How tax can add value to an ERP transformation

09/06/23

An ERP implementation is characterized by its complexity and interdependencies between business processes and functions (e.g. IT, Finance and Tax). From a tax perspective it is also vital to be part of the project team when it comes to the start of an ERP implementation to ensure the strategic goals of the tax function are catered for. A tax-informed design of your ERP system has the potential to help tax cut its own operating costs, reduce the burden on employees and lower the company’s overall tax burden. Together, that can help your project deliver truly exceptional value.

Don’t leave money on the table

Tax functions often leave money on the table and even pay more in the long run by failing to improve their downstream processes when they improve their data. Getting tax on board of your ERP upgrade offers a unique window of opportunity for:

A first time right implementation (e.g. complete overview of tax requirements will smoothen your upgrade).
Risk & control reduction (a single source of truth for tax-related data to feed downstream processes, less risk of human errors, less intervention and cost reduction IT in the long-term).
A future proof set-up (auditable environment, agility to respond to changes in the global legislative landscape, better insights derived from tax data resulting in more accurate forecasting).

To achieve these benefits, it is key to involve tax from the start. For indirect and direct taxes there are opportunities to boost the overall return on investment.

Save on indirect taxes

Managing indirect taxes, domestically and globally, is more challenging than ever before. Indirect tax has become the leading revenue generator for governments. Significant indirect tax reform is taking place around the world and Real-time reporting is becoming increasingly prevalent. Your ERP upgrade can allow your tax team to redesign the indirect tax processes to reduce or automate the complexity, streamline the processes and localize where needed. A successful implementation for Global indirect tax delivers an end-to-end indirect tax reporting and compliance process, compliant billing, and is able to successfully manage compliance obligations of a complex global supply chain. The solution should deliver today's requirements and provide a foundation for future business growth and tax change.

Cooperation with your tax team is also key in case it is decided to integrate your ERP with a third-party tax-engine. With the right data and integration, a tax engine can help track changing tax laws, calculate taxes due and maintain required documentation.

Save on direct taxes

Income tax compliance and reporting is led by accounting principles and tax laws both at local as well as group level. If configured properly, your ERP system can provide accurate financial information in each jurisdiction. By tax sentizing ERP financial data the required information can be pulled directly from the system (single source of truth) saving time and costs running information requests.

Furthermore, modern ERP systems can, for example, streamline and automate calculations of global withholding taxes, depreciation of fixed assets and more. You can also embed tax reporting requirements and design general ledger details within your ERP system to automate book-tax adjustments — supporting more cost-effective reporting and compliance. In sum, by having the right setup, this results in more accurate tax calculations and forecasts (for tax provisioning and business decision making).

Tax can add value for years to come

For an ERP transformation, tax can offer many direct benefits, including tax credits and incentives during implementation, cost savings, a shortened close period and a potential reduction of tax exposures for years to come. If you work with your tax team to enhance data, transactions and related automation, financial reporting as a whole — and the many stakeholders who rely on it — can gain a cleaner, more fit-for-purpose end to end ERP ecosystem. To gain these benefits, it’s important to include tax every step of the way — as you make design decisions and develop requirements, as you build and test the system, and as you implement downstream tax technology for provision, compliance, indirect tax and more. The golden rule is the earlier the better.