Impact of VAT Compliance on Business Pierre Arman Market Lead for - - PowerPoint PPT Presentation

Impact of VAT Compliance on Business

Pierre Arman – Market Lead for Tax & Accounting – Thomson Reuters MENA Qatar Chamber of Commerce – February 2018

Agenda

• Preparing for VAT in the GCC
• Lessons learned in 2017
• Implementation Phase Critical Success Factors
• Invoicing & VAT Determination
• VAT Return Process
• How technology can help?

6-12 WEEKS 16-28 WEEKS 4-8 WEEKS 4-8 WEEKS

STEP 4

GO-LIVE

Pilot run and reporting testing VAT submission Hyper care On-going VAT compliance monitoring

STEP 2

BLUEPRINT DESIGN BUILD & TEST

Transaction Mapping exercise to identify the tax technology determination and reporting requirements Technology vendor selection Tax technology :

• Requirements Gathering
• Design
• Build
• Test

STEP 3

IMPLEMENTATION & TRAINING

Functional and QA Testing User acceptance testing and roll

• ut

VAT registration & review Go Live planning

STEP 1

VAT IMPACT ASSESSMENT

Understand and Review GCC VAT Framework and individual country legislation Review Business / Finance / Technology / Training for VAT Define a VAT compliance roadmap

Preparing for VAT in the GCC

6-12 WEEKS 16-28 WEEKS 4-8 WEEKS 4-8 WEEKS

Preparing for VAT in the GCC – VAT readiness corporations

STEP 4

GO-LIVE

Pilot run and reporting testing VAT submission Hyper care On-going VAT compliance monitoring

STEP 3

IMPLEMENTATION & TRAINING

Functional and QA Testing User acceptance testing and roll

• ut

VAT registration & review Go Live planning

STEP 1

VAT IMPACT ASSESSMENT

Understand and Review GCC VAT Framework and individual country legislation Review Business / Finance / Technology / Training for VAT Define a VAT compliance roadmap

STEP 2

BLUEPRINT DESIGN BUILD & TEST

Transaction Mapping exercise to identify the tax technology determination and reporting requirements Technology vendor selection Tax technology :

• Requirements Gathering
• Design
• Build
• Test

6-12 WEEKS 16-28 WEEKS 4-8 WEEKS 4-8 WEEKS

Preparing for VAT in the GCC – VAT readiness financial institutions

STEP 4

GO-LIVE

Pilot run and reporting testing VAT submission Hyper care On-going VAT compliance monitoring

STEP 2

BLUEPRINT DESIGN BUILD & TEST

Transaction Mapping exercise to identify the tax technology determination and reporting requirements Technology vendor selection Tax technology :

• Requirements Gathering
• Design
• Build
• Test

STEP 3

IMPLEMENTATION & TRAINING

Functional and QA Testing User acceptance testing and roll

• ut

VAT registration & review Go Live planning

STEP 1

VAT IMPACT ASSESSMENT

Understand and Review GCC VAT Framework and individual country legislation Review Business / Finance / Technology / Training for VAT Define a VAT compliance roadmap

Agenda

• Preparing for VAT in the GCC
• Lessons learned in 2017
• Implementation Phase Critical Success Factors
• Invoicing & VAT Determination
• VAT Return Process
• How technology can help?

Lessons learned in 2017- medium & large businesses in UAE and KSA

1. Only 10% of the organisations in UAE and KSA are in a position to be ready January 1st 2018 to include VAT on every invoice and prepare their VAT returns. 2. The 10% of businesses that are ready have one thing in common. They started a VAT impact assessment and implementation of a VAT framework to support the operations and I.T. 9 months+ before the January 1st 2018 deadline 3. A third of the remaining 90% either implemented a quick fix solution in the time they allowed, which will only support the business for a few months post January 1st 2018. 4. Two thirds of the remaining 90% were so late with their VAT preparations that they rushed through an RFP process with less than a month to go, desperately trying to get a Technology Partner to agree they can implement a compliant solution by January 1st 2018. 5. The most common reasons CFO’s and CIO’s gave for a lack of action was the legislation was not due to be law for a long time and because it is the Middle East, it may never be published. 6. All of them now wished they had been one of those 10% that took action 9-10 months before.

Getting ready

• 1. VAT

Policy and approach

• 2. Operations /

VAT Compliance

• 4. Optimising

VAT compliance

• 3. VAT & IT

Systems

What IT and business user training is required? How can I best optimise my VAT compliance Policy, Operations and IT? What are the VAT compliance obligations for my business? Where are my business VAT risks? Should I manage VAT compliance internally, externally

• r both?

What organisational structure & resources should I employ? How complex is my supply chain from a VAT perspective? What VAT controls should be embedded in my business processes? How do I best integrate VAT compliance into my business processes? Which VAT treatments are apply to my business? How do I set-up my IT systems for VAT?

Impact assessment deliverables

Understand your I.T. systems VAT capabilities

Where implementing 3rd party VAT Engines & VAT reporting software makes sense HIGH LOW HIGH LOW

• Build VAT logic in the

ERP / I.T. systems.

• Outsource key VAT

advisory processes and controls

• Outsource VAT

compliance reporting

• Outsource key VAT

advisory processes and controls.

• Implement a ‘Plug & Go’

tax engine for VAT.

• Implement VAT auto

returns software.

• Build a in-house VAT

compliance function.

• Configure VAT logic in

the ERP / I.T. systems.

• Implement VAT auto

returns software.

• Build a in-house VAT

compliance function.

• Implement a ‘Plug & Go’

tax engine for VAT.

• Implement VAT auto

returns software.

Ability to setup VAT in the I.T. systems VAT knowledge in the business

Agenda

• Preparing for VAT in the GCC
• Lessons learned in 2017
• Implementation Phase Critical Success Factors
• Invoicing & VAT Determination
• VAT Return Process
• How technology can help?

Implementation phase critical success factors

• Involve key stakeholders from business and I.T.

this is not just another finance reporting project, VAT impacts the whole business

• Detailed transaction mapping
• The value of using accelerated implementation tools

Providing I.T. with a meaningful VAT systems specification requires a transaction mapping exercise to be completed in step 2 – Blueprint design

6-12 WEEKS 16-28 WEEKS 4-8 WEEKS 4-8 WEEKS

STEP 4

GO-LIVE

Pilot run and reporting testing VAT submission Hyper care On-going VAT compliance monitoring

STEP 2

BLUEPRINT DESIGN BUILD & TEST

Transaction Mapping exercise to identify the tax technology determination and reporting requirements Technology vendor selection Tax technology :

• Requirements Gathering
• Design
• Build
• Test

STEP 3

IMPLEMENTATION & TRAINING

Functional and QA Testing User acceptance testing and roll

• ut

VAT registration & review Go Live planning

STEP 1

VAT IMPACT ASSESSMENT – Deloitte

Understand and Review GCC VAT Framework and individual country legislation Review Business / Finance / Technology / Training for VAT Define a VAT compliance roadmap

Supply chain models Tax models Business process scenarios Requirements Gathering Tool Configuration design assistance

I N P U T A C T I V I T Y O U T P U T

Supply chain Excel Worksheet Supply chain Excel Worksheet

• Tax model

Visio/Excel

• Business process

scenarios Tax model Visio/Excel

• Business process

scenarios Requirements Gathering Tool (RGT Tool) Mapping finished goods Supply chain models by product/service Preparation of tax models for each finished product/service by legal entity Mapping of tax relevant inputs for each of the business process scenarios; ship from, ship to, supply location Capture of tax results, invoice messaging, VAT reporting for each business scenario Assistance in either tax code set-up in ERP or Tax Engine set-up for VAT. Supply Chain Excel defining finished goods and services supply chains Tax model Visio/Excel for each finished good service Preparation of business process scenarios with tax relevant inputs to be captured in the RGT Tool

• RGT Tool captures tax

results, invoice messaging, VAT reporting requirements for each business scenario and tax code assignment

• Summary table of tax code

rates with descriptions Design support as required

Requirements gathering tool – GCC supply chain example

– Requirements gathering tool – VAT scenario sales example

BREAKING OUT EACH TAX DETERMINATION FIELD ON EVERY TRANSACTION LINE BY THE “WHAT”, “WHERE”, “HOW”, “WHO”, & “REPORTING” TO IDENTIFY THE CORRECT VAT CALCULATION & REPORTING TREATMENT PER TRANSACTION LINE

Agenda

• Preparing for VAT in the GCC
• Lessons learned in 2017
• Implementation Phase Critical Success Factors
• Invoicing & VAT Determination
• VAT Return Process
• How technology can help?

Tax Invoices

1. “Tax Invoice” clearly displayed on the invoice. 2. The name, address, and Tax Registration Number of the Registrant making the supply. 3. Where a Recipient of the supply is a Registrant, the name, address, and Tax Registration Number of the Recipient. 4. A sequential Tax Invoice number or a unique number which enables identification of the Tax Invoice and the order of the Tax Invoice in any sequence of invoices. 5. The date of issuing the Tax Invoice. 6. The date of supply if different from the date the Tax Invoice was issued. 7. A description of the Goods or Services supplied. 8. For each Good or Service, the unit price, the quantity or volume supplied, the rate of Tax and the amount payable expressed in AED. 9. The amount of any discount offered.

• 10. The gross amount payable expressed in AED.
• 11. The Tax amount payable expressed in AED together with the rate of exchange applied where the currency is converted from a

currency other than the UAE dirham.

• 12. Where the invoice relates to a supply under which the Recipient of Goods or Recipient of Services is required to account for

Tax, a statement that the Recipient is required to account for Tax, and a reference to the relevant provision of the Decree- Law.

Tax Invoices – Simplified

• 1. “Tax Invoice” clearly displayed on the invoice.
• 2. The name, address, and Tax Registration Number of the Registrant making the supply.
• 3. The date of issuing the Tax Invoice.
• 4. A description of the Goods or Services supplied.
• 5. The total Consideration and the Tax amount charged.

Tax Codes

Tax codes are used to: 1. Check and calculate the tax on sales/purchases amount in the document. 2. Check if a tax account with tax type (input or output tax) can be posted to. 3. Determine the tax account.

How Does VAT Work in ERPs?

Country Region Legal Entity Supply chain models – sales/ purchases, products/services Tax results by sales/purchases, products/ services Tax code assignment by sales/purchases, products/services

Geographies a GCC business operates in Business transactions Tax impact analysis Tax management

Entities in scope

Tax Codes Setup

UAE Tax codes sample - Client example

Tax code driver Information

ERP pricing records & condition tables

• Product = Table
• Ship From Country – UAE
• Ship from Emirate - Dubai
• Ship to Country –UAE
• Ship to Emirate - Sharjah
• Customer code –Sharjah Shop

Tax Codes in ERP – Sales Example

Reverse Charge

• ERP sales-related processing is often

implemented to be automated

• Significant work during implementation
• No content
• Otherwise, end-user selects appropriate

value for each field to get right tax determination

• 26 letters and 10 numbers are possible

ERP Sales Order Processing

Invoice processor must select the correct Tax code to get right tax determination.

ERP Purchase Order – Selecting Tax Codes

VAT POLICY TRANSACTIONS DETERMINATION REPORTING RECONCILIATION FILING

The VAT determination & VAT Return Process:

INDIRECT TAX DETERMINATION INDIRECT TAX COMPLIANCE

Agenda

• Preparing for VAT in the GCC
• Lessons learned in 2017
• Implementation Phase Critical Success Factors
• Invoicing & VAT Determination
• VAT Return Process
• How technology can help?

VAT POLICY TRANSACTIONS DETERMINATION REPORTING RECONCILIATION FILING

The VAT determination & VAT Return Process:

INDIRECT TAX DETERMINATION INDIRECT TAX COMPLIANCE

Internal option:

Assuming you have sufficient knowledgeable internal resources, time and budget - Establish an internal Tax function, VAT compliance processes, and implement a combination of VAT sensitized ERP and tax technology software solutions.

Policy Ops Improve IT

Options Available for VAT Compliance

External option:

Assuming you do not have sufficient knowledgeable resources, time and budget - Use your trusted VAT advisor and associated VAT Technology services provider to take the VAT Determination and Reporting obligations off your hands.

Co-source option:

Assuming sufficient resources, time and budget is only available in some but not all areas of the business - Adopt a mix of both internal & external Tax Technology delivery options

Illustrative Sales/Purchase Order Process

Business Process

Sales Order

P

P.O. Request Sales Quote Approval

P

Purchase Order

Goods Shipped/ Service provided Goods Received Service delivered

Sales Invoice process

P

Purchase Invoice process

Receivables Payables, Results Posted to the General Ledger

Rates & Rules

Adding the VAT return preparation process

Format Pivot Populate

Questions, corrections ...

+

VAT Return VAT Due

+

VAT Return

VAT Due

+

Intrastat

+

VIES

Questions, corrections ...

Tax Analyst Tax Manager Tax Authority +

VAT Return VAT Due

Sales Invent. Errors

Business Process

Sales Order Receivables Payables, Results Posted to the General Ledger & New VAT Account

P

P.O. Request Sales Quote Approval

P

Purchase Order

Goods Shipped/ Service provided Goods Received Service delivered

Sales Invoice process

P

Purchase Invoice process

+

VAT Due VAT Return

Review Check Query Adjust

+

GL Report VAT Report

New VAT Reports New T24 VAT reports

VAT on sales

1. Standard rated domestic sales 2. Sales to registered customers in other GCC states – (Tax Authorities can ask to report sales to non-registered customers in other GCC states) 3. Zero rated domestic sales 4. Zero rated exports 5. Exempt sales 6. Standard rated domestic purchases

VAT on purchases

• 1. Imports subject to VAT paid at customs

2. Imports subject to VAT accounted for through the reverse charge mechanism = Subject to approval 3. Zero rated purchases 4. Exempt purchases 5. Corrections from previous period (up to 5,000 SAR)

Transactions – Saudi VAT Return

KSA – VAT Return (English)

Amount (SAR) Credit notes/debit notes VAT (input/output = VAT due)

Type of Supplies 1. Standard- rated supplies (Local supplies of goods & Services by Emirate - Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain, Ras Al Khaimah, Fujairah)

• 2. Supplies subject to reverse charge (Import of goods and services by registered recipient)

1. Zero – rated supplies (Supplies involving goods for export or provision of exported services) 2. Exempt supplies (Specific categories of supplies are exempt from VAT) 3. Intra – GCC supplies (Supplies of goods and services to registered customers in other GCC implementing state) 4. Amendments to output tax (Corrections due to Output tax errors from a previous VAT return and where the tax amount of corrections is not more than 10.000 AED)

Type of Purchases

• 1. Standard – rated purchases (Purchases from VAT registered suppliers that are subject to VAT at 5%)
• 2. Supplies subject to reverse charge (Import of goods and services by registered recipient)
• 3. Amendments to input tax (Corrections due to Input tax errors from a previous VAT return and where the tax amount of corrections is not more than

10.000 AED)

Transactions – UAE VAT Return

UAE – VAT Return Format

VAT paid but companies cannot recover the VAT in UAE = inf. not included in the VAT Form Import of goods through other GCC States where the VAT is deductible = Reported in the VAT form

UAE – VAT Return Format – Additional Reporting

Partial Exemption

FTA VAT Audit File (FAF)

Content:

• 1. Company Information Table
• 2. Purchase Listing Table
• 3. Supply Listing Table
• 4. General Ledger Table

Consequences of Non-Compliance

Agenda

• Preparing for VAT in the GCC
• Lessons learned in 2017
• Implementation Phase Critical Success Factors
• How VAT Logic works in ERP systems?
• VAT Return Process
• How technology can help?

Tax Engine Plug and Go Solution

ERP

Thomson Reuters

Legend:

Other systems

Tax Engine

Standard ERP Tax reports RFUMSV00 Tax Registry

Additional system feeds

Tax Determination process:

ERP

Real-time communication Batched File communication Web Services call & response

E-commerce or other web services calling ng systems Legacy systems VAT Compliance Reporting

GCC & Internation tional al

Governments Filing Portals Country specific VAT returns

Tax content

SSAE16 6 & ISAE34 3402 2 certified Tax content nt for 175+ + countri tries:

• Rate

tes

• Rules

Tax Engine

On-going effort Summary: Tax Engine vs. ERP native

High Effort:

Medium low

Requirements Tax Engine Native ERP + Add-in and or bespoke configuration Content Product / service taxability, tax rates, custom rules and data drivers Place of supply rules Dynamically adopt to new supply chains using global content Enrich tax data and provide information to invoice print programs VAT registration validation support (**covered in Compliance product or Web Services)

**

Configuration / Maintenance Tax determination for multiple systems (central indirect tax control) Initial setup of company specific Tax logic (classifications, condition logic)

ERP dependant

Ongoing tax logic maintenance effort (classifications, condition logic) Simulation, batch validation, regression testing effort Time-stamped tax configuration (Eg: Decouple native tax codes from rates or tax logic effective date) Product/services mapping & Tax code mapping Tax controls Audit trail, advanced logging capability Flexible order blocking functionality logic Reporting Advanced reporting tool to gain insight into tax data

VAT Return Automation

ERP VAT Reports ERP VAT Reports ERP Data Sources Country specific VAT Returns Country specific VAT Returns Country specific VAT Returns

Compliance Data warehouse

GCC KSA UAE Qatar

Nov 2018 Dec 2018 Jan 2019 Exception reports Exception reports Exception reports Exception reports Exception reports Exception reports

Data import , mapping & consolidation Automatic creation of filings

Exception reports Management reports Audit reports

Analysis & reporting Compliance data management Filing data repository

VAT Project Implementation Methodology

Requirements

• Project team training
• Project kick-off
• Software install on a

Sandbox

• Dev/Prod sizing
• Business/Tax

requirements gathering

• IT requirements

gathering

Design

• Business and tax

workshops and walkthroughs

• IT workshops and

walkthroughs

• Integrated design

workshop

• Software install on

Development and Test servers

Build

• Software

configuration

• Unit tests

Test

• Connection Test
• System Test
• Integration Test
• User Training
• UAT preparation
• UAT

Rollout

• Production server

install

• Pre deployment

release validation tasks

• Deployment go-live
• Post go-live support

planning

• Application &

Technical onsite support

• Application support

training and handover

Requirements Signoff Design Signoff Configuration Signoff UAT Signoff Go-Live

Task Phase Client Partner Thomson Reuters Indirect Tax system implementation project plan and project communications All Phases A R C Install ONESOURCE Indirect Tax Determination software in Development / Sandbox Advise on server specifications, database sizing, architecture, supported platforms Requirements A I R Review and confirm proposed landscape Requirements A I R Installation and maintenance of landscape infrastructure (hardware and software) Requirements A TBD TBD Installation of ONESOURCE software in target environment (SAP Cloud or TR Cloud) Requirements A I/C R Install ONESOURCE Indirect Reporting software in Development / Sandbox Advise on server specifications, database sizing, architecture, supported platforms Requirements A I R Review and confirm proposed landscape Requirements A I R Installation and maintenance of landscape infrastructure (hardware and software) Requirements A TBD TBD Installation of ONESOURCE software in target environment (SAP Cloud or TR Cloud) Requirements A I/C R Business / Functional Requirements Conduct indirect tax business process interviews Requirements A R C Document Client Product / Service Taxability Matrix Requirements A/R R C Document indirect tax trading scenario examples w/ expected tax results Requirements A/R R C Document tax functional requirements related to ONESOURCE Determination Requirements A R R Provide guidance on tax relevant master data / data cleansing requirements. Requirements A R C Prepare ONESOURCE Determination requirements document for sign off Requirements A R C SAP Master Data – Tax Relevant Document Tax Master Data requirements Requirements A R C Develop address data cleansing processes and procedures Build A/R C I Perform address data cleansing activities / Zip+4 assignments (US addresses) Build A/R C I Develop GST / VAT Registration Number data cleansing processes and procedures Design A/R C I Perform GST / VAT Registration Number data cleansing Build A/R C I Develop tax relevant “Product Group” strategy (Sales and Purchase Items to support product / service taxability) Build A/R C I

R.A.C.I. Chart Legend:

• R who is Responsible
• A who is Accountable
• C who is Consulted
• I who is Informed

HOWEVER: “What if a Client does not have the required VAT expertise in-house within the business or I.T. Departments?”

Example roles and responsibilities

Thomson Reuters Client owned Joint activities Requirements

Kick-off

Design Build Testing Hypercare UAT

November 2017 December 2017 October 2017

Requirements

• Project team training
• Project kick-off
• Software install on an On

Premise or Hosted Sandbox

• Dev/Prod sizing
• Business/Tax requirements

gathering from transaction mapping output

• IT requirements gathering
• Requirements Gathering

Tool (RGT) Design

• Business and tax workshops

and walkthroughs

• IT workshops and

walkthroughs

• Integrated design

workshop

• Software install on

Development and Test servers

• DCD

Build

• Business and tax workshops

and walkthroughs

• IT workshops and

walkthroughs Integrated design workshop

• Software install on

Development and Test servers

• DCD

Test

• Connection Test
• System Test
• Integration Test
• User Training
• UAT preparation
• UAT

Rollout & Hypercare

• On Premise Production server install, or

Hosted solution dev/prod cut over.

• Pre deployment release validation tasks
• Deployment go-live
• Post go-live support planning
• Application & Technical onsite support
• Application support training and handover
• Hypercare

Indirect tax Determination – Accelerated implementation

Go live

Thomson Reuters Client owned Joint activities Requirements

Kick-off

Data gathering Design Build Testing UAT

January 2018 28th February 2018 December 2017

Requirements Formal outline

• Kick-off requirements
• Alignment of requirements
• Sign-off of requirements

Data Gathering Delivery of :

• Sample VAT reports
• Sample GL reports
• Working papers
• Tax code catalogue
• Entity list
• Users / user roles
• VAT group info

Design Functional spec:

• Import specification
• GL functional spec
• Allocation specification
• Tax code alignment
• Entity names
• User permissions

Testing

• Test VAT return of one

VAT registration per jurisdiction of project

• Assisting reconciliation

process Parallel Run

• Support users in completion
• f returns with use of

production data

VAT Compliance Reporting Implementation

Build

• Configuration
• Tax Code Mappings
• Import Specifications
• Allocation Specifications
• GL reconciliation report

Parallel Run

Go live