ERP, cloud and tax

NAVIGATING
MAJOR
DECISIONS
IN YOUR
BUSINESS
ERP, CLOUD & TAX
ERP, cloud and tax
– Are you planning ahead?
AN INVESTMENT IN A NEW ENTERPRISE RESOURCE PLANNING
(ERP) SYSTEM IS A MAJOR DECISION. UNFORTUNATELY TAX IS
ALL TOO OFTEN A NEGLECTED CONSIDERATION. THIS BROCHURE
PROVIDES A BRIEF INTRODUCTION TO THE ISSUES INVOLVED.
For most organisations, the business
case for a new ERP is not only about a
new IT system but about more efficient
and scalable business processes. Many
businesses use the opportunity an ERP
project presents to streamline their
operations and potentially even review
their entire operating model.
The tax implications of this are often
profound and sadly often over-looked
until late in the project. An ERP project
can cause you to change your business
structure, your supply chain, your
operating locations and your payroll
arrangements – and each of these can
have tax implications. Unless these are
planned in advance, you may end up
with a sub-optimal tax position.
A key consideration is the choice of
cloud versus ‘on-premise’ ERP. An
increasing number of organisations
are attracted to the flexibility and
scalability that cloud ERP solutions
such as NetSuite offer. For smaller
and mid-sized organisations a big
attraction is that cloud ERP allows you
to spread the cost of the investment
to a much greater extent than with
traditional systems. Capital expense is
largely replaced by operating expense.
Plus there may be the chance to reduce
or even close legacy data centres, with
their associated overhead costs. Cloud
ERP opens up a range of options to
mobile-enable your workforce, which
can have implications for operating
locations and hence also for tax
planning.
On top of this, there could be tax
credits available if your ERP system
investment contributes demonstrably
to new research and development
(R&D) – for example through support
for new product lines or by making core
R&D business processes more efficient.
Certainly the new system needs to be
able to generate the data you need to
validate your R&D tax credit claims.
Our experience is that organisations
that take these factors into account at
the start of their ERP journey stand
a much better chance of delivering a
positive return from their cloud ERP
investment.
RSM is a leading accounting, tax and
business advisory firm who can help
you plan your ERP journey and assess
the tax implications, ensuring you are
on the front foot from the start and
that your cloud ERP business case
incorporates tax as well as operational
benefits.
The return from an ERP investment
won’t come from the new system alone.
It comes from the wider organisational
change that the ERP programme delivers,
and tax-efficient structures are a
fundamental part of that.
Chris Knowles,
Partner and Head of Technology
Consulting, RSM
Where to start?
IT IS NEVER TOO EARLY TO START THE TAX PLANNING FOR YOUR
ERP INVESTMENT. INDEED, TAX CONSIDERATIONS ARISE AT
EVERY STAGE OF AN ERP IMPLEMENTATION JOURNEY. WE ADVISE
SEEKING PROFESSIONAL HELP FROM THE START. SOME OF THE
KEY TAX CONSIDERATIONS FOR A CLOUD ERP PROJECT ARE
OUTLINED HERE.
1
2
Selection
1
Selection
The starting point is choosing an ERP system
that will deliver the best possible ROI for
your business. Fundamental to this is – can
it support your organisational structure and
your tax reporting needs? Businesses that
operate internationally need to be certain
that the ERP system can support their local
tax compliance needs. Cloud ERP systems
often have the advantage when it comes to
adding international subsidiaries quickly and
easily. Check whether the providers provide
tax compliance functionality ‘out of the box’
for the geographies that you trade in.
Using up an ERP system in an overseas
territory can, in some cases, have VAT or
corporate income tax implications in the
territory concerned, such as it giving rise to
a taxable fixed or permanent establishment
respectively.
3
Initiation
2
4
Analysis and design
Initiation
As you prepare the business case for your
ERP project, be sure to include all relevant
tax considerations. And as you prepare
your implementation plan, take care to
ensure that you have factored in sufficient
time to assess the tax impact of your
organisational and system design. Could
you get R&D tax credits as a result of your
investment in your new ERP? If the ERP
will be supporting new R&D processes
or if the software solution is a non-trivial
technological enhancement that creates
new knowledge in the market place, the
costs of development may qualify for
enhanced tax relief.
3
Build
Analysis and design
For many organisations, this is when you
start to question your operating structures
and processes. What are your target
business processes? Where will your staff
be located (greater support for mobile
working may be one objective of a cloud
ERP project)? How should your corporate
entities trade, report and consolidate?
Where will you hold inventory? Which
entities will contract with suppliers? All
of these questions can have a material
impact on transfer pricing arrangements
and on customs duties, VAT and corporate
income taxes. And with imminent changes
to the international tax system making it
mandatory for many businesses to provide
corporate information to tax authorities
in a variety of countries, a greater level of
transparency around group operations will
be required. Professional advice should
be sought at this stage to assess the tax
impact of any proposed changes to your
operating model.
5
6
Test
4
Build
During this phase, attention must now turn
to ensure that the ERP system is configured
in a way that will allow you to extract the
management information that you need
to achieve your tax compliance reporting
obligations. A good cloud ERP system will
support much of this ‘out of the box’, but
there may be requirements unique to your
organisation. For example a manufacturer
will want to ensure that the system is built
in a way that allows it to easily extract data
required to support a claim for R&D tax
credits. A business that trades internationally
across a group structure will want to ensure
that transfer pricing arrangements can be
reported accurately.
7
Deploy
5
Test
Here the focus is on validating that the ERP
solution meets the business needs. From a
tax point of view the key thing is to ensure
that test scenarios incorporate tax reporting
and compliance requirements. For example:
•
Does the system provide complete and
correct invoicing, with correct VAT rates and
VAT numbers?
•
Does it provide the data required to
support tax compliance reports and R&D
tax credit claims?
•
Does it account correctly for tax
deductible and non-deductible
transactions?
•
Does it support the accurate and timely
generation of corporate tax, payroll and
VAT returns?
•
Does it allow you to confirm to the
authorities that tax compliant transfer
pricing strategies are in place?
•
Does it have the necessary controls and
segregation of duties in place?
Operate
6
Deploy
Attention should now turn to validating that
your staff have the skills they need to use
the ERP system to support tax compliance
and management reporting needs. Training
plans should factor in tax awareness for
finance and operations staff who play a
role in tax reporting and filing. You may
find that there are be more staff involved
with this than before the ERP system was
implemented.
7
Operate
After the system goes live it is critical to
ensure that controls are put in place to
factor in tax considerations into any future
enhancements or upgrades. As your
organisation grows and starts operating
in new jurisdictions for example, what
business process is in place to extend your
ERP to those geographies? Is there a control
in place to ensure that your internal tax
team or external tax advisers are consulted
before making those countries live on your
ERP system?
Conclusion
BUSINESSES CONSIDERING INSTALLING OR UPGRADING AN ERP
SYSTEM NEED TO ENSURE THAT IT IS CAPABLE OF DELIVERING THE
OUTPUTS REQUIRED TO MEET THE COMPANY’S TAX STRATEGY, AND
THE WIDER TAX COMPLIANCE REPORTING OBLIGATIONS.
Businesses also need to recognise that an ERP implementation can bring with
it fundamental changes to operating structures, reporting lines and business
processes that can have unexpected tax implications if not assessed early on.
Before building the new system, our advice is that you should assess your tax
strategy and how it might be impacted by the new system. Tax strategies are only
of value if implemented and controlled effectively. If an ERP system is not aligned
with the tax strategy, your business may be exposed to unnecessary tax, financial
and reporting risks.
How RSM can help
WE HAVE DEDICATED TAX AND ERP SPECIALISTS WHO REGULARLY
WORK TOGETHER ON CLIENT PROJECTS. WE ARE AN OFFICIAL
NETSUITE SYSTEM INTEGRATOR AND HAVE DEEP EXPERTISE IN THE
CONFIGURATION AND INTEGRATION OF NETSUITE.
Our services include:
• Providing a holistic approach to developing tax strategies – our team of
specialists can advise you on strategies that complement one another across
transfer pricing, corporate tax and VAT. Our Tax and ERP teams work closely
together to ensure tax considerations are ‘baked in’ to your ERP project plans.
•
Designing an operating structure that takes tax into account – as you review
your operating model and core business processes during the ERP system
design phase, we can help you think through the tax implications for proposed
changes to business locations, supply chain processes and transfer pricing
arrangements among other factors.
• Ensuring your ERP system aligns with your tax policies – we can help you
validate that your procedures for identifying tax sensitive expenditure are
reflected in your new ERP system in order to reduce risk of non-compliance and
to improve the integrity of financial reporting data, particularly where it is used
for tax compliance reporting.
•
Evaluate eligibility for R&D tax incentives – our research and development
(R&D) tax specialists can work with you to evaluate whether the ERP project
is eligible for enhanced R&D tax incentives and identify qualifying expenditure,
as well as the data structures needed within the ERP itself to support R&D tax
credit claims relating to other parts of your business operations.
For further
information contact:
ERP SPECIALISTS
Chris Knowles
Partner and Head of Technology Consulting
T +44 (0)7808 161351
[email protected]
Alpesh Desai
Director, Technology Consulting
T +44 (0)7793 051928
[email protected]
Chris Knowles
Alpesh Desai
Ian Carpenter
Ken Almand
TAX SPECIALISTS
Ian Carpenter
Partner and National Head of Indirect Tax
T +44 (0)7595 52827
[email protected]
Ken Almand
Partner, Transfer Pricing
T +44 (0)7708 455570
[email protected]
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