Compliance

Reporting requirements and ERP

The tax environment is continuously evolving. An ERP system that is implemented well can help you to meet any new rules and (reporting) requirements.

Considerations to deal more easily with new tax rules and requirements

In order to be able to comply with new rules and requirements, whether it is from a direct, indirect tax or transfer pricing perspective, a proper set-up of your ERP system is required. In this respect, the following should be considered:

Tax authorities are more and more focusing on real time reporting which can be achieved by a proper ERP configuration
Tax authorities in all areas are themselves becoming increasingly knowledgeable about ERP systems and ask to see how tax has been incorporated into the ERP system

Rules and regulations are changing often. A proper ERP configuration will enable you to meet these requirements as required data and transactions can be covered (like Pillar II)
New reporting requirements are being introduced and are expected to be implemented in future years (like ESG, public CbCR, GRI). As such, a proper ERP configuration will enable you to easily extract the required information

In this way you can ensure your ERP system to be future proof and to be able to cope with new rules and regulations.

We therefore strongly recommend carefully considering how and to what extent your ERP system can enable further enhancements to your tax compliance and reporting requirements in order to ensure your system is future-proof.

Indirect tax

Trends in tax landscape

The internal and external tax landscapes are changing at an exponential rate. For instance, countries all over the globe are shifting from paper based reporting towards SAF-T and stricter (near) real-time indirect tax reporting. There were frequent increases and decreases of indirect tax rates due to Covid19 and also ESG reporting (i.e. CBAM) will be introduced soon. Besides, companies' business flows are getting more and more complex.

VAT is embedded in your ERP system

All these examples are trends in today’s economy and this requires a lot from your organisation and especially your ERP system. Indirect tax is a transactional tax and embedded in many places in your ERP system. Your ERP system is used to process the incoming invoices received from your vendors and to issue outgoing invoices to your customers. For all these transactions, the correct indirect tax treatment needs to be determined. In case of new indirect tax rules, reporting requirements or business flows it is therefore important to determine the impact of this change on the indirect tax setup in your ERP system.

Single source of truth

As your ERP system should be your single source of truth for indirect tax, involvement of the indirect tax team at an early stage is essential. The impact of the change needs to be assessed from both an indirect tax perspective as well as a systems perspective, the necessary system changes need to be implemented and once implemented, the changes need to be tested to make sure the result is as expected. In all these stages indirect tax involvement is crucial as this will guarantee that the system will generate and process data in line with applicable the indirect tax rules allowing you to file compliant indirect tax reports to the tax authorities and to prevent financial risks.

Direct tax

Configuring for flexibility

Following the public transparency debate, a response was set by government bodies by means of new rules and regulations (like the BEPS action plans). This in turn is reflected in additional reporting requirements (like GRI and CbCR) as pushed by regulators. Following recently announced or enacted new rules (for example new Pillar II rules) it is noted that quite often basic information is required, however often at a different reporting level than for other regulations or considering different definitions. As a result thereof it is important that the ERP system is configured in such a way that it is flexible to cope with any new requirements. This will obviously also enable you to deal with changes in the business itself, like any acquisitions or divestments of entities.

Future-proof automation

Next to that, any changes in tax law may have an impact on the tax calculation for provision and tax return purposes. During the implementation or upgrade of your ERP system we recommend to determine to what extent any book to tax differences should be automated by a cost benefit analysis considering changes in tax law are everyday business especially in large consolidated groups. Despite this, by carefully considering the set-up of multiple ledgers, the chart of account and bolt-on solutions can achieve significant savings in case of future changes in new rules and reporting requirements, i.e. building a solution that is future-proof.

Transfer pricing

Strongly increased compliance requirements

The field of transfer pricing has seen a strong uptick in compliance requirements over the past decade as the result of the introduction of new transfer pricing documentation requirements including Country-by-Country Reporting. Next to the group transfer pricing master file and transfer pricing local files, countries are continuously introducing additional transfer pricing reporting requirements, such as transfer pricing forms detailing the inter-company transactions. It is important for the tax department to alert stakeholders to these developments in an early stage, as new compliance requirements often require the development of new datasets for a company (i.e. are not limited to existing data points in the ERP system).

Tax authorities want to see processes

Next to this, more and more, tax authorities are showing an active interest in the processes by which transfer pricing compliance has been prepared, including insights into the data sources and their adequacy and accuracy from a transfer pricing perspective. The likelihood that a tax authority will request information on the ERP system and its configuration is much higher than in the past when tax authorities were generally more focused on outcomes than the process and controls therein. For this reason, it is important for the tax department to become more intimately acquainted with the company’s ERP system, its set-up, and the accounting policies that determine the reporting of data in the ERP system which is subsequently utilised in tax compliance processes.