions 20% 5% 1% 26% 9% 1% Taxes on Payroll and Workforce Taxes on Property General Consumption Taxes Taxes on Specific Goods and Services Taxes on Use of Goods and Perform Activities Other Consumption Taxes Other taxes Source: OECD, Revenue Statistics

9 VAT Enactments Timeline Source: OECD, Consumption Tax Trends 2014; WNT Research

10 VAT Enactments Timeline Source: OECD, Consumption Tax Trends 2014; WNT Research

11 VAT Enactments Timeline Source: OECD, Consumption Tax Trends 2014; WNT Research

12 VAT Enactments Timeline Source: OECD, Consumption Tax Trends 2014; WNT Research

13 VAT Enactments Timeline Source: OECD, Consumption Tax Trends 2014; WNT Research

14 VAT Enactments Timeline Source: OECD, Consumption Tax Trends 2014; WNT Research

15 VAT Enactments Timeline Source: OECD, Consumption Tax Trends 2014; WNT Research

16 VAT Enactments Timeline Source: OECD, Consumption Tax Trends 2014; WNT Research

17 VAT Enactments Timeline Source: OECD, Consumption Tax Trends 2014; WNT Research

18 VAT Enactments Timeline Source: OECD, Consumption Tax Trends 2014; WNT Research

19 VAT Enactments Timeline Source: OECD, Consumption Tax Trends 2014; WNT Research

20 Four Significant Trends Cross-Border Base Expansion Big Data Innovation Framework 21 of 34 OECD countries (09-15) Digital goods and services Fewer reduced rates Financial services Sleeping giants awaken Destination bias Playing field leveled for domestic suppliers of digital goods and services Registrations made simple Data quality and analysis become audit battleground Tax gap closed E-invoicing becomes standard Data control will change Indirect tax rules will be written with Big Data in mind Tax transparency extends to indirect taxes Technology becomes essential, not a nice to have D&A becomes required Supply chain analysis becomes more possible Trade & Customs aligns with VAT and transfer pricing, with global visibility essential

21 A World in Constant Change Sourcing changes for e-services effective Jan. 1, 2015 New Reporting obligation by 2017 Proposed Introduction Sourcing changes for e-services effective Oct. 1, 2015 Sourcing changes for e-services effective Jul. 1, 2015 VAT Introduced in Jan. 1, 2015 Current reform Proposed reform VAT to be Introduced Apr. 1, 2016 Proposed reform GST Introduced April 1, 2015 Mandatory e- invoicing introduced Proposed reform Proposed reform Sourcing changes for e- services under consideration Continuous tax law changes and litigations Sourcing changes for e- services under consideration 5 Various Rate Changes + BEPS Discussions at OECD and G20 Level Source: KPMG

22 BEPS and VAT Current OECD activity stems from concerns over double and nontaxation resulting from the digital economy and inconsistencies in the application of VAT in international trade. Objective: To protect tax revenue and provide a level playing field between foreign and domestic supplies. Main VAT Focus Objective: To protect tax revenue Business-to-Business and provide a level ( B2B ) playing field between foreign and domestic supplies. made to partially exempt businesses and those with multilocation enterprises Key VAT Areas Highlighted by Action 1 Use of low value importation thresholds Business-to-Consumer ( B2C ) supplies of digital supplies 22

23 Changing World of E-Commerce EU: Sourcing changes for e- services effective Jan. 1, 2015 Albania: Sourcing changes for e-services effective Jan. 1, 2015 South Korea: Sourcing changes for e- services effective Oct. 1, 2015 Japan: Sourcing changes for e-services effective Jul. 1, 2015 The Bahamas: E-commerce rules in new VAT law? Tanzania: Effective Jul. 1, 2015 new VAT law includes ESS sourcing rules New Zealand: Sourcing changes for e- services under consideration 5 Brazil: Interstate online sales of goods: Transition from origin principle to destination principle between 2015 and 2019 Australia: Sourcing changes intangibles under consideration Source: KPMG

24 Sample VAT Rate Changes Past 15 Months Country Effective Date Original Rate New Rate Dominican Republic 1/1/ % 16% (Planned) Luxembourg 1/1/ %,12%*, 6%* 17%, 14%*, 8%* Czech Republic 1/1/ %, 15%* 21%, 15%*, 10%* Iceland 1/1/ %, 7% 24%, 11% Cape Verde 1/1/ % 15.5% Brazil PIS/COFINS on imports 5/1/ % and 7.6% 2.1% and 9.95% India Service Tax 6/1/ % 14% Greece 7/20/ %, 13%*, 6.5%* 23%, 13%*, 6%* Israel 10/1/ % 17% Multiple rate changes for specific goods and services Source: KPMG WNT Research * Reduced VAT Rate

25 Addressing Trade & Customs Complexity o o o o o o o o o o o Free Trade Agreements First Sale Foreign Trade Zones Duty Drawback Value Unbundling Entry Consolidation Self Filing Broker Consolidation Periodic Monthly Statements Defective Merchandise Special use provisions o o o o o o o o o Minimizing compliance risk Penalty Avoidance Bad Press Third party service providers costs Avoidance of criminal charges Maximizing FTAs Refunds on downward TP adjustments Accurate cash-flow Reduction of costs relating to audits and information requests o o o o o o o o Access of Trade Data Streamline processes Increase productivity Mitigating risk Metrics Recordkeeping Global consistency Faster identification of opportunity and risk o o o o o o o o o Managing resources Internal personnel savings Faster Customs Clearance Business growth M&A support Interdepartmental communication Value Reconciliation Business certainty Faster identification of opportunity and risk Together these components can contribute to a robust program

26 Regional Overview of Indirect Tax 26

27 Indirect Tax Regional Overview Indirect tax system is not harmonized amongst the region Indirect taxes applied on different levels: federal, provincial and municipal Value Added Tax (VAT) is the most common type of tax in the region Other type of taxes can also be commonly encountered (Excise Tax, Turnover Tax, Sales Tax, etc.) 27

28 Indirect Tax Regional Overview Average VAT rate across the region was 13% in 2015 Average rate is lower than Europe average (20%); but Some of the largest economies have higher rates (Argentina: 21% Brazil: 19%; Mexico and Colombia: 16%) Ever changing legislative environment VAT withholding, advanced payment or collection regimes exist 28

29 Main Compliance Requirements Tax systems are highly formal Invoices are required for the majority of the transactions Specific sales and purchase ledgers VAT returns must be filled monthly or bi-monthly Electronic invoice is a reality in several jurisdictions Argentina ---Chile ---Guatemala Brazil ---Ecuador ---Uruguay Bolivia ---Peru ---Mexico 29

30 Potential Pitfalls the Brazil Case Difficult to refund VAT credits Tax War between the different layers of taxation and amongst the States Heavy penalties applicable even to minor mistakes Aggressive Tax Audit approach by the Government High level of litigation 30

31 Indirect Taxes Strategy and Governance is Key for the Success of a Business in the Region 31

32 Doing Business in LATAM the Inbound Perspective Panel Discussion Dave Kibbey, Senior Director, Global Indirect Tax, Wal-Mart Stores, Inc. Frank Sangster, Partner, KPMG in the US Murilo Mello, Partner, Brazil Tax Desk, KPMG in the US 32

33 Beyond Regulation, Policy & Reform An Overview of Regional Trends in Compliance, Regulatory Change and Global Trade John Bain, KPMG in Canada Gabriel Vecchio, KPMG in Argentina Cesar Catalan, KPMG in Mexico Carlos Ottoni, KPMG in Brazil 33

34 Mexico Tax Compliance Trends in Latin America Colombia Broad use of Technology in Compliance Peru Brazil Diversity and Complexity of Tax Legislation Chile Investment in Technology Argentina TR ONE SOURCE KTAX (BRAZIL) Development of Customized ERP Solutions KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

35 Mexico Regulatory Trends in Latin America Base Erosion and Profit Shifting BEPS Brazil Impact of the Organization for Economic Cooperation and Development (OECD) s BEPS initiative. Actively working to widen tax bases, reducing deductions and allowances and bringing new streams of income into the tax system Argentina UPDATE IT & ERP SYSTEMS INTERNAL CONTROL Influencing both indirect and personal taxation if its proposals are widely enacted. Change in the charging structure for VAT on services and intangibles LATAM countries LATAM countries Businesses selling to consumers in another jurisdiction will be required to charge and pay VAT in the consumer s country rather than their own KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

36 Mexico International Trade Trends in Latin America Trend Towards Export Promotion Programs Peru Brazil New Free Trade Agreements on the Horizon Chile Argentina RECOF IMMEX TPPA Brazil Mexico Signed by nine countries Inc., USA, Canada, Chile, Peru and Mexico KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

37 Coffee Break 37

38 Complex Supply Chains, Managing Risk & Delivering Value Gisele Belotto, KPMG in the US Murillo Mello, KPMG in the US Teresa Quiñones, KPMG in Mexico 38

39 Global Supply Chain Global company selling hot new electronic gadget Sourcing and manufacturing in various regions and countries New gadget is highly popular with hipsters all over the world Transfer Pricing Indirect Tax Trade and Customs

40 Amazing New Product but Have the Tax Implications of a Global Supply Chain Been Fully Considered? 40

41 Global Supply Chain- Key Tax Rules and Regulations Brazil China Mexico India UK Transfer Pricing Customs Indirect Tax Corporate income tax compliance Brazilian Transfer Pricing calculation rules, specific compliance Related Party Value Classification Incoterms Mercosur VAT (ICMS, IPI, PIS/COFINS) returns Establish policies and documentation Related Party Value Classification Incoterms Golden Tax System, phasing out Business Tax and phasing in VAT return Comply with OECD rules. Specific transfer Pricing information returns. Additional TP disclosures aligned with Action Plan 13 Related Party Value Classification Incoterms NAFTA TPP Comply with OECD rules, no separate return; BEPS guidance Related Party Value Classification Incoterms Comply with OECD rules, no separate return; BEPS guidance Related Party Value Classification Incoterms EU FTAs VAT (IVA) return GST return VAT return, EU Sales List Corporate Tax (IRPJ) Enterprise Income Tax (CIT) Corporate Tax (ISR) Corporate Tax Corporate Tax Stat Account Compliance SPED Statutory Audit of Accounts report Other Electronic tax invoicing (Nfe), Fuel tax (CIDE), Import Tax (II), Foreign Trade (SIScomex) Property Tax, Excise Tax, Customs Tax Contabilidad Electronica Accounts Production Statutory Accounts (Legal Entity), Annual Return (Consolidated) Electronic invoicing (CFDI), Excise Tax (IEPS) Fringe Benefits Tax, Property Tax, Excise Tax, Customs Customs, Excise Tax, Payroll taxes (Real time reporting), Climate Change Levy, Landfill taxes Information Reporting SPED, IRPJ DIOT Instrastat reporting (EU movement of goods)

42 Transfer Pricing 42

43 Transfer Pricing: Global Landscape Tax authorities, external auditors and regulators are increasingly focused on the data, processes, governance and controls around transfer pricing (TP): BEPS and increased scrutiny by tax authorities Pressure from external and internal auditors in relation to TP implementation Heightened regulatory standards and increased risk of regulatory scrutiny in the financial sector

44 Key Principles: Operational Transfer Pricing (OTP) Policy Management Policy Implementation Compliance Identifying Intercompany Arrangements Defining & Documenting TP Policies Executing Intercompany Agreements Defining TP Calculation Mechanics Processing Transactions Monitoring Results & Making Adjustments Reporting & Close TP Documentation Technology Enablement Governance, Process and Controls Process focused on how TP policies are implemented within a company s financial systems Potential benefits: Enhance tax positions, improve ETR forecasting and increase EPS Increase operational efficiencies Reduce tax and financial reporting risks

45 Trade and Customs 45

46 Customs Value: Key Drivers Import value declarations similar to submission of tax returns Transfer Pricing Adjustments = Adjustments to import value Customs Valuation Import value used for duty and VAT calculations Transfer Prices = Customs Value Different Arms Length tests Invoice price/transaction value most common valuation method Dutiable additions to price are a part of customs value

47 Customs: Key Challenges No seat at the transfer pricing table Operationally burdensome to process value adjustment with customs authorities Lack of automated valuation processes No or late notification of transfer pricing adjustments Reactive processing of transfer pricing adjustments Lack of understanding on how transfer prices will impact customs in various steps in the supply chain No visibility into global import duty spend Customs team not consulted on transfer pricing decisions Certain countries do not allow for refunds on retroactive adjustments Customs and finance system not often connected

48 Indirect Tax 48

49 Indirect Tax Summary Indirect Tax Key Themes (1) Country and Local Jurisdictions (2) Value of Transaction (3) Taxable Base (4) By Transaction and line item (5) Product / Service Purchased/Sold (6) Customer and Vendor Considerations (7) Legal Entity Responsible for Documentation/Reporting Transactional: Domestic, Cross Border, Related and Unrelated Parties

50 Indirect Tax: Key Drivers & Challenges Indirect Tax: Considerations when providing goods, services and software Business to business and business to consumer considerations Place of supply rules Goods: Generally destination based Services: Remote supply, benefit received considerations, user location Recoverability Not all VAT is recoverable; sales and use tax refunds based upon exemptions Data Requirements: Line item level; bundled transactions vs. separately stated Registrations customer & vendor, Inco terms, material/services, usage, etc. Invoicing and Reporting Cash flow management Risk and opportunities

51 Interactions Transfer Pricing, Customs, Indirect Tax 51

52 Product Price Timeline TP adjustment for profitability target t 0 Set Transfer Price by Product, by Supply Chain t 1 t 2 t 3 Customs Import value/clearing Duty Import VAT Goods Receipt VAT accrual? Cost of Goods A/P Invoice Tax Offset Import VAT Cross Border: Goods Transaction Source: KPMG

53 Getting Cross Border Pricing Right 53

54 The Challenge The challenge is to predictively set transactional prices at the time of invoicing that: Comply with transfer pricing and customs transactional value armslength requirements. Result in tax compliant entity-level profitability in aggregate by source. Help ensure the company does not pay more duties than legally required. Coordinate the transfer pricing and customs groups process throughout the year. and to do this on a multi-jurisdictional basis as it multiplies the value to the company.

55 Example one Manufacturing entity (exporter) in Spain sells finished goods to affiliate limited risk distributor (importer) in Mexico Transfer Pricing Resale minus 5% intercompany pricing Distributor target of 3%- 5% Aggregate profitability Customs Customs circumstances of sale test used based on all costs plus profit equivalent to seller s overall profit for sale of similar goods of 10% On each transaction Indirect Tax 16% import VAT calculated on intercompany price + import duty VAT trapping concern in Mexico

56 Example one Results

57 Example Two Based on BEPS regulations affiliate in Mexico is no longer considered a limited risk distributor. New transfer pricing benchmarks are calculated for Mexican affiliates and intercompany prices are adjusted for future transactions Transfer Pricing Resale minus 7% intercompany pricing Distributor target of 7%-10% Aggregate profitability Customs Customs circumstances of sale test used based on all costs plus profit equivalent to seller s overall profit for sale of similar goods of 8% On each transaction Indirect Tax 16% import VAT calculated on intercompany price + import duty VAT trapping concern in Mexico

58 Example Two Increased Risk and Unbalanced Duty Payments

59 Example Three Strategic setting of intercompany prices to meet transfer pricing (including new BEPS requirements) and Customs requirements. Avoid over payment of customs duties and increased trapped VAT Transfer Pricing Resale minus 7% intercompany pricing Distributor target of 7%-10% Aggregate profitability Customs Customs circumstances of sale test used based on all costs plus profit equivalent to seller s overall profit for sale of similar goods of 8% On each transaction Indirect Tax 16% import VAT calculated on intercompany price + import duty VAT trapping concern in Mexico

60 Example Three: Compliant & Balanced

61 In summary There are various connections among TP, Customs, Indirect Tax Today most companies view and handle each area independently compliance risk and missed opportunities Increased coordination and strategic planning can not only mitigate risk but provide tangible benefits and savings Technology is becoming available to address the three areas more strategically Source: KPMG Bridging the Gap Workshop New York April 10, 2015

62 Data Analytics & Cross Border Supply Chains Doug Zuvich, KPMG in the US Gabriel Vecchio, KPMG in Argentina Carlos Ottoni, KPMG in Brazil 62

63 What is Data and Analytics? Inspecting Row data modeling Cleaning transforming Visualization BUSINESS DECISION D&A PROCESS 63

64 Where Do We Get The Data? ERP Data TAX Authorities Database Customs Broker Data Etc. INFORMATION Others Public Databases 64

65 Application of Data Analytics in Indirect Tax and Trade & Customs 65

66 Indirect Tax Application TAX EFFICIENCY / COST SAVINGS Application Examples METRICS REPORTING WHAT IF ANALYSIS ENSURE COMPLIANCE / RISK MANAGEMENT 66

67 Indirect Tax Application Example Argentina Comprehensive Collection Regimes Review Program (D&A) DATA SURCE DATA PROCESS DATA VISUALIZATION TAX Authorities (AFIP) Database Company ERP Vendor Master Data Client Master Data ERP Withholdings parameters ERP Collections parameter Withholdings and collections data Transaction s information SQL engine Recalculation and verification of withholdings and collections determinated by the ERP Checking of the information entered in the management software (ERP) with various databases published by the tax authorities for tax purposes at both national and provincial levels. Dashboard (Qlick View) All the registers with inconsistences are visualized in a Dashboard where is clasificated by regime, jurisdiction, type of error, etc DGR (Tax Bureau) 67

68 Indirect Tax Application Examples Argentina Comprehensive Collection Regimes Review Program (D&A) 68

69 KPMG Benchmarking Survey Trade and Customs How would you best describe the role of data analytics in the success of your role in the future? Over 70% of respondents said: Data Analytics will be an integral part of the success in my trade role

70 Primary uses of Data in Trade FIND SAVINGS OPPORTUNITIES What could you do? ENSURE COMPLIANCE Common Examples Tariff Code usage - Consistency Country of Origin analysis - FTA opportunities Broker performance - Accuracy rates IMPROVE EFFICIENCY MEASURE KPIS

71 Data Analytic Trends in Trade The future of D&A in trade is zeroing in on the right data and applying the right analytics to generate tangible value Auditing of trade activity will be enhanced through advanced risk profiling Operational compliance dashboards to monitor and report risks and opportunities Collaboration among business support functions to collectively mitigate risk and increase opportunity (i.e., Operational Transfer Pricing)

72 Marketplace Update Case Study 72

73 Data & Analytics: usage by governments regarding digital ancillary obligations in LATAM e-invoice; e-accounting; Digital Tax Books; Manufacture; Other ancillary obligations. Source: KPMG

74 Data Analytic: stage of digital ancillary obligations projects in LATAM Possibilities for governments: Perform information cross check; Easily identify the taxpayer with evidences of compliance issues; Advanced Intermediate Initial Perform remotes audit process based on digital information provided by taxpayers; Work with large amount of data in digital speedy. Source: KPMG

75 Data Analytic: how governments use the technology to cross check data BR Case CAGED DACON DARF DCTF DIPJ DIRF ECD-C ECF EFD - F EFD - C FCONT MANAD NF-e SEFIP CAGED DACON DARF DCTF DIPJ DIRF ECD C ECF EFD F EFD C FCONT MANAD NF-e SEFIP

76 Data & Analytics: action taken by Brazilian government after cross checking data provided by taxpayers In 2015, after cross checking digital data and information, the Brazilian government found around 46 thousand taxpayers who probably have compliance issues. The Brazilian government believes that the potential tax collection regarding those compliance issues can reach more than R$140 billion (around US$ 35 billion). Source: KPMG

77 Data & Analytics: What To Expect in the Near Future? New Obligations Stay up to date with new obligations Better information Ensure the data quality Agility to Audit Agility to deliver obligations Better effectivenes s in tax collection Ensure compliance

78 Driving Value & Efficiency from Complex Supply Chains, Indirect Taxes & Data Global Indirect Tax Services Focus Session 2016 Latin America Tax Summit, Rio de Janeiro 29 February

79 Thank-You! John Bain, KPMG in Canada Tim Gillis, KPMG in the US Marcus Vinicius, KPMG in Brazil Frank Sangster, KPMG in the US Doug Zuvich, KPMG in the US Cesar Catalan, KPMG in Mexico Teresa Quiñones, KPMG in Mexico Gabriel Vecchio, KPMG in Argentina Carlos Ottoni, KPMG in Brazil Gisele Belotto, KPMG in the US Murilo Mello, KPMG in the US 2016 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 79