If you are the CFO of a multinational group, are you able to make current tax decisions based on financial data from various ERP systems effectively? How do you deal with a law suit against the tax authorities of the jurisdiction in which one of your subsidiaries is located, based on their 5-year old tax returns that are supported by the financial data that you have no transparency to? These are common issues happening all around the world on a frequent basis.
Imagine, a multinational enterprise operating in the chemical industry using different Enterprise Resource Planning (ERP) systems for each of their services and administration. Along with these ERPs you also have to keep in mind old versions of ERPs and in-house developed systems due to past mergers and acquisitions.
Compiling all its financial information, inconsistencies of the financial information from sales records in various ERPs may generate misaligned financials. To facilitate the alignment of financial data across different ERPs, companies use reporting system. Nevertheless, use of multiple ERP systems and its financial data can affect the value added tax, corporate income tax and transfer pricing returns. Inconsistencies between the reporting and the underlying data could incur in numerous audit problems from local country tax authorities on your tax positions.
In recent years, tax authorities in many countries have been able to detect inconsistencies and risks in your books as soon as you file the document. Some countries are already on the level of real-time checking your filed data, giving them the opportunity to follow you in every step. Companies should be ready to quickly reacting to the inquiries from the tax authorities, yet, many corporate managers are not even aware what inconsistencies between the tax reporting and underlying financial data exist. Inconsistencies between your financial data and tax reporting may mean there are operating risks, and too much operating risks may lead to poor profits.
In order to protect your business, you have to get in control of your global financial data and its tax reporting stream. To get in control you need to remove and limit invisible potential uncertainties by creating transparent connection between your financial data from ERP and tax reporting. You need to understand how your systems are configured to provide you the information for you to make the right decision rather that relying on what is reported to you. What is reported to you may be the correct today, but it may not be always correct unless you have underlying systems that can produce reliable information as needed on real-time basis.
In order to produce reliable information, companies need to align and integrate multiple instances of ERP systems with tax reporting systems. You cannot afford to have finance and tax teams taking more than a year of exhaustive cross-checking analysis and data analytics, without the certainty that the hard work will be successful and accurate. To remove this obstacle, it makes sense for companies to have effective “weapon” at hand to avoid inconsistencies of data and reconciliation issues in multilateral audits and tax assessments from several jurisdictions.
Multinationals heavily rely on their ERP systems. ERP systems process and organizes financial data from all levels of the corporation, such as accounting, sales and manufacturing invoices of materials. Commonly, the layout designed to collect financial data from an ERP is different from the layout required by tax systems or systems implemented by the tax authorities. Stacking all the forms and reports exported by different systems are enough to drown a human being with information and distract them from the core.
In order to be in control, companies should integrate global financial data. In order to be safe, companies must match the global financial data with data reported through tax systems. To meet both goals, three steps need to be taken. The data is extracted from all the systems, the data is aligned with a standard and understandable system and finally the result is exported for management and compliance purposes.
Fortunately, there is a solution. That solution is “ERP2Tax”, a software that performs a detailed mapping analysis of the financial entries and outputs of ERP systems with entries in tax systems. After the mapping is done, ERP2Tax can extract and transform financial data from various ERP systems. During this process, an efficient ERP integration system may perform the following mapper transformations:
Graph 1. ERP2Tax transformation tools
Subsequently, ERP2TAX can load the mapped financial entries from various ERP systems into mapped tax systems entries.
Graph 2. For illustrative purposes only.
Corporations intending to expand the use of data from ERP to support complex tax calculations may face challenges to link financial information with automated tax systems. In this context, ERP2Tax can assist your company to synchronize the data in ERP systems with data in tax systems to automate a large portion of tax processing. TPA can help your company to take control in this process.
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