2012 Unlocking Hidden Value in the Tax Function Using SAP BI
Transcript of 2012 Unlocking Hidden Value in the Tax Function Using SAP BI
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Orange County Convention Center Orlando, Florida | May 15-18, 2011
Unlocking Hidden Value in the Tax Functionusing SAP BI
Scott Cobb
Tax Technology Director, PwC
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[ Learning Points
How the tax function is structured.
“ ” .
How to shift Tax from a reactive function (focused on data
targeting).
The SAP BI stack can provide operational efficiencies thatfree up time to reinvest in value targeting; and it providespowerful analytical tools to facilitate value targeting.
Real Experience. Real Advantage. 2
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[ Why does Tax matter?
Tax has been the #1 leading SOX control weakness every year fororganizations and has been the cause of many financialres a emen s
Tax is a highly manual function, sometimes spending 50-60% of theirtime on routine data collection/manipulation
Hidden data support costs (“shadow” tax function) from the IT and
Finance/Accounting functions can be substantial – as high as 30,000-
Direct bottom line impact by decreasing Effective Tax Rate (ETR) andminimize cash tax outlays
Local country tax requirements can impede entry into key markets
Real Experience. Real Advantage. 3
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[ The Tax function defined
Process
People Technology
US Federal income tax
State/local income tax
Foreign reporting of US income
CommunicationControl/riskmanagement
TaxFunction
. .,
Transfer pricing
Rate drivers (R&D tax credit, Sect 199/Mfg
deduction, foreign tax credit)
Data
Structure
Strategy Indirect taxes (transaction taxes)
US Sales & Use tax
Non-US: VAT, GST, HST, etc.
Property tax
Tax deliverables
Withholding tax
Real Experience. Real Advantage. 4
Tax functional areas
Tax enablers / drivers
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[ The tax reporting lifecycle
effective tax rate monthly effectivecash tax strategic tax provisionstrategic plan
provision to return
tax rate analysis
quarterly tax cash
plan
amended returns
ana ys s
annual tax
ow ana ys s
audits extensionsreturns estimated
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[ Tax is drowning in a sea of data
Finance / GL Sales & Distribution Asset Management Materials Management
• Legal entity balance sheetand P&L
• Consolidated financials
• Sales apportionmentfactors
• Sales tax
• Asset valuation for bookand tax
• Tax depreciation (MACRS,
• Stock transfers• Inventory valuation• Material movements
• Book-tax differences
• Income / expenses• Gains / losses• Liabilities / accruals• Reserves
• Related party /
intercompany transactions• Value added tax• Transfer pricing scenarios• Customs / excise taxes
AMT, state, ADS)
• Additions, disposals,transfers• Sales w/ gain/loss• Property apportionment
• Transfer pricing
• Uniform capitalization• State apportionment factors(property / inventory)
• Product master data
• GL balances, transactions,and master data
• Related party /
intercompany transactions• State a ortionment
• Billings / invoices• Customer master data• Pricing conditions
• Capital projects• Capital leases• Cost segregation
• Property tax
Controlling Accounts Payable HR / Payroll Other
• Cost center / expensedetail
• Cost center master data
• Vendor master data• Expense classification• Withholding tax (1099/1042
• Compensation• Payroll apportionment
factors
• R&D tax credits• Manufacturing deduction
(Sect. 199)
• Cost center hierarchy• Cost elements• Internal orders• Functional areas• Expense detail
information)• Use tax• Value added tax
• Accruals• Stock options• Employee benefit plans
• Customs / duties• Excise taxes• Real estate taxes
Real Experience. Real Advantage. 6
Tax data can be found in almost all functional areas and can span across
many geographies and systems.
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[ Why does Tax struggle with data?
Lack of quality data in source systems
Multiple views required by tax – US GAAP, IFRS, Statutory, tax jurisdiction,product line, function, etc.
Multiple sources of data – ERP’s, financial consolidations, fixed assets, inventory
mgt., S&U, etc. Tax requirements are typically not captured in ERP
Spreadsheet culture
Data collection done through spreadsheets (e.g., tax packages)’
Spreadsheet controls are weak, leading to errors and re-work
System and/or business understanding
e ransparency n o e us ness processes genera ng e a a Heavy reliance on others to collect and interpret data
Tax resources lack a “technology” skill-set
Real Experience. Real Advantage. 7
** Routine data work ≠ value **
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[ A new tax data philosophy is needed
Paradigm Shift”
Strategic Vision
Tax planning & analysis
Real Experience. Real Advantage. 8
Data collection and manipulation
,
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[ The cash tax planning hierarchy
Each one of these
metrics represents an
off-line spreadsheet
calculation
Planning
Metrics
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[ Deriving value from Tax - Examples
Refund what’s been overpaid (maximize inflows)
Recapture depreciation for assets with incorrect basis
• Data sources: asset master, asset transactions, project systems /WBS roll-ups (or internal orders), invoices
Reclaim overpayments of transaction taxes
• Data sources: PO, GR/IR, invoices
Reclaim overpayments of property taxes
• Data sources: asset master, project systems/WBS roll-ups, invoices
Minimize current taxes
Accelerate deductions (see fixed asset example)
Decrease state taxes paid by managing apportionment factors
• Data sources: asset master, sales/invoices, payroll
Real Experience. Real Advantage. 10
ax m ze cre s e.g.,
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[ Examples cont…
Cross border cash utilization
Minimize fines/penalties and adjustments related to Transfer Pricing
Data sources: Intercompany transactions, P&L by product and function, sales
orders, pricing, invoices Increase use of Foreign Tax Credits (foreign source income)
Data sources: Vendor master, payment detail
Create tax efficient global org structure“ ”
Optimize use of “principle” structures
Real Experience. Real Advantage. 11
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[ How do you get there?
Build the foundation
Consolidate all tax data in BW
Leverage Data Services to transform data into a tax ready state
Create a data architecture specifically designed for Tax
Use a modular approach – data marts (e.g., US Income Tax, Indirect Tax)
Automate data collection processes before addressing analytics
Leverage Data Services to facilitate data collection and linking to tax
applications Create reports/extracts to replace or enhance tax packages and other
manual work-papers
Define tax scenarios requiring analytics and map to BI functionality
Create universes as needed – leverage data mart architecture BEx and WebIntelligence for ad-hoc, planning, and investigative scenarios
Create a Tax Management Dashboard to monitoring key rate drivers
Real Experience. Real Advantage.
Train tax personnel on BI tools - self service model
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[ Preparing for the adventure
Start by assessing current tax operations
Tax technology heat map (see Vision slide)
Simple activity analysis will identify how time is divided between “data
collection” and “value targeting”
Create an overall tax technology strategy
3 yr / 5 yr plan
Prioritize improvements and build implementation plan
Compile data/reporting requirements Data collection (compliance) vs. Analytics (value targeting)
Start accumulating resources
Tax Technology SME
Tax functional SME’s (by tax area)
Data architects
Develo ers
Real Experience. Real Advantage.
SAP SME’s
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[ Benefits for a range of stakeholders
Stakeholder Benefits
Finance • Faster close cycle
“ ”
• Reduced income tax liabilities• Better management of tax accounts; fewer return to provision
adjustments
• More effective financial planning and compliance risk management
Tax• Increased efficiencies and greater capacity
• Reduction of errors in tax com liance rocess
• Redistribution of time to focus on more strategic value-add activities
• More accurate cash tax forecasting
• Enhanced audit defense – speedier and more accurate response to
au reques s
IT • Improved efficiency
• Decreased support of tax function
Real Experience. Real Advantage. 15
• Empowerment of tax personnel to take ownership of the solution
• Delivers strategic value-add to the business
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[ Sample ROI
Common scenario…
Data collection process is entirely dependent on information collected fromthe individual locations via Microsoft Excel “tax packages”
Approximately 300 tax packages consisting of 40-50 linked schedules
Average time to complete each package = 75 hrs (some as high as 300 hrs)
verage ax pac age ouc e y - peop e, across n cc , us ness an
Disparate system landscape with multiple instances of SAP created data
quality and consistency issues
Multiple reports had to be generated and consolidated to produce basic BalanceSheet and P&L reports
High error rate and significant re-work
Significant consulting spend on tax projects because Tax focused on routinedata management
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[ Sample ROI cont…
Hard Benefits
Elimination of 30,000 hours of
Soft Benefits
Reallocation of time to tax planningaccounting and IT support for Tax
40% reduction of time spent by Taxpersonnel on data collection
and analysis
More review time / less errors
Better management of cash tax
200; also reduced number of activeworksheets from 40-50 to 15
Decreased annual Tax consulting
More timely response to audit requests
Stability in the tax accounts
Reduced ETR from 40% to 31% overtwo year period
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[
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SESSION CODE: 2012
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