Make sure your ERP system doesn’t let your tax function down

Enterprise Resource Planning (ERP) systems are central to operations in just about every large organisation. Deploying or upgrading an ERP platform is a major undertaking – one that often triggers a wider transformation programme. 

Your tax function is integral to the planning and implementation of any such project. The tax team’s role should be three-fold:

1. Mitigating any tax risks arising from the implementation.
2. Maintaining compliance with tax regulations in all jurisdictions.
3. Ensuring that tax processes are set up in the system in a way that adds value to the business.

Yet tax is often an afterthought during an ERP project – or left out entirely.

The tax team must define your tax determination and compliance processes, and feed into the design of other processes within the ERP system. The objective is to ensure that financial and other data in the system is complete, accurate and in the right format for your compliance requirements.

This is more important than ever as international tax regulation intensifies. Your ability to meet complex requirements – such as e-invoicing, real-time reporting and BEPS Pillar II obligations – will depend on the completeness and accuracy of the data in your ERP system.

At the same time, the system must be configured to ensure that your tax processes can:

• automate tax decisions for relevant transactions, and maximise the use of the ERP system’s tax functionality, at the very least; and
• drive business value – the ERP should contain the right data, at the right level of granularity, to allow you to enhance the organisation’s cash tax position in a cost-constrained climate.
  

Without the tax function’s involvement, there are real risks of errors and compliance failures; and it will be impossible to take full advantage of the new system’s capabilities.

As a tax leader, how can you put yourself at the heart of an ERP-led transformation? How do you ensure the new system gives your team what they need to perform in their roles, and adds value to the organisation?

In our experience, getting the tax aspects right means putting four critical elements in place as early as possible:

1. Make sure tax has a seat at the table

Articulate the business case for the tax function being involved in your organisation’s ERP implementation or upgrade.

Speak to industry peers who’ve been through similar projects about how they integrated tax. Nominate a tax representative for the programme, and create a dedicated tax workstream.

2. Articulate the value tax offers

Communicate the advantages to your stakeholders of getting tax involved in your ERP implementation (this should be part of your overall tax technology roadmap).

Communicate the risks of not doing so, and the potential value to the business in getting it right.

Some of the benefits will be quantifiable, others qualitative. Among the latter is your ability to meet new compliance requirements wherever you operate. You could convey this in terms of preventing additional scrutiny from tax authorities – or even protecting your licence to operate.

3. Define the tax requirements

Set out all the tax processes the ERP system will need to support. Define these globally, and for every jurisdiction in which you operate. Highlight which can be automated, and clarify the compliance requirements attached to each one.

You may need to bring in an external tax technology expert, to make sure all tax rules and treatments, in all countries, are accurately reflected in the system. Most technology systems integrators won’t have the specialist tax knowledge for that.

4. Integrate tax into wider business processes

Think about how tax affects, and is affected by, every other process in the business, and throughout your supply chain. That includes finance, sales, purchasing, expenses, customer acquisition, reward and much more.

To make this happen, connect with the relevant process and data owners across the organisation. Establish a network of project stakeholders across the business (IT, finance, etc.), and know who’s responsible for each aspect of the transformation. 

From there, work with those stakeholders to incorporate the tax requirements into each aspect of the ERP design.

5. Understand the system’s tax functionality

Get a detailed understanding of what your new ERP system can and can’t do in relation to your tax requirements.

It must automatically attribute the right tax treatment each time a sale is made, an order is placed, a new customer is set up, an asset is purchased, employees are paid, etc.

Where are the gaps? Can the system be configured to support e-invoicing or real-time reporting? Can it handle your BEPS Pillar Two requirements? Are there plug-ins for these, or will they demand dedicated solutions? How will your ERP tax design affect all of this?

Having that granular view will enable you to identify any additional tools you’ll need. 

Your systems integrator should be able to help with this from a technological point of view. But again, they may not have the necessary tax expertise.

Getting a ‘tax integrator’ to work with your systems integrator will be critical. Technology consultants are unlikely to offer the deep, technical tax expertise needed to configure an ERP system to meet your global and local tax requirements.

Without that specialist knowledge to draw on, your efforts to integrate tax are likely to fall short. We’ve seen many cases where the tax benefits of an ERP system are over-promised – or worse, where the suite of tax capabilities goes unexploited resulting in significant tax compliance risk.

KPMG resolves these challenges through Powered Enterprise Tax: our tried-and tested methodology for embedding tax processes into ERP systems.

Powered Enterprise Tax is our standardised approach to designing, building and delivering tax requirements. It will accelerate your transformation, while tailoring it to your specific needs.

Our Tax Transformation team has extensive experience of many different ERP systems – including SAP, Oracle, Workday, Microsoft Dynamics and others. We can be the bridge between your tax team, IT function and systems integrator – helping to ensure that tax is central to your ERP implementation.

Please get in touch to find out how we can support your tax team.