DGHdghidvegi@gmail.com or dora.hidvegi@sap.com

Master of Economics (1995) Budapest University of Economics Studies at University of Cologne

Quality Auditor (ISO 19011)

2005- present SAP Globalizaztion Services SM Project Lead for Tax@Business ByDesign

1996-2005 Oracle Hungary Principal consultant of Oracle Financials. Participated and managed

numerous implementation projects and pre-sales activities. Consulting Quality Manager. Localization Manager of Hungary and the (then) new EU countries.

1992-1996 Scala ECE Responsible for business development in Croatia, Slovenia, Romania and

Bulgaria, Accountant of Scala ECE and Scala Hungary Senior consultant and trainer of Scala Financials modules

Agenda

1) What is localization?

- Coffee break

2) Special focus: EU regulations

What is localization?

Being compliant with…

…specific country requirements

and

…multiple country requirements in parallel

in the area of:

1) Internationalization

2) Language support

3) Functional localization

1) Internationalization

Multi language support Code pages Unicode Time zones Multiple currencies, country codes, etc Multiple and specific Calendars

2) Local Languages

Local language on the UI---) special case: Hebrew, Arabic, Chinese

Local language for documents printed from the system ---) especially legal documents like Invoices, Tax declarations, etc.

Local language for certain delivered/user entered content---) like Name prefixes (Mr, Mrs, etc) choosable from value lists

Local language for user documentation

3) Functional localization

Compliance with local legal and business requirements

Local ----) region/country/state/county/city/etc.

Legal requirements ----) defined and documented by country officials

Business requirements ----) common practice of businesses

Also for content pre-delivered with system ---) of increasing importance!

Global and Local elements

Global Calendar Language handling Time Zone support Global Master Data Chart of Accounts

design Global and integrated

processes

Local Tax handling Financial reporting Local processes Country specific

configuration options (eg.:Chart of Accounts)

Country specific installation program for preconfigured settings/content

Etc…

Why localize?

A) With certain requirements a software MUST comply

---) Gapless customer invoice numbering and copy tracking. In HU the software must be certified by officials and software vendor must issue a certificate of compliance when selling the product

B) You can not get a customer if you don’t

C) you have contractual obligations?!? ---) watch out for the wording of contracts

Maintenance of localizations

continuous activity of

Monitoring and following up changes Last minute changes of law --) short response time

needed Localization of any new functionality of the

software Supporting users of localizations

Legal requirements are usually high prio messages

What to localize?

What makes sense from a business perspective Justifyable business case of selling the product/

functionality The consequence of not localizing is great enough

(eg.: fines)

Be pragmatic, but keep in mind that localization becomes only visible when it is missing and that is potentially too late…

Organizational aspects

Localization is ALL over…

Usually defined as an independent function within the company

Regularly moved among the major divisions (development, sales, support, consulting)

And who pays for it?

It is primarily a cost ---) development, sales, support, consulting, etc…

Indirectly it generates license revenue ---) product can be sold

Indirectly it generates consulting revenue---) implementation of localizations, special knowledge

Increases customer satisfaction

Creates huge unsatisfaction if missing

Hard to quantify revenue saved or generated by localization

and now…

COFFEE TIME

Localization topics in EU

What is the product to be sold in a country of EU?

What are the requirements/legislations in general effecting the product?

What are the effeccting EU ones? What are the effecting local country ones?

---) EU gives directives to the countries and each country must harmonize it’s own legislation meet EU requirements.

Country versus EU

1st level: COUNTRY

entities must comply with local regulations

2nd level: EU

country must comply with EU requirements

Discrepancy: European Court of Justice rules (ECJ)

European Court of Justice (ECJ)

Article 220 of EC States:

The court of Justice shall ensure that in the interpratation and application of this Treaty the law is observed

(EC= European Community based on the Treaty of Rome)

Primary Community Laws

Refers to the provisions of the original three Treaties:

ECSC –European Coal and Steel Community(expired 23 July 2002)

Euratom – European Atomic Energy CommunityEEC (later EC) – European Economic Community

Later amended by: Single European Act (1 July 1987)Treaty on European Union (Treaty of Maastrich)Treaty of AmsterdamTreaty of Nice

Single European Act

Introduced a cooperation platform for the coordination of foreign policy under the name European Political Coopertion

Reformulated the objective of the common market as an internal market (an area without borders) and set the deadline 31 Dec 1992 to relaize this ---) the European Tax law underwent dramatic

changes at this time

Treaty on European Union

Treaty of Maastricht, Dec 1992

The original three tresties underwent substantial changes, including change from EEC to EC

Established the European Union:

The Union is not a searate legal personality, best seen as the organized totality of the relations between the Member States.

EU= The roof of a building

Best described as a roof where the building has 3 pillars:

I. A Community pillar, comprising the two treaties

II. Common foreign and security policy (CFSP)

III. Provisions on coopertion between the Member States in the field of justice and home affairs

Nice Declaration – the Treaty for Constitution of Europe

Nice European Council, Dec 2000

Declaration on the future of the Union was adopted

Institutional reforms

launch a debate on the future of the EU

Laeken European Council

Convening of an IGC in 2004

European Constitution

Key Elements: There will be only one European Union, replacing

„European Communities”, and the „European Union”,

the three pillars will be merged (special procedures will be replaced by „Treaty establishing a Constitution of Europe”)

The Charter for Fundamental Rights will be integrated into the text --) simplification

Entering force only when all MS ratified

Secondary Community Law

Decisions taken by the institutions entitled to take them under the three (now two) primary treaties via: Regulations Directives (EU 6th Directive on VAT) Decisions Recommendations Opinions

The Community Institutions

The European Parliament The Council (NOT the European Council)

The Commission The Court of Justice (ECJ) The Court of Auditors

Ancillary bodies

Supporting the 5 Institutions

The European Economic and Social Committee The Committee of the Regions The European Central Bank The European Investment Bank The European ombudsman

ECJ

Located in Luxembourg Ensures that in the interpretation and application of

the Treaty the law is observed Direct appeals by individuals and companies Disputes between Member States Member States and Institutions Between Institutions

One judge per Member State 8 Advocates General

The Council

Lay down and implement legislation Representatives of the governments of the

Member States Ensures the coordination of the general

economicc policies of the MSs Legislative authority Responsible for concluding agreement between

Community and non-member countries or international organizations

Responsible for common foreign and security policy

The Commission

Executive Committee of the EC Exclusive right of initiative --) no proposal, no act

by the Council Supervisor: ensures the obervance by the

Member States of their obligations under the Treaty

May institute proceedings against a MS that may lead to judgment by ECJ

Executes the tasks of the Commission

Important legal requirements

IFRS 6th directive on VAT Direct taxation (profit tax, etc) Statistical declarations: eg:Intrastat Industry Specific regulations (eg: ECB for

National Central Banks and commercial banks)

IFRS

International Financial Reporting Standards Post Enron world World-wide Applied also by EU In addition to local GAAP

Must be supported by softwares Need to support multiple country specific GAAPs

parallel Localized Financial Statements

Direct Taxation

Double taxation treaties Usually not supported directly by generic

softwares, only special nieche ones

VAT

Very important for any software in the ERP world

Also for nieche software from which purchasing, sales or inventory management is performed

Complex and troublesome to implement: Massive transactional data to be calculated and

stored in proper detail Legal reporting of VAT is high prio Auditability of data and processes

VAT

EC Articels 23-31: free movement of goods, customs union and prohibition of quantitative restrictions

EC Articles 90-93: prohibit fiscal discrimination, fiscal dumping with indirect taxes, instructs the Council to adopt provisions for further

harmonisation of indirect taxes

VAT

VAT Directive 2006/112 National VAT Acts ECJ Rulings

Characteristics of VAT

A general turnover tax: VAT covers all goods, services and imports, unless the law explicitly provides otherwise

An „all-stage” tax: VAT covers all persons engaged in economic activities in the chain of production and distribution of goods and services

A „non-cumulative” tax: taxable persons are entitled to deduct VAT on inputs

An”indirect tax”: VAT is not born by the taxable person who remits it to the government, but the final consumer

VAT - Neutrality principles

Legal neutrality: Tax burden is proportionate to final consumers expenditures

Economic neutrality: No incentive to vertical aggregation of business activities Neutral with respect to outsourcing activities Neutral with respect to allocation of means of production

Internal neutrality: also own consumption is subject to tax External neutrality:

exports are relieved from VAT in country of origin Imports are taxed in country of destination

Subject to VAT

The supply of goods and services

Effected for consideration

Within the territory of the country

By a taxable person acting as such

Taxable Person - VAT

Any Person

Who independently carries out

in any place

Any economic activity

Whatever the purpose or results

Taxable transaction types - VAT

Domestic

Intra-Community Trade

Third Country

Intra-Community– Supply of goods

Only if a supply involves movement of goods can it be exempted

Dispatched or transported goods PoS is where dispatch or transport of goods begins PoS in MS (Member State) of import Goods installed or assembled: PoS= where installation Chain transaction:

On who’s behalf are the goods transported Where am I in the chain ---) am I before or after the transport

responsible...?

Goods NOT dispatched or transported Place where supply takes place

Supplies in EU on ships/trains/aircrafts Point of departure (or first embarkation in EU)

Gas/Power via grid and pipeline PoS depends on the nature of buyer (where customer resides)

Intra-Community– Supply of services

General Rule: PoS where supplier has established his business or has a fixed establishment from which service is supplied or has his permanent address or where he usually resides

Exceptions from general rule: Intermediary Services – PoS where underlying supply takes place Services related to immovable property – PoS where immovable property is

located Passenger Transport Services – where transport takes place, having regard to

distances covered Services related to certain activities – PoS where services are carried out Intangible/professional services – PoS where customer is established if the

customer is a taxable person established in an other MS or is not a taxable person resident outside EU

Special rules for simplification and tax avoidance prevention: Margin Scheme: tour operators/travel agents, second hand goods, works of art,

antiques Special Scheme for investment gold

Intrastat

Intrastat is the name given to the system for collecting statistics on the trade in goods between the countries of the European Union (EU).

It has been operating since 1 January 1993, and replaced customs declarations as the source of trade statistics within the EU.

The requirements of Intrastat are similar in all Member States of the EU.

Intrastat

Similar to VAT: transactional data to be identified, stored and

declared Data of Intrastat is closely related to primary VAT

data in the systems, often based on VAT data Differences to VAT:

Intrastat is based on the movement of goods (Ship from and Ship to)

Not all VAT transactions are relevant for Intrastat

Thank You!