Headline Verdana Bold Managing tax - Deloitte United States · firms in more than 150 countries and territories bringing world-class capabilities, insights, and high-quality service

Headline Verdana BoldManaging taxBalancing current challenge with future promiseThe EYE, Amsterdam, 30 November - 1 December 2016

Operational

transfer pricing:

putting policies

into practice

Andy Michaelides, Deloitte UK Simon Cowan, Deloitte UKHema Khurana, Deloitte Netherlands

3

Contents

Overview 4

What we hear from our clients 6

Making the decision to improve (including Technology options) 8

What others are doing 17

Recap and questions 18

©2016. For information, contact Deloitte Touche Tohmatsu Limited.

4

Overview

What’s always been there:

• Complexity

• High impact – cash, effective tax rate (ETR), time

• Disconnect across functions

• Risk from use of spreadsheets/‘light’ technology support

What’s new:

• Base erosion and profit shifting (BEPS)

• Wider range of technology options

What’s coming:

• Greater public disclosure

• Further technology improvements

The changing environment


5

Overview

The elements of operational transfer pricing


6

Couldn’t say for certain that we’re meeting targets in

year – we just don’t have that information

yet

We just don’t have enough time to do the analysis we’d ideally

like

I know our part of the process but I don’t

have a lot of visibility of what Finance do

My CFO has asked what impact the BEPS regulations will have on us – I’m not sure of how the numbers

will change

We just had to make a large adjustment –I just hope this year’s

numbers are right

I wouldn’t be very confident if an audit

arose

We can’t really do much in the year –

we have to wait until year-end

We’ve got everything in a spreadsheet that we’ve built up over

the yearsWhat does ‘good’

look like?

There are things I know I’d like to do

but I just don’t know if we’d get the budget

What we hear from our clients…


7

Getting

the

model

right

Upskilling tax and finance

Certainty over process – clear

definition

Assurance on controls

Documentation and compliance

management

Managing tax authority audit

process

Comfort on spreadsheet quality

Process improvement

Technology improvement

Process knowledge

transfer

Getting the

model

right

Managing tax authority

relationship

True-up process

Audit response

What we hear from our clients - The changing picture

How expectations have expanded


8

Consulted/informed

Project sponsors

Budget holders

Tax authorities

Accountable

Project owner

Workstream leads

Responsible

Project delivery

Process owners

Why stakeholder engagement matters –some things you might need to access:

• Business case sign-off

• Cooperation on execution

• Mandate or permission to reform

• Resources

• Know-how

Making the decision to improve

Step 1: stakeholders


9

Process design– what is it?

• Work through all options for process design

• For best impact, approach should be to target optimal design versus incremental improvement of existing model

• Consider range of characteristics:

• Nature

• Frequency

• Ownership/operation

• Change management

• Controls

Process design – what value does good process design give?

• Identifies optimal scenario for running the end-to-end process within the business – a pragmatic version of ideal process

• Better steering in-year – fewer year-end true-ups or surprises – better alignment with finance/business processes

• Efficient use of resources


Step 2: process


10

Process mapping – what is it?

• Captures a breakdown of individual activities within overall process

• Has a clear start and finish

• Captures details of process owners/contributors, handoffs, controls, decision points, data used, systems, etc.

• Different teams within business have their own ‘swim lane’

• Can include down to detail of specific reports run

Process mapping – what value does it give?

• Provides clarity over detail of what is usually a multi-function complex process – gives a common, agreed understanding of that process that can be used as a foundation for change

• The process of completing a map usually highlights key challenges and issues, as well as opportunities for enhancements

• Can be then leveraged widely – training materials, stakeholder communications, tax authority audit defence, control testing, etc.


Step 2: process (cont’d)


11

Technology enhancement – software developments and technology know-how have radically improved over the past 2-3 years. The purpose of each of the technology solutions is to create an efficient, reliable and auditable way of managing the calculation process. The main range of responses used within businesses are outlined below:

Solution overview Typical benefits Commentary Nature

1. ERP provider solutions

• Fully integrated data approach using native ERP provider software

• Robust audit trail, scenario planning,

• Can bring in additional data sources

• Software is designed well for profit and cost allocations

• Strong integration with core financial data

• Fully automatable logic capability

Configure

2. Embedded thirdparty transfer pricing solution

• Designed specifically to manage transfer pricing

• Automated data transfer with supporting controls

• ‘Designed for purpose’ technology, with fully automated logic capability

• End-to-end TP functionality, flexibility, scenario planning and audit trail

Configure

3. Tax data warehouse + bespoke reporting

• Bespoke solution built for client purposes

• Creates a single staging area

• Data transfer can be automated

• Maintenance can be onerous

• Changes to format of core financial systems will require update to data warehouse structure

• Scalability/controls are key issues

Build

4. Excel (with spreadsheet management software as best practice)

• Rapid to deploy; low cost

• Excel software is familiar to users

• Spreadsheet management software can be used to increase controls

• Update and maintenance to data sets is not usually automatic and can easily be missed/performed incorrectly

• High risk of user-introduced errors

Build

Making the decision to improve Operational transfer pricing technology options

12

Key attributes

Integration within ‘single system’

• Data – data potentially stays within one system

• Metadata – shared core data with financial systems

• Governance – native integration to transaction-level data

Transparency & Reporting

• Transparency – clear audit trail and drill-down

• What-if – ability to set up planning scenarios

Maintenance

• Maintenance – can be done by in-house IT resources

• Expertise – leverage in-house ERP resources

• Upgrades/updates – ERP provider-led upgrades ‘should’ not impact adversely as it is ‘same vendor’ software

• Functionality will continue to be added and refined as customer feedback progresses


Making the decision to improve Technology option 1: ERP provider solutions

13

Key attributes

Integration with existing systems

• Data sources – any computer-readable data can be imported

• Data controls – data integrity can be checked on upload

• Governance – provides integration to transaction-level data

Transparency & Reporting

• Transparency – clear audit trail and drill-down functionality

• ‘What if?’ – ability to set up new scenarios and determine impacts

Maintenance

• Maintenance – allocation stages, drivers and hierarchies all can be maintained by functional users as opposed to IT, if preferred

• Expertise – in-house expertise needs to be created

• Upgrades/updates – upgrades and additional functionality are provided regularly by software house


Making the decision to improve Technology option 2: embedded third party transfer pricing solution

14

Key attributes

Data collation and enhancement

• Access - data is imported into a common staging area where it can be readily accessed for analysis

• Enhancement – different data fields can be linked

• Reporting – visualisation software can be added easily

Key constraints

• Potential lack of transparency

• No calculation engine

Maintenance

• Maintenance of good quality data can be onerous

• In-house support – maintenance can be done in-house

• Capacity – access to in-house support needs to be understood so maintenance needs can be accommodated

• Upgrades/updates – clear protocols to manage updates so integrity of design is not compromised by changes


Making the decision to improve Technology option 3: tax data warehouse & bespoke reporting

15

3

Key attributes

Improve individual spreadsheets

• High risk spreadsheets can be targeted for improvement with best practice recommendations implemented

• This makes them simpler to operate and enhances the controls present to reduce risk

Spreadsheet ‘scrubbing’

• Diagnostic tool can be applied to spreadsheets to identify potential errors and inefficiencies – including hard-coding; inconsistent formulae; data inputs from outside the spreadsheet; etc.

• Spreadsheet experts can also optimise the efficiency of the spreadsheet set up and automate as much logic as possible

Spreadsheet management software

• Enhanced control – version control, knowing when and what changes have been made and by whom

• Real time alerts, input controls and creation and monitoring of any specified custom rules. Visualisation of relationships between workbooks


Making the decision to improve Technology option 4: Excel

16

1

2

3

4

Identify and engage required stakeholders

Define optimal process

Assess fit-gap against data and systems

Apply appropriate controls and workflow management; define and communicate roles and responsibilities

1

2

3

4


Recap


17

◦ Medical group – needs a model to calculate a new policy that has been agreed

◦ Specification of logic and requirements

◦ Definition of data inputs and sources

◦ Collaboration and handover to internal IT function for final build and maintenance

◦ Investment bank – tax authority queried product revenue allocation

◦ Validated process maps

◦ Controls testing

◦ Report and presentation back to tax authority

◦ Telecoms group – review and refresh of TP operations

◦ Full ‘end-to-end’ design of policies, processes, technology, controls, reporting

◦ Stakeholder engagement across board, business units, tax, finance and IT

◦ Design of country-by-country reporting process

◦ Banking group – new back office cost allocation methodology by finance

◦ Design in ERP of functionality to allocate costs

◦ Validation of price setting methodologies

◦ Design of end-to-end process, controls and reporting – regional rollout basis

What others are doing


18

Recap and questions


19

Faculty

Andy Michaelides, Deloitte UK

Director

Simon Cowan, Deloitte UK

Director

[email protected]

+44 20 7303 7272

[email protected]

+44 20 7007 9414


Hema Khurana, Deloitte Netherlands

Director

[email protected]

+31 (0) 882882320

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© 2016. For information, contact Deloitte Touche Tohmatsu Limited.

Documents

Headline Verdana Bold Managing tax - Deloitte United States · firms in more than 150 countries and territories bringing world-class capabilities, insights, and high-quality service