What Can VAT Automation Do for Your Company?
VAT automation brings centralization, visibility and control for a multi-national start-up.
September 23, 2010
by Alan James
A newly formed organization selling products in 100-plus countries worldwide. More than 400,000 sales and purchase transactions in the first year. A new Enterprise Resource Planning (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 start-up.
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 U.S., monitoring value-added tax (VAT) changes in the European Union (EU) and understanding import and excise taxes in South Africa. We needed a partner who could manage all of the rules, regulations and updates globally. And automate the calculations.”
Of equal, if not greater, importance to Systagenix was access to data. They wanted a solution in which 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 less than 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.
Automated VAT determination on sales transactions. Systagenix handles its sales and purchase transactions differently. With sales transactions, Systagenix originates the data and is confident of its validity. So for sales transactions, Systagenix lets the Vertex system apply the VAT using standard rules (and sometimes those from the system’s Tax Assist functionality, if necessary). Since Systagenix is comfortable with the data source and rules application, there is no need for manual consistency checks. And the data extraction for monthly, quarterly and annual returns is streamlined. “We didn’t want our people spending time considering every VAT decision on sales transactions. We wanted to develop a process where the decisions are made automatically.”
Some manual intervention on purchase transactions. For purchase transactions, Systagenix has kept a level of manual intervention in the process. Vertex provides recommendations on the application of VAT — tax-department staff evaluates the recommendation and factor in other information that might not have been applied. Purchase invoices often contain incorrect data and Systagenix believes human oversight and review adds a layer of scrutiny and ensures higher compliance for these transactions.
Alan James is based in the United Kingdom (U.K.) and has a 15-year background in tax technology, with experience in both indirect and direct taxes. 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.