Managing Indirect Tax
VAT automation brings centralization, visibility and control for a multi-national
December 9, 2010
A newly formed organization selling products in 100+ countries worldwide. More than 400,000 sales and purchase transactions in the first year. A new ERP system implementation underway. A tax department of one with no local tax expertise or resources. No best-practice tax processes in place. No taxability rules established. This was the situation faced by Systagenix Wound Management as they created a new company structure through a divestment from global healthcare giant Johnson & Johnson®. Systagenix had all the complexity of a large business but the limited resources of a small startup.
Managing indirect tax for this new organization presents a complex set of challenges. In addition to the obvious goal of minimizing risk and penalties for non-compliance, there’s a number of issues unique to companies like Systagenix who are operating in (or expanding into) multiple markets.
Gareth Scanlon, Group Tax Director at Systagenix, summarized the situation, “With no local resources in the regions, our tax department was faced with tracking sales tax in the US, monitoring VAT changes in the European Union, and understanding import and excise taxes in South Africa. We needed a partner that could manage globally all of the rules, regulations, and updates. And automate the calculations.”
Of equal, if not greater, importance to Systagenix was access to data. They wanted a solution where they could manage the controls on tax data and, in real time, get the detail-level and summary-level data they needed for day-to-day decision making as well as for strategic planning.
“Automation was the key,” says Scanlon. “We needed to de-risk transaction tax decisions throughout the supply chain. We wanted to ensure accuracy, improve processes, and provide better data for decision-making. And we wanted a central, automated point of control.”
The Vertex Solution
After evaluating the native tax functionality in SAP (their chosen ERP system), Systagenix determined they needed a solution that offered greater flexibility, control, and reliability. They decided to partner with Vertex to implement Vertex® Indirect Tax O Series®.
Improved Accuracy and Control
Of particular concern to Systagenix was the risk associated with VAT and sales tax decisions being made at various points along the supply chain. “We wanted the tax decisions to be made automatically. And controlled centrally. Choosing Vertex O Series made that possible,” says Scanlon. “Vertex helps us keep tax decisions within the tax department.” The application interfaces directly with the SAP system. The tax decision relies on a number of master data transaction-based variables sent from SAP for each transaction. “It’s completely invisible to the SAP end user. It’s configured, controlled, managed, and maintained by the tax department. It allowed us to implement centralization, automation, and control.”
Rapid Parallel Implementation
Once the choice of Vertex O Series was made, the next step was implementation. When it comes to implementing a new tax engine, companies typically import legacy system data into their new systems. Systagenix, however, started with a clean slate — no data to migrate. While this is a plus in many regards, Systagenix also had no established taxability rules to bring over, no historical sales data, and a brand new team. The implementation process consisted of four steps.
Step 1: System design and configuration (for Vertex O Series and SAP)
Step 2: System build and testing
Step 3: User acceptance and cutover readiness
Step 4: Go live
They set an aggressive implementation timeline, and in under eight months they went live with both SAP and Vertex in 13 countries. In fact, Systagenix found the Vertex implementation process to be so intuitive, that three months after the SAP/Vertex solution was live, the Systagenix in-house team brought their South Africa operations onto the system with minimal assistance from Ernst & Young.
A Team Effort
The implementation team consisted of tax and systems professionals from Vertex, Systagenix and Ernst & Young.
In addition, the SAP implementation team at Systagenix, who started the ERP implementation four months before Vertex began the tax engine implementation, worked hand-in-hand with the Vertex implementation team.
Flexible System Set-up
Throughout the implementation, flexibility was key. “Vertex was set up, built, and configured to respond exactly how we wanted,” says Scanlon. For Systagenix, that meant setting up the system differently for sales and purchase transactions.
Accurate, Automated Calculation
With Vertex O Series, users can choose the tax data sets they need based on the countries where they operate. The tax engine has the tax rules built right in. Systagenix also chose to add-in additional taxability rules specific to their products, markets and transactions. “We utilized the Vertex functionality to customize the system for our business needs,” explains Scanlon. “It does all the mapping to the products that we sell, so it determines the right rates in every market. All of that is within the Vertex system.”
“And the beauty of Vertex O Series is that it’s entirely maintained and updated,” says Scanlon. The web-based system is entirely maintained by Vertex. Systagenix merely downloads global tax data updates monthly from the Vertex website. “We don’t worry about rules and rate changes. We don’t worry about system updates. We don’t have to involve our IT staff at all. There’s no ERP system maintenance needed to manage indirect tax,” says Scanlon. “This is an incredibly hassle-free way to manage things.”
While the primary function of a tax engine is calculation, Vertex O Series offers an equally valuable reporting functionality. “The one thing that really differentiates Vertex is the reporting functionality, notes Scanlon. “We have immediate access to every single transaction made by this organization since day one. And not just in a simple format. We have it in as much detail as was passed from our ERP system to Vertex O Series.
“The ability to do analysis and provide management reporting up to our CFO and to our Treasurers is just so much easier using the reporting database in Vertex O Series. The flexibility to slice and dice that data is far superior to anything we can get from our ERP system,” he claims. “It’s a tremendously powerful tool.”
“Our VAT return process is, very simply, ‘get me the data out of Vertex.’ We don’t use any information from our ERP system. We use entirely the detailed information we get from Vertex and the Reporting & Analysis tool,” says Scanlon.
Prepared for the Future
So, a little more than a year after implementing Vertex O Series, the Systagenix tax function is running smoothly, and there’s a clear process for growth into new markets. But as all tax professionals know, the landscape will continue to change. As taxing authorities increase the sharing of data across borders, it will become even more critical for companies to demonstrate a reliable end-to-end process. Companies that are successful in demonstrating the robustness and consistency of their indirect tax process will benefit from increased levels of trust and improved relations with the taxing authorities.
According to Gareth Scanlon, Systagenix is prepared. The implementation of Vertex Indirect Tax O Series has enabled this start-up to not only improve compliance globally, but establish a tax process that will sustain their growth. His conclusion — “Vertex put the tax department back in control.”
This article has been excerpted from the Vertex webcast "Staying Ahead of VAT in a Growing Multi-National Company" held on June 30, 2010. Download the complete webcast at www.vertexinc.com/ResourceCenter.
Alan James is based in the UK and has a 15 year background in tax technology, with experience in both indirect and direct taxes. He joined Vertex in 2007, moving from the Tax Management Consulting practice in Deloitte. He is currently responsible for helping European-based Vertex customers with their tax automation projects and working with multinational organizations that are planning to implement a tax engine solution. Alan is a Chartered Tax Adviser and holds a Master’s degree in Information Technology Law.