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Global VAT compliance and reporting trendsEY VAT and customs symposiumGino DosscheRobert SmithJean SotoGeert Vandenplas
September 2014
Page 2 Global VAT compliance and reporting trends
Presenters
► Gino Dossche (Moderator)Ernst & Young LLP
► Geert VandenplasEY Belgium
► Robert SmithEY China
► Jean SotoEY Argentina
Page 3 Global VAT compliance and reporting trends
Global compliance and reporting (GCR) activities
Tax planning
and controversy
Income tax compliance
and local filings
Bookkeeping, statutory
accounting and CoSec
Tax accounting
and provisions
Group financial
accounting
Transactionsprocessing
Governance and control
Indirect tax compliance
► GCR concerns the last mile activities in a broader set of record-to-report (R2R) processes.
Page 4 Global VAT compliance and reporting trends
GCR insights
Page 5 Global VAT compliance and reporting trends
GCR insights
1. GCR at a tipping point – old models aren’t working2. Harness the momentum of finance change3. Leverage local expertise4. Optimize outside providers5. Achieve accountability and governance
Page 6 Global VAT compliance and reporting trends
Changing finance
Page 7 Global VAT compliance and reporting trends
Changing financeS
trate
gic
valu
e
Acco
unts
pay
able
Cashdisbursements
Cre
dit a
nd c
olle
ctio
n
Cus
tom
er b
illin
g
Revenuecycle
Cos
t acc
ount
ing
Fixe
d as
sets
Gen
eral
ledg
er
Stat
utor
y ac
coun
ting
Generalaccounting
Cas
h m
anag
emen
t
Rul
e-ba
sed
cont
rollin
g
Busi
ness
ana
lysi
s
Transactional sharedservices
Control, cash andrisk
management
Businesspartnering
Com
pany
sec
reta
rial
Statutory and legalobligations
High
High
Low
Low
Traditional Shared Services Center (SSC) candidates
Emerging candidates
Retained processes
Complexity
VA
T re
porti
ngFinance shared services
T&E
Inte
rcom
pany
Reg
ulat
ory
com
plia
nce
and
audi
ting
Dire
ct ta
x fil
ings
Retained?
Busi
ness
pe
rform
ance
Page 8 Global VAT compliance and reporting trends
Sustainably organizing local specialist knowledge, skills and experience
Potential scenarios for the local finance function
No retained finance function
“lights out”3
Country retains finance function for statutory processes1
Clustered partialfinance function for statutory processes2
Requires 2 – 5 Full Time Employees (FTEs) per country
Country accounting services for
0.2 FTE of work per legal entity
Larger number of entities/ complex entities
Requires 0.2 FTE per legal entity
(Sub-) regional statutory hubs with specialist local support (e.g. Big 4)
No FTEs retained
Regional controllers/FS leads
Globally outsourced to Big 4
Page 9 Global VAT compliance and reporting trends
Evolving GCR demands
Page 10 Global VAT compliance and reporting trends
Typical engagements and scope
Shar
ed s
ervi
ces
Shar
ed s
ervi
ces
Cou
ntry
Cou
ntry
Cou
ntry
Reg
iona
lSh
ared
ser
vice
s
Global ServicesIntegrating services, geographies, data and the client experience
Global Risk Management
Global Performance Management
Global Process Excellence
Global Information Management
Single Point of Contact
Country ServicesDelivering quality, experience and commitment
VA
T &
GST
Stat
utor
y Re
port
ing
Dir
ect T
ax C
ompl
ianc
e
Payr
oll
Book
keep
ing
Com
pany
Sec
reta
rial
Tax
acco
untin
g /
prov
isio
n
Tran
sfer
Pri
cing
Tax
Polic
y an
d Co
ntro
vers
y
Qua
ntita
tive
Serv
ices
Tax
perf
orm
ance
Adv
isor
y
In-scope countries 80+ 65+ 70+ 60+ 60+ 90+ 20+ 70+ 60+
In-scope entities 160+ 160+ 150+ 100+ 160+ 160+ 180+ 150+
Direct tax compliance Indirect tax compliance Withholding tax Statutory accounts prep Tax accounting packages Bookkeeping Service Management Total contract term 7 + 5 Years 7 Years 8 Years 5 + 4 Years 3.5 Years 5 Years 5 Years 5 Years 7 Years
Page 11 Global VAT compliance and reporting trends
HQ
Model 1
► No control► No visibility► No value
And
► “Don’t care”
Spain Service provider
Germany Service provider
Japan Service provider
AustraliaServiceprovider
Belgium Service provider
SingaporeService provider
FranceService provider
ItalyService provider
ChinaService provider
CanadaService provider
Page 12 Global VAT compliance and reporting trends
Model 1
► Limited or no global and/or regional visibility
► Limited or no standardization in data collection
► Variety of service providers globally or regionally
Spain
Germany
Japan
Australia
Belgium
Singapore
France
Italy
China
Canada
Service provider
Service provider
Service provider
Service provider
Service provider
Service provider
Service provider
Service provider
Service provider
Service provider
HQ
Page 13 Global VAT compliance and reporting trends
Model 2
► One provider► Similar service
levels
but► Local resources are
at the center of basic control
► Limited cost saving► Limited, if any
additional value
Spain Service provider
Germany Service provider
Japan Service provider
AustraliaService provider
Belgium Service provider
SingaporeService provider
FranceService provider
ItalyService provider
ChinaService provider
CanadaService provider
HQ
Page 14 Global VAT compliance and reporting trends
SupplierGlobal
Governance
ClientHQ
Model 2
► Centrally procured and management
► Central control, visibility and access through a formal governance interface
► Consistent service levels
► Consistent and standardized output
► Data and interaction between local entities
Spain
Germany
Japan
Australia
Belgium
Singapore
France
Italy
China
Canada
Service provider
Service provider
Service provider
Service provider
Service provider
Service provider
Service provider
Service provider
Service provider
Service provider
Page 15
SupplierGlobal
Governance
ClientHQ
Model 3
► No one left in country to interact with
► Data needs to come from the center
► Who remains local to agree and sign statutory deliverables?
► One SSC with 100s of discrete requests
Spain
Germany
Japan
Australia
Belgium
Singapore
France
Italy
China
Canada
Service provider
Service provider
Service provider
Service provider
Service provider
Service provider
Service provider
Service provider
Service provider
Service provider
SSC
Global VAT compliance and reporting trends
Page 16
SupplierGlobal
Governance
ClientHQ
Model 3
Integration and alignment of:► Process► Systems► Roles► Governance► Infrastructure
Resulting in:► Mutual
responsibility for local compliance activity
Spain
Germany
Japan
Australia
Belgium
Singapore
France
Italy
China
Canada
Service provider
Service provider
Service provider
Service provider
Service provider
Service provider
Service provider
Service provider
Service provider
Service provider
CoE*
SSC
Global VAT compliance and reporting trends
*Center of Excellence
Page 17 Global VAT compliance and reporting trends
Time spent to comply
Page 18 Global VAT compliance and reporting trends
Time spent to comply (comparison with EU)
Source data: The World Bank/International Finance Corporation
2.41
1.47
1.69
0.0
0.5
1.0
1.5
2.0
2.5
3.0
AMERICAS APAC EMEA - excl EU
Number of times the time spent on consumption tax compliance (per region) exceeds the average time spent
in the EU
EMEIA (non-EU)
Page 19 Global VAT compliance and reporting trends
Indirect tax challenges
Page 20 Global VAT compliance and reporting trends
Indirect tax challenges
► Rules differ by country (even in the EU)► Not all countries allow VAT refunds► Local market practices► Local teams, local-minded► No regional visibility and/or control► Limited (to no) online filing and payment options► No dedicated resources for indirect tax► Lack of technology, manual (labor intensive) processes► Intercompany transactions► CPA signature► Language
Page 21 Global VAT compliance and reporting trends
Indirect tax compliance trends
Page 22 Global VAT compliance and reporting trends
Indirect tax compliance trends
► Increasing focus on the risks and management of indirect tax► Indirect tax being brought into the scope of global compliance
frameworks – either upon implementation or being retrofitted later
► Increasing requests for indirect tax “recommendations”► Move from local empowerment to greater control and visibility regionally (and
globally)► Regional (or global) indirect tax compliance framework requests ► Bringing indirect taxes into an existing regional SSC► Managing compliance from a central hub and twinning with an advisor hub► Re-defining compliance scope in conjunction with centralization and/or
standardization► Application of periodic country reviews – sampling, “health checks” data
analytics► Interest in use of technology increasing
Page 23 Global VAT compliance and reporting trends
Final remark
Page 24 Global VAT compliance and reporting trends
How companies are managing (or not managing) their indirect tax positions
► Actively identify and manage risk
► Implement process/system-based changes
► Have sufficiently trained resources
► Increase use of technology to support
► Standardize and centralize processes
► Establish effective work relationship with authorities
► Participate in policy discussions
► Always consider VAT or GST for newly planned activities or investments
Proactive managing: observations
Many companies are facing mixed consequences. Those with a clear VAT/GST strategy tend to do better.
► Lack of local country visibility
► Fire fighting with insufficient resources
► Financial and non-financial penalties
► Tense relationship with authorities
► Possibility of audits in other taxes
Not managing: observations
Rapidly changing regulatory
environment
Tax revenue pressure
Specific initiatives
Increasingly complex business activities
Page 25 Global VAT compliance and reporting trends
Circular 230 disclaimer
This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer’s facts and circumstances.
These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice.
Page 26 Global VAT compliance and reporting trends
Disclaimer
► EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the U.S.
► This presentation is © 2014 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of U.S. and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party.
► Views expressed in this presentation are those of the speakers and are not necessarily those of Ernst & Young LLP.
