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



[ 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



[ 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




[ 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


Tax functional areas

Tax enablers / drivers



[ 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




[ 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


Tax data can be found in almost all functional areas and can span across

many geographies and systems.



[ 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


** Routine data work ≠ value **



[ A new tax data philosophy is needed

Paradigm Shift”

Strategic Vision

Tax planning & analysis


Data collection and manipulation

,



[ The cash tax planning hierarchy

Each one of these

metrics represents an

off-line spreadsheet

calculation

Planning

Metrics




[ 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


ax m ze cre s e.g.,



[ 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




[ 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

13



[ 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


SAP SME’s

14



[ 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


• Empowerment of tax personnel to take ownership of the solution

• Delivers strategic value-add to the business



[ 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




[ 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




[

Thank you for participating.Please remember to complete and return your

evaluation form following this session.

For ongoing education in this area of focus, visit

www.asug.com.

SESSION CODE: 2012


2012 Unlocking Hidden Value in the Tax Function Using SAP BI

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