Managing operational tax risk through technology

Transcription

1 Managing operational tax risk through technology EY Africa Tax Conference September 2014

2 Panel Daryl Blakeway Director Tax Performance Advisory Leader EY South Africa Anthony Davis Director Tax Performance Advisory Leader EY London Page 2

3 Agenda Tax risks and drivers Enhancement and integration of tax technology: Data quality Tax technology system initiatives Tax technology: Investing in tax technology Road mapping tax technology Tax technology evolution Practical examples Wrap-up Page 3

4 Tax risk and drivers Overview Operational tax risks are the risks arising from people, process and technology. Companies that want to successfully mitigate tax risks should have clearly defined strategies in respect of all three elements. With the ever-increasing compliance and reporting landscape, together with the continuing strain on resources, there is a growing need to enhance and integrate technology throughout the tax life cycle. This session will focus on investing in, and deploying, tax technology, and developing a tax technology road map to leverage your existing investments and infrastructure. Page 4

5 Tax risk and drivers Company tax risks Companies are constantly under pressure to provide timeous and accurate information to the authorities, investors and other stakeholders in order stay competitive in a global environment. This pressure, together with more challenging tax authorities and transparency requirements, is consistently placing a burden on the tax function to assess and address tax risks proactively. EY s recent 2014 tax risk and controversy survey identified four sources of risks faced by tax and finance executives in 27 countries (including more than 130 chief financial officers): Reputational risk Legislative risk Enforcement risk Operational risk Page 5

6 Tax risks and drivers Legislative and reputational risk Legislative risk Reputational risk Who here thinks that global disclosure 94% and transparency requirements will continue to grow in the next two years? of the largest companies having an opinion on the matter think that global disclosure and transparency requirements will continue to grow in the next two years.* Who here is somewhat or significantly concerned about the 89% media coverage of the taxes some companies are paying or their seemingly low effective tax of the largest companies surveyed are somewhat or significantly concerned about the media coverage of the taxes some companies are paying or their seemingly low effective rates? tax rates. This is up from 60% in Conversely, just 9% say they are unconcerned now, compared to 40% in 2011.* *Tax risk and controversy survey 2014 Page 6

7 Tax risks and drivers Enforcement risk Enforcement risk Enforcement risk Who here has had a tax audit recently? 68% Have you felt they are become more frequent and aggressive in the last two years? of the largest companies report that they feel tax audits have become more frequent or aggressive in the last two years.* 68% Who here is feeling pressure regarding cross-boarder of the largest companies report that they feel tax authorities globally transactions? have increased their focus on cross-border transactions in the last two years.* *Tax risk and controversy survey 2014 Page 7

8 Tax risk and drivers Operational risk Operational risk Leading sources of operational tax risk for the largest companies (in order of prevalence): 75% cited insufficient resources to cover tax function activities. 64% cited insufficient internal communication. 57% cited a lack of processes or technology. Operational risk Only 45% of large companies globally have complete visibility over open tax audits and disputes globally. Page 8

9 Enhancement and integration of technology With the ever-increasing compliance and reporting landscape, together with the continuing strain on resources, there is a growing need to enhance and integrate technology throughout the tax life cycle. Enhancement and integration of technology needs to happen at the following three levels: Global Tax function Transactional Direct tax Tax accounting Indirect tax Transfer pricing Companies that want to successfully enhance and integrate tax technology should identify, make decisions and pass down guidance in approaching all three levels when it comes to tax technology. Page 9

10 Enhancement and integration of technology Data quality Key elements of improving data Getting to the root cause determine whether it s the data, the process or the people Building relationships, alliances and business case to improve tax doesn t typically own the more important data Understanding the difference between technology implementation and data improvement; we have seen: Antiquated technology with very good data quality for tax Great, new technology with very poor data quality for tax Recognizing that it is different throughout the life cycle Reporting balance level Compliance near-transaction Audit transaction Page 10

11 Enhancement and integration of technology Data quality Creating tax aligned data When the data needs of the tax function are integrated into the business process generating the information, you have tax-aligned data. Tax-aligned data results in: Timely access to data for tax purposes Transparency from sources to output Less risk associated with inaccurate and incomplete data More efficient and value-added tax processes To get to tax-aligned data, business processes and practices must be built with tax requirements in mind; this starts with a focus on enterprise level and tax driven initiatives Page 11

12 Enhancement and integration of technology Data quality Impact of tax data quality and data accessibility More time managing data Approximately 15% of raw data that comes directly from source systems is immediately usable in tax processes. Before After Less time managing data Tax-sensitized environment: tax sensitizing source systems and improved initial data quality reduce the manual effort needed to develop usable tax data. Page 12

13 Transparency & Performance Cost Enhancement and integration of technology Tax technology system initiatives Listed below are the key system and technology initiatives that help to achieve increased transparency and tax function operationalization: Initiatives Outcome 1. Tax governance and control Standardize work process, manage roles and responsibilities Increase visibility and control over compliance and deadlines Centralised document management 2. Tax sensitization Improve data quality by ensuring accounting systems are set-up correctly for tax 3. Tax determination Ensure transactions are processed correctly by utilizing sensitizations 4. Tax data analytics automation Ensure availability of detailed tax data for planning, analysis & other reporting purposes Improve data quality by identifying weaknesses in the source systems through automated detailed data analytics reports 5. Tax reporting standardization and automation Standardize and automate statutory reporting and tax reporting Ensure efficient extract of information from system Minimize spreadsheets and manual work Page 13

14 Enhancement and integration of technology Record to report To improve the efficiency of the tax function different technologies within specific phases of the record to report cycle can be utilized However the tax function can never be run automatically. Manual intervention and human knowledge will always be required for example Understand and handle tax business issues Be custodians of all taxes, you need basic knowledge of all taxes and you will have to look after it Deal with the consequences of tax issues Take ownership of tax The record to report cycle is applicable to all the types of taxes applicable to the company 2. Tax Sensitisation 4. Tax data analytics automation 5. Tax reporting Record Gather & Analyse Report ERP Excel or CSV Exception Reporting CT Returns efiling Market Units Expense System Data Warehouse Compliance Software Workpapers VAT Returns Retention & Archiving SSC Other Other XBRL Process & Controls 3. Tax Determination 1. Tax governance and control Page 14

15 Tax technology Investing in tax technology Direct tax engines Indirect tax engines GAAP/stat/tax work papers Audit and planning analysis Global tax rates Global tax logic Provision and multi-country compliance Transaction history and audit archive Transaction history Multi-country reporting and data transmission Transfer pricing engines Multi-disciplined tools Planning budgeting and forecasting Global tax calendars Fewer spreadsheets Intercompany transaction processing Workflow and document management Data analytics and reporting Entity management tools Page 15

16 Tax Technology Developing a tax technology road map A tax technology road map is a multiyear plan that defines how implemented technology will enable your tax and business objectives with the associated business case and investments. Business and functional goals that the technology should enable Possible and practical technology choices Process and other changes that need to be in place for the technology to be successful Business case for enabling change Technology Costs resources and funding Benefits value, risk mitigation, and efficiency Page 16

17 Tax technology evolution Flexibility and interactivity Leading practice Advanced The future? Developing Simple PDF reports Static reports Flexible reports Real-time updates Everything at the touch of a button Page 17

18 Practical examples Global computer manufacturer BPO service provider Global insurance organization Page 18

19 Wrap-up Putting all the pieces together Page 19

20 Global computer manufacturer Global tax process transformation using global integrator for provision and OneSource workflow manager Client objectives Increase control and automation of global and local provision calculations Define direct tax sensitization requirements as part of the SAP finance transformation Quick execution of the evaluation due to our extensive market knowledge and best-practice experiences Robust set up of all processes based on our knowledge of both the tax technical side and the technology side For reference only Project approach The client engaged EY to implement the global integrator solution to support the global and local provision calculations across 60+ countries. In alignment with the provision solution implementation, EY completed a tax sensitization analysis and requirements project to define tax requirements for the 60+ countries as part of the broader SAP finance transformation project. We worked with the client to evaluate the document and workflow solutions available on the market, and subsequently implemented the chosen solution Thomson Reuters s OneSource Workflow Manager (OWM) in over 60 countries across EMEA, Asia Pacific and the Americas. The implementation process was split into two phases: Phase 1 workflow and document management for corporate income tax returns, indirect tax returns, statutory accounts and tax provision management. Phase 2 deployment of dataflow for tax forecasting and indirect tax payment management,and set up of interaction with thirdparty providers in order to centralize and improve compliance processes. Additionally, the client decided to expand the solution to further processes as part of phase three focusing upon withholding tax management, incentives tracking, controversy management and tax budgeting. Value delivered EY provided the client with the best-practice approach across multiple work streams using a proven methodology to deliver on key tax objectives and requirements. EY developed close working relationships with various software vendors selected by the client in order to reduce management inefficiencies, face jointly the project challenges and facilitate quick resolution of issues. The multiple projects and work streams were delivered by a strong, committed and globally connected network utilizing technical expertise in tax technology, tax accounting and project management to deliver a high-quality service. The solution notably adds value to the client, in particular with regards to the following aspects: Increase process control through improved audit trail, internal controls, process visibility and overall transparency Process standardization and mitigate operational and financial reporting risks Free up internal resources to perform higher-value analytical tasks Focus on the future operating model for tax in alignment with existing business and organizational strategy,thereby providing a seat at the table for tax in the overall finance transformation requirements and plan Page 20

21 UK-headquartered global insurance organization Global tax reporting and operations transformation Client objectives Increase transparency, automation and controls for global tax accounting and reporting process Identify tax dependencies resulting from existing in process finance transformation Increase governance and transparency into global compliance and reporting operations Review and recommend future state tax target operating model for global tax operations For reference only Project approach The client engaged EY to help evaluate possible global tax accounting and reporting solutions, as well as to set up and implement the chosen solution across 35+ countries. The implementation of the chosen solution was completed within a 12- month period focusing on US GAAP, US statutory and incorporating various industry-specific calculation requirements. The project was delivered over a 12-month period, with the go live for the annual group provision being completed ahead of time frames with greater control and insight. Undertake a review of the finance transformation work stream to identify tax dependencies and recommendations for inclusion of tax requirements for future optimization. Implementation of a workflow and document management solution to increase control, governance and insight across the client s global compliance and reporting footprint. Undertake detailed review of all tax processes in two pilot countries to identify recommendations, efficiencies and improvement across the full tax operating model. The pilot countries are then to provide a basis for a global tax operating model redesign and implementation, covering any changes in process, systems and resource model. The core team was be supplemented by subject-matter specialists from across EMEA, UK, Asia-Pacific and the Americas; with technical expertise in tax technology, financial services, tax accounting and project management. Value delivered EY provided the client with a best-practice approach across multiple work streams using a proven methodology to deliver on key tax objectives and requirements. EY developed close working relationships with various software vendors selected by the client in order to reduce management inefficiencies, face jointly the project challenges and facilitate quick resolution of issues. The multiple projects and work streams were delivered by a strong, committed and globally connected network utilizing technical expertise in tax technology, financial services, tax accounting and project management to deliver a high-quality service. The solution notably adds value to the client, in particular with regards to the following aspects: Increase process control through improved audit trail, internal controls, process visibility and overall transparency Process standardization and mitigate operational and financial reporting risks Free up internal resources to perform higher-value analytical tasks Focus on the future operating model for tax in alignment with existing business and organizational strategy,thereby providing a seat at the table for tax in the overall finance transformation requirements and plan Page 21

22 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com EYGM Limited. All Rights Reserved. ED 0115 In line with EY s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com EYG no. DL1060