insights and intelligence with platform technologies
TRANSCRIPT
Insights and Intelligence with Platform TechnologiesDriving Value in Tax, Finance, and Controlling
Insights and Intelligence with Platform Technologies
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Introduction
Increasing demands and competing pressures are
shining the spotlight on tax and finance functions,
urging them to move out of the shadows and to start
delivering value as a true business partner. However,
with an increasing volume of work and limited resources
to work with, this is not easy to achieve. As a result,
multinational companies are looking at platform
technologies from SAP and at solutions such as those
delivered by EY, a global SAP partner, as strategic
enablers to help them deliver business value, reduce
risk, improve efficiency, and reduce cash leakage.
Could a platform technology be the right solution for
your company?
Table of Contents
2 Introduction
3 About the Authors
3 Acknowledgments
5 Work Smarter, Not Harder
6 Challenges of Reporting and Compliance
Requirements
7 The Need for Adding Value As a Tax Function
8 The Case for Platform Technologies
9 The Power of SAP Profitability and Performance
Management
12 Case Study: Intercompany Transfer Pricing
Processes
12 Applicability to Other Use Cases
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Sveinung Larsen
Tax Partner, Ernst & Young AS | [email protected]
T +47 982 06 202 | www.linkedin.com/in/sveinunglarsen
Sveinung is a partner in the EMEIA Tax Center, focusing on delivering platform
solutions and intelligence. He specializes in the interface between tax finance
and IT, focusing on operationalizing transfer pricing, including price and margin
management, service charging and cost allocations, and tax and operating model
alignment. He holds an MSc in information systems, MA in law, and an MBA
and has published numerous articles on operational tax pricing.
Rajeev Samaranayake
Tax Director, Ernst & Young LLP | [email protected]
T +44 783 818 8378 | www.linkedin.com/in/rajeev-samaranayake-3704375
Rajeev is a director in the EMEIA Tax Center focusing on delivering platform solu-
tions and intelligence. He specializes in tax processes and technology. Areas of
expertise include improving tax operating models, processes, and technology
for direct and indirect taxes. A qualified chartered tax advisor, Rajeev has more
than a decade of experience in the Big Four helping multinationals through
finance and ERP transformations.
Michel Haesendonckx
Global Solution Owner Financial Planning & Analysis, SAP
[email protected] | T +32 472 491 699
www.linkedin.com/in/michelhaesendonckx
Michel drives SAP’s solution and go-to-market strategy for financial planning
and analysis. Prior to joining SAP, he built his functional experience as an external
auditor, a controller in the oil sector, and CFO in the port logistics industry and
extended his expertise through a leadership position in a global consulting
organization. He recently co-wrote SAP S/4HANA Finance: The Reference Guide to What’s
New, which focuses on finance transformation.
Acknowledgments
Sveinung, Rajeev, and Michel would like to acknowledge the collaboration and contribution of colleagues,
including Charlene Glenister at EY and Chris Grundy at SAP, as well as Franco Furlan, for his valued thoughts
and insights during the development of this paper.
The views reflected in
this article are the views
of the authors and do
not necessarily reflect
the views of the global
EY organization or its
member firms.
Insights and Intelligence with Platform Technologies
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How can you build the enterprise of tomorrow using the solutions of today?Discover how EY and SAP can help power the intelligent enterprise for the Transformative Age.
Intelligence. Realized.
ey.com/sap
Insights and Intelligence with Platform Technologies
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Work Smarter, Not Harder
Tax functions at multinational companies are going through
unprecedented change due to growing tax reporting and
compliance requirements and changes in the business envi-
ronment. This is leading to an increase in associated tax risks
and internal cost pressures, together with business expecta-
tions to deliver value as a true business partner rather than
as a compliance function.
Technology is becoming the go-to answer for many, both within
and outside the finance function. The use of technology has
primarily focused on reducing the workload through automa-
tion. These changes greatly help to improve efficiency and
performance, but could more be done with technology in the
finance function? The answer is a resounding yes!
The tide is turning, and the potential for better insights and
intelligence to aid decision-making is being realized. Consider
this: a platform technology that enables tax functions to make
complex decisions in real time or even on a predictive basis
across multiple taxes. How would such a technology transform
current practices?
The good news is that this is not an imaginary scenario. It
is already being made possible through the use of SAP tech-
nologies such as the SAP® Profitability and Performance
Management application and the SAP Analytics Cloud
solution, in collaboration with EY, a global SAP partner.
98% Of companies believe that the core competencies needed from tax and finance professionals will shift from traditional tax technical skills toward deeper process and technology skills.1
1. “Reimagining the Tax and Finance Function,” EY, 2019.
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Challenges of Reporting and Compliance Requirements
In the last decade, the focus of most tax functions has been
on addressing the ever-increasing reporting and compliance
burden. Tax authority requirements have increased significantly
in terms of the filings required, the granularity of information,
the frequency of submissions, and the submission method.
When it comes to transfer pricing (TP) relating to intercom-
pany transactions on both goods and services (see Figure 1),
the reporting and compliance requirements associated with
reporting and file preparation can often increase the cost of
compliance. These activities can also result in less time and
fewer resources available for tax functions to connect with
the business and to advise on decisions that drive value, such
as recommending a better intercompany price that can be
achieved or determining that there is a negative TP impact
of a proposed trading route.
Not addressing these issues has resulted in reactive, sub-
optimal, or, at times, inaccurate TP calculations and adjust-
ments leading to tax compliance risks, inefficient processes,
and cash leakage.
Figure 1: Business Touch Points in the Transfer Pricing Lifecycle Based on the EY Transfer Pricing Approach
Connected tax in the transfer pricing function
Taxprocess Order
to cashHR
Transfer pricing lifecycle
Tax
Operations
IT
Finance
Legal
Global business services or shared service
center
Record to report
Master data management
Financial planning and
analysis
Planning and policies
Controversy and litigation
Testing and compliance
Monitoring and adjusting
Transactions and journal entries
Price setting and contracts
Customer to customer
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81%
Text documents (such as Microsoft Word)
Spreadsheets Integrated technology
65% 27%
Figure 2: Documentation Tools Used in Transfer Pricing2
The Need for Adding Value As a Tax Function
Apart from external pressures, corporate functions such as
tax are being challenged internally to transform from a back-
office compliance function to a value-adding business partner
function, supporting decision-making with intelligent business
insights. But how do you enable highly trained tax resources
to support business decision-making rather than data gathering,
aggregation, and reporting? And how can tax functions use the
wealth of data available to drive value? From our experience,
the answer is technology – in combination with the right know-how.
Tax functions have not yet embraced integrated technology as
the primary means of easing the pressure from the increasing
reporting and compliance burden (see Figure 2). The use case
for technology has focused on improving controls and speeding
up the process of data gathering, aggregating, and reporting
to reduce compliance costs. Now, however, we are seeing a
move from improved controls and processes to solutions that
provide value through insights and intelligence for informed
decision-making.
2. “Transfer Pricing and International Tax Survey 2019,” EY, 2019.
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The Case for Platform Technologies
As finance functions pave the way forward to becoming effec-
tive business partners, new platform technologies are enabling
this finance journey and are well placed to enable the same
journey for tax.
SAP Profitability and Performance Management is a prime
example of such an enabler. At the core, it offers flexible
aggregation, calculation, modeling, simulation, and reporting
capabilities used in the statutory and managerial finance areas.
These can also address the complex information needs of the
tax function.
This technology is successfully being used by tax functions
to enable the intercompany transfer pricing use case, helping
to achieve significant business value, reducing risk, reducing
cash leakage, and improving efficiency (see Figure 3).
The same platform can also be used to deliver solutions for
wider tax use cases in the indirect tax and customs duty areas,
delivering rich insights on the same data and a better ROI on
technology.
Figure 3: Example of Potential Benefits Achievable, Based on EY Transfer Pricing Use Cases3
3. Numbers quoted are based on EY experience of many projects over the past decade.
Mitigating tax and compliance risk
Reducing cash leakage
Improving efficiency
$48 million in net benefit value
$4.1 million in net benefit value
$9 million in potential transfer pricing (TP) exposure in terms of unpaid tax
(not including penalties or interest) $7.7 million forex implications of making
the adjustments in the later periods$19.4 million
TP adjustments
$32.3 million in TP audit exposure
$25.9 millionTP provision
$3.1 million in forex impact
$2.5 millionTP audits
Positive business case from year 1
$6 million customs impact
Over 40,000 hours less time spent on TP audits,
TP documentation, country-by-country reporting, TP adjustments, and policy
and other reviews
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The Power of SAP Profitability and Performance Management
Where there is a requirement to gather, model, calculate, simulate, and report
data, the SAP Profitability and Performance Management application can provide
rich insights for decision-making. Capabilities of SAP Profitability and Performance
Management and its applicability for transfer pricing are shown in the table.
Capability Applicability for tax purposes, in particular transfer pricing
Data gatheringAbility to gather data from multiple sources and at various levels of granularity
• SAP® Profitability and Performance Management enables data gathering for transfer pricing (TP) calculations.
• Calculations require gathering profit and loss data at an aggregated level and product or service data at a transaction level.
• Data typically sits in different systems and requires sourcing of this data from multiple systems.
Modeling and calculationsAbility to flexibly model the data and run complex calculations
• SAP Profitability and Performance Management enables modeling of the underlying data into a required state and then subsequently running calculations.
• Predictive models can be created by combining actual data on a real-time basis and forecast data.
• The application facilitates complex calculations to enable accurate allocations of costs based on identified drivers.
SimulationAbility to run multiple scenarios across the data, enabling users to plan accordingly
• SAP Profitability and Performance Management enables planning for multiple pricing scenarios involving intercompany transactions.
• A predictive view of outcomes can be created by simulating the combination of price changes and journal adjustments.
• Users can understand the knock-on effect on other taxes such as customs duty and withholding taxes for better decision-making.
Reporting and Analytics Ability to flexibly define required reports with a clear audit trail
• SAP Profitability and Performance Management enables flexible and transparent reporting.
• It also enables reporting views to be traced through to the source. • On intercompany service transactions, it provides visibility of all the components that build up the service invoice and the traceability required for tax audits.
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In addition to SAP Profitability and Performance Management, the SAP Fiori® user
experience and the SAP Analytics Cloud solution can enhance decision-making with
additional capabilities, as shown in Figure 4.
Figure 4: Role-Based Interface, Modeling Environment, and Enhanced Visualization as Deployed in EY Projects
SAP Fiori® user experience: Role-based user interface to manage end-to-end processes
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SAP® Profitability and Performance Management: Business user modeling environment for data aggregation, calculation, modeling, simulation, and reporting
SAP Analytics Cloud: Enhanced visualization for transfer pricing analytics
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Case Study: Intercompany Transfer Pricing Processes
The table summarizes the challenges of transfer pricing at a hypothetical company,
the capabilities with SAP Profitability and Performance Management, and the value
provided to the company.
Business challenge Solution Value provided
• Process inefficiencies and inconsistencies
• Manual data collection and processing
• Limited data visibility and traceability
• Potential cash leakage • Limited overview of transfer pricing risks and exposures
• Automation of intercompany services and tangible goods transactions in compliance with transfer pricing requirements
• Workflow-enabled processes • Sourcing of data from multiple systems • Standardized and transparent transfer pricing calculations
• Full audit trail of processes and data to support compliance requirements
• Process efficiencies and integration • Improved business value through reduction of cash leakages and additional insight
• Enhanced tax risk management through data visibility and granularity
Applicability to Other Use Cases
The requirements addressed by SAP Profitability and Performance
Management illustrated above from a transfer pricing perspec-
tive can be applied to other tax, statutory finance, and managerial
finance use cases. We see businesses having access to new and
valuable insights for decision-making by implementing multiple tax
use cases such as indirect tax and customs duty on a single
platform, answering questions such as these:
• What is the impact of my new transfer prices on customs duty?
• What is the impact of TP journals adjustments?
• What is the related impact on my effective tax rate?
What if there was a platform technology that could enable
tax and finance functions to make complex decisions in real
time or even on a predictive basis across multiple taxes and
business scenarios? That platform exists today – and it is
available to customers of SAP and EY. Contact us to start
your journey.
Insights and Intelligence with Platform Technologies
For More Information
For details on products and services from
SAP and EY, visit the following Web sites:
• Intelligent financial management
solutions (SAP)
• EY and SAP alliance
• EY transfer pricing
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