For tax functions, the ERP system is the core information supply to embrace in the digital transformation. This is part 2 of a three-part Microsoft Dynamics Tax series.
In our first blog of this series, we discussed why the tax function needs to get involved in migrating to a new ERP system or in enhancing the current one. In this second blog, we will go into greater depth on the exact input of the tax team.
Thinking about Microsoft Dynamics 365 and tax, what does it mean in practice?
Several important decisions and workstreams lie with the tax function in every ERP transformation journey:
- Decide up-front whether the organization goes ahead with the core Microsoft Dynamics tax determination capabilities or with an external tax engine/add-on solution
- Intervene in the master data setup:
- Make sure the counterparties information is comprehensive and accurate
- Make sure there are no redundant entries
- Define the tax governance rules for ongoing management of the customer & vendor master data thus set
Having issues with the master data may trigger issues with various implications: from cash collection issues due to wrongly created invoices to a completely messed up VAT determination.
- Work on the configuration of the VAT codes
The ERP tax team needs to design, implement and document the logical linkage between considerations such as counterparty tax classification, material tax classification and specific transaction data (e.g. ship to, ship from). This linkage is the basis for the proper and automatic tax determination and of the data entry rules to be subsequently followed by the ERP users.
Having issues with the proper configuration of the VAT codes may have far-reaching implications with great magnitude of the exposure triggered for the enterprise, e.g.:
- Wrong VAT determination (additional VAT/sanctions/penalty interest assessment)
- Need for manual operations (where no or wrong automation rules are set up)
- Increased discussions with the tax office and need to correct the VAT return
- Reputational issues (e.g. where the omissions have also an impact on the counterparties of the enterprise)
- Consider possible controls (automatic validations, tests and checks)
These may have various forms: form setting rules as for the format of certain data fields, through interlinks with external data bases and tools (e.g. VAT number validation tools, FX rates data bases for automatic conversion etc.), to default tax code usage rules which could only be overwritten by following the protocol of a change request.
- Use the ERP migration as an opportunity to think of what can be done in a better way:
- Reconsider overall tax governance rules and identify opportunities for simplifications in the tax process
- Get rid of non-standard and/or manual processes and building reporting and analytical requirements that were previously not designed due to system and/or resource limitations
- Reconsider/validate current tax approach towards key business operations
- Reconsider supply chains that are inefficient
Challenges before the tax team in an ERP transformation journey
When completing the above task list, the tax team usually bumps into quite a lot of challenges, therefore we recommend to
- secure its early engagement in the process and not only after the "point of no return"
- prepare a thorough and careful plan for its involvement (which is not equally intense during all the steps of the whole transformation phase)
- work with various functionalities of the system (not solely with a tax module), some of them are not very well mastered
- collaborate with other teams and stakeholders in the ERP migration/enhancement project. Sometimes these teams "speak different languages"
- think of all possible scenarios of business operations which might happen at a certain point of time and map them to a specific tax treatment
- analyze complex tax scenarios which might not be part of the company's day-to-day business
- consider foreign jurisdictions' tax legislation
Implementation with KPMG
If your organization opts for Microsoft Dynamics 365, it is advisable to bring a solution provider that can draw on experienced tax experts at the very beginning of your ERP implementation to increase your chances of success and help you avoid common pitfalls and mistakes.
With KPMG as a Microsoft Certified Partner at your side, your ERP transformation would follow KPMG's Powered Enterprise transformation methodology:
- Vision & Validate
- Construct & Deploy
Now you can embrace transformation as an opportunity rather than as a disruptive event. KPMG will bring proven competency and experience to implementations and will help you navigate your company confidently into the digital future. Make sure you are ready for whatever challenge comes next.