Implementation of SAP Tax Compliance Management at BASFPascal Mattern, BASF

pascal.mattern@basf.com

Agenda

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The importance and challenges of an internal control system (ICS) for Value Added Tax (VAT)

How SAP Tax Compliance can be used as an ICS with a high degree of automation and compliance

Experiences at BASF with SAP Tax Compliance

VAT Compliance

“If you think, compliance is expensive, try non-compliance.“

Former Deputy U.S. Attorney General Paul McNulty

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Why concern with VAT?

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BASF

SupplierCustomer

VAT meaning for BASF

Affects every transaction

Millions of transactions p.a.

Complexity due to diverse and locally different regulations

VAT meaning for Governments

Biggest income source

Very sensitive regarding fraud

Strong technological efforts to detect fraud

Achieve ‘zero mistake’ in BASF’s variety of complex business models

Government Authorities

Sell Buy

Data exchange

Report

ReportReport

Example: VAT flows Germany

Scope of Value Added Tax

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Master Data

P2P O2C B2R Projectse.g. M&A

Quality Assu-ranceand De-

fense

H2R

End-to-End (E2E) Processesrelevant for VAT

Legal requirements for VAT Compliance

Financial Risk● Output VAT – VAT paid to authorities without being able to reclaim it from customer● Input VAT – VAT paid to customer without being able to reclaim it from authorities● Interest (DE: 6% p.a., BE: 9,x % p.a.) and penalties (PL: 30%, IT: up to 200%)

Compliance Risk● Avoidance of liability● Cf. BMF 2016-05-23 (Germany, similar in other countries): indication for missing willful intent of

tax fraud because ICS is established

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Why is an Internal Control System needed?

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Internal Control System (ICS) for VAT current trends NL – Tax Control Framework / Horizontal Monitoring GB – Group Tax Strategy for Large Businesses

● the approach of the UK group to risk management and governance arrangements in relation to UK taxation

OECD – Co-operative Tax Compliance EU – Certified Tax Payer (CTP) for final regime taxing

intra-Community supplies draft proposal VAT Directive Oct. 4, 2017

DE – Audit Standard 980: Tax Compliance Management

Electronic VAT Books Spain ► Immediate Information Sharing (SII-Suministro Inmediato de

Información) system ► As of now, to be kicked off from 1 January 2017 ► No detailed overview of the requirements available yet ► Legislation is expected to be finalized this year

From 1st July 2016 onwards it is required to provide SAFT-PL files in XML format on request of the Polish Tax authorities.► Filing SAF-T will be mandatory for large taxpayers: employ

more than 250 people or 50 million EUR sales revenue irrespective of whether they are established in Poland or not. Per 1st July 2018 this extended to taxpayers with more than 9 employees or 2 million EUR sales revenue.

Challenges arising during the monthly VAT return

Download Data from SAP to Excel

Work in Excel

Get info from somebody

Correct in SAP, note in Excel

Keep in mind manual corrections to VAT return

Years later the documentation needs to be readily available for audit purposes

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High manual effort, error-prone

SAP Tax Compliance process

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Central Check Repository Scenario-ManagementContinuous

Identification of wrong postings

Automated Initiation of Correction Measures with Status Management and

Documentation

Reporting and Optimisation

Generic Process for Continuous TAX Monitoring und Risk Management

Example Process based on Data Analysis Solutions on the market

Holistic Process for Tax Control System with SAP Tax Compliance

Identification of Tax Compliance Requirements

Definition and Implementation of

Queries

Planning and Execution of

Queries

Display of Results and Analysis of Breach of Rules

Initiating and Execution of Correction Measures

Follow-up and Closing of Findings

Reporting and Optimisation

Identification of Tax Compliance Requirements

Definition and Implementation of

Queries

Planning and Execution of

Queries

Display of Results and Analysis of Breach of Rules

Manual Process

Decision to Co-Innovate with Bosch and SAP results in the design of SAP Tax Compliance Management software

Data does not need to be downloaded, no system break

Checks run automatically for each defined period, no manual start necessary

BASF: Ticket System is linked to TCM; TCM can send tickets and receives notification for closing of ticket

Correction done in ERP, manual corrections can be sent as tickets

End-to-end process is documented and compliant

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Guiding principle:How can we automatically identify wrong VAT data and automatically initiate correction and documentation measures to be compliant

Technical set-up SAP Tax Compliance Management at BASF

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SAP TaxCompliance

SAP HANA

SAP TaxCompliance

HANA Application Content, Tables, Views, Procedures, Search Models

SAP GRCFIORI Frontend

COBALT

COBALT Oracle DB

BASF

VAT Collaboration

Plattform

Ticketing System

SAP PO

RFC (e.g. Display FI Docs)

OD

ata

ABAP Adapter

SAP Smart Data

Integration

SAP Tax Compliance ManagementLook & Feel

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SAP Tax Compliance Management - Look & Feel

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Implementation of SAP Tax Compliance Management at BASF

Country Scope: EU28+CH+NO Approx. 150 Checks:

Basic Checks

• for ongoing VAT and Intrastat-Plausibility Checks

• for retroactive VAT-Risk Management Additional Checks

• according to business structure Country Specific Checks

• according to countries of VAT registration

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Lessons learned and outlook

BASF first company to go live with TCM (Pilot Go-Live 17.09.2017) It will be several years until audits for 2017 will take place Some wrong VAT determinations could be identified but… … checks also produce many „false positives“ Dedicated team of people with knowledge of both VAT and SAP is needed to refine check logics

and adapt them to changing legislature(at BASF 2 full-time employees)

Tax Compliance Management considered to be used for other taxes as well Implementation of „Smart Automation“ (Machine Learning) in the near future15

Thank you very much for your attention, do you have any questions?

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