ERP (Enterprise Resource Planning) systems and Indirect Tax compliance - Ernst & Young - United Kingdom

To correctly determine a tax code and therefore the VAT liability of a transaction, VAT relevant transactional data is processed through VAT determination logic which assigns a tax code. This tax code not only assigns the correct VAT liability to a transaction but also helps to drive VAT invoicing requirements and other areas of VAT compliance.

Why act now?

If the company suffers from any of the following triggers:

• Known VAT compliance risks due to systems weaknesses
• Lack of central visibility of current state systems configuration for VAT
• Significant risk in migrating from current state without reviewing VAT configuration logic and implementing fixes
• Review and remediation work now will reduce the effort required for the global ERP migration

Weaknesses in ERP VAT configuration can be driven by:

• Changes in business models and transactional flows
• Lack of integration between tax and IT functions
• Loss of configuration knowledge over time, mainly due to staff changes
• Changes in local VAT legislation
• Inconsistencies in approach due to the creation of local workarounds and system “fixes”.

Areas to consider?

The areas that a company will need to consider from a VAT perspective when implementing an ERP system are:

• Tax relevant master data
• Tax condition rules
• Tax codes
• Invoicing and documentation
• Reporting

Benefits

The automated configuration of VAT within an ERP system is essential to:

• Correct calculation of output VAT
• Correct and compliant invoicing
• Correct recovery of input VAT
• Effective and accurate VAT and statistical reporting
• Streamlined month-end reporting processes.

“Best in Class” VAT automation in an ERP system depends on the correct configuration and linking of sophisticated tax functional elements across materials, sales and finance modules.