For tax functions, the ERP system is the core information supply to embrace in the digital transformation. This is part 1 of a three-part Microsoft Dynamics Tax series.
Implementing an enterprise resource planning (ERP) system is a complicated process that requires careful planning and strategy. The time for integrating different systems and processes into a single platform can vary greatly. Multiple factors contribute to the duration and expense of the process:
- the size of your organization
- the length of the value chain
- the industry in which your organization is active
- the complexity of your current IT landscape
- the number of users
- the way of data migration from legacy systems
- various regulatory requirements, such as tax and customs compliance
It is true that a project which can easily last years should be adapted continuously (think of launching a new product requiring customs classification, which in turn creates a new tax compliance requirement), however, the preparation phase of an ERP project plan prior to the deployment is important for a successful implementation.
For tax functions, the ERP system is the core information supply to embrace in the digital transformation. An ERP system can cover many company functions. Some of the main business processes that can influence tax function include:
- financial management
- procurement (procure to pay)
- sales and distribution (order to cash)
- supply chain management
- customer & vendor management
- production and planning
When to think about the ERP?
During the day-to-day operations, there are signs or tax-specific events when the tax function interacts with or should think about the ERP system and the existing tax operations. We have listed these signs and tax-specific events below:
- Changes in your operating model and/or supply chain (principal company, indent seller)
- Mergers & Acquisitions (how to integrate of the acquired ERP system)
- Introduction of new products and business lines (from tangible offerings towards services as a solution)
- Reorganization (e.g. new procurement models, changing legal entity structure)
- Changes in ERP system, migration or upgrade
- Changes in Tax legislation, e.g. VAT rate, reporting obligations, digital tax compliance
- High number of manual interventions and reconciliations
- Lack of measurable data (which instance is the one true source?)
- You can’t meet the expectations of vendors and customers (delay in invoice processing and payment, inaccurate customer data, incorrect VAT treatment or wrong VAT references on invoices).
Involving Tax in an ERP project
ERP systems are adapted in regular intervals through upgrades, enhancements or due to business environment changes. For example, a migration into Microsoft Dynamics 365 Finance as a core ERP platform is a practical example. A successful migration to Microsoft Dynamics 365 Finance (as to any other ERP) requires the involvement of the tax function from the very beginning. This means that the tax department participates as a dedicated project team in all tax-relevant workstreams. It is critical to include tax requirements in the global template and continue with the localization where it is required. Raising awareness of taxation issues for key workstreams has also proven to be effective. The early consideration of the tax requirements for the ERP into concrete business cases, which can be underpinned with a budget, is also necessary for the success of the project.
Microsoft’s tax capabilities are continuously enhanced, which is an opportunity for the tax function to properly cover legal requirements. Among others, Microsoft has made generally available the enhanced electronic invoicing capabilities in May 2021. According to Microsoft, this new hyper-scalable multitenant electronic invoicing service enables configurable formats, processing of electronic invoice documents, and a configurable document exchange. In its May release, it supported the Egyptian e-invoice formats and direct integration with the ETA (Egyptian Tax Authority). Several country-specific e-invocing solutions for Europe are coming in July 2021, and more country solutions will be available in August and later in the year.
Further Tax Calculation service has also been available for public preview since 16 April 2021 and it is expected that its general availability will be announced soon. According to Microsoft, Tax Calculation service is a configurable microservice that enhances the tax determination and tax calculation capabilities of Dynamics 365 Finance and Dynamics 365 Supply Chain Management to cover complex tax scenarios like transfer pricing, EU intra community supply/acquisition, EU triangulation transaction, EU distance selling, tax calculation for used goods, etc.
The new tax determination capabilities include flexible tax rates determination matrices, multiple VAT IDs determination, tax determination on transfer order, etc. They will allow maintaining multiple VAT IDs under a single legal entity, manage multiple VAT IDs of vendors, customers and auto-determine the correct VAT IDs on transactions.