Indirect Taxes (such as VAT and GST) are a critical vein that runs through every part of a business. International companies with complex supply chains face significant challenges in accurately determining the correct Indirect Tax treatment and achieving required levels of compliance. Keeping track of the various tax regulations for each international transaction quickly becomes a complicated endeavor. With each country and each supply chain model, the complexity increases.
Achieving full transparency, straightforward reporting and Indirect Tax compliance often results in additional cost, time, and difficulty for IT and supply chain managers.
Most companies work with world-renowned Enterprise Resource Planning (ERP) software such as SAP to streamline supply chain flows and manage their operations both locally and globally. Some companies have chosen to add bolt-on tax automation software, like ONESOURCE Indirect Tax Determination or Vertex O Series. These products provide regular, automatic updates of tax content when the rates and rules change.
However, the limitations of SAP and other systems quickly become evident. Systems are often not configured or designed to intuitively manage the Indirect Tax consequences of various supply chain models across multiple countries. Incorrect or missing master data, compliance and reporting challenges, human error and temporary work-arounds further complicate the problem.
Tytho Indirect Tax Logic (Tytho ITL) is a comprehensive, all-encompassing solution to the complex work of Indirect Tax determination within SAP and Tax Automation Software. Its unique design and easy-to-use interface works seamlessly with a company’s SAP system to deliver clarity and reliability in Indirect Tax determination and compliance, both in Accounts Receivable and Accounts Payable.
A unique blend of IT and tax experience makes Tytho uniquely qualified to identify and address the key challenges in Indirect Tax management.
Those challenges include:
- Changing Supply Chains: SAP is often configured or customized to perform Indirect Tax calculations in one single Supply Chain Model. When a company changes or adds models, SAP often fails to provide an accurate tax determination and reporting, even with Tax Automation Software bolt-ons.
- Incorrect Tax Determination: Standard SAP works with six tax variables and four tax parameters. This is not enough to cater to the complex transactions that companies operate. Think of chain transactions, combination of goods and services and ex-works transactions, to name but a few. To determine the correct VAT rate, more parameters need to be taken into account.
- Multiple Information Sources: Often, tax variables are extracted from different parts of an SAP system. For example, it’s possible that one tax decision is made in pricing, while another tax decision is madein the invoice print program. In SAP it’s difficult to keep all information sources aligned, and it often increases manual workarounds or IT fixes.
- “Band-Aid” Fixes: Quick and reactive solutions are needed when companies have designed their SAP systems to determine taxes based purely on their current supply chain. When confronted with changes in either business or legislative circumstances, Band-Aid fixes are required. This often results in a patchwork of fixes and a top-heavy system that repairs the immediate need, but does not offer a sustainable solution.
- Increased Costs: In situations that require SAP reconfiguration and/or programming to reflect changes in business or legislative circumstances, additional time and expense will be incurred when implementing these changes. The extent of these costs will be dependent upon the complexity of SAP, the supply chain and the legislation specific to each operating country.
- Difficulties in Reconstruction: Checking how a tax code has been determined is often a time-consuming exercise. During daily tax compliance activities or in the case of an audit, valuable time is spent reconstructing the actual tax determination applied, since SAP does not store the exact parameters that determine each individual calculation.
- Manual Reporting: When anomalies arise within SAP, human intervention is often required. Changes to the period in which transactions were submitted, the addition of flows from other systems, missing data elements and general errors need to be corrected manually. The use of Excel spreadsheets and pivot tables is common among compliance teams, however, this results in additional time and moneyspent to create accurate, compliant reports.
- Increased Risk: Each of the challenges stated above directly impacts the overall business risk. Errors, delays or missing tax information can be detrimental. In the event of an audit, lack of transparency can have serious consequence, and can potentially expose companies to serious costs and litigation.
Tytho ITL brings structure, transparency and peace of mind to Indirect Tax determination and reporting in SAP.
The Tytho ITL solution consists of three parts:
- Unique and State-of-the-Art Determination. Tytho ITL gathers a larger number of Indirect Tax variables, converts them into more extensive tax parameters, determines the correct tax code using the standard SAP condition technique and stores the result in a flexible, sustainable and modular setup.
- One Single Source of Truth. With Tytho ITL, all relevant Indirect Tax data is stored in a single location. This means, for example, that the tax decisions in the invoice print program are exactly the same as the decisions made in the pricing area of SAP. The elimination of multiple sources ensures a higher rate of accuracy.
- Compliant and Practical VAT Accounting. No matter how many countries are involved, or how many SAP systems are running, Tytho ITL harmonizes tax codes across the entire SAP landscape. The results are consistent, accurate journal entries and clean GL Accounts.
Furthermore, Tytho ITL offers:
- An IT cockpit. This easy-to-use interface simplifies all Indirect Tax related IT configurations. All VAT-relevant SAP IT areas are available in one place, to ensure simple and straightforward adjustments.
- Flexibility and compatibility. Tytho ITL works within one or multiple SAP instances, and in combination with Tax Automation Software bolt-ons.
How it Works
Tytho ITL can be implemented in a variety of ways, depending upon a company’s specific IT and tax landscape. Whether in a native SAP environment, with bolt-on Tax Automation Software, or another IT landscape, Tytho ITL can be integrated within the existing system.
- Tytho ITL Tax Variables: A company’s SAP configuration, Master Data and Transactional Data form the core of Indirect Tax determination and compliance. Therefore, the quality of processed data is crucial. Instead of using only the five variables used in standard SAP to determine tax parameters, Tytho ITL uses more than 14 variables ensuring a higher degree of accuracy.
- Tytho ITL Tax Parameters: Once the correct tax scenario is identified, Tytho ITL uses at least seven specific tax parameters, compared to SAP which uses four, to determine tax. This has far-reaching consequence in the way that Tytho ITL goes beyond the capabilities of SAP to determine the correct Indirect Tax treatment. Additionally Tytho ITL ensures that accurate invoice number ranges and exemption reason sentences are applied to invoices.
- Tytho ITL Tax Determination: Tytho ITL simplifies SAP’s standard condition technique by reducing the number of condition records. It creates a roadmap that allows SAP to calculate the relevant tax code in a smarter and more efficient way. Tytho ITL takes the simplest route to the correct VAT determination, every time, including when Tax Automation Software is used.
- Tytho ITL Tax Result Storage: One of the flaws of SAP is that it only stores original tax parameters, which do not account for workarounds or add-on IT configurations. Conversely, Tytho ITL stores all relevant information for every tax determination performed. The entire ‘calculation route’ is fed backto the order or the invoice. In the case of multiple transaction legs, the intercompany flows, trade flow tax parameters and VAT registration numbers of the involved parties are stored in the transaction documents for easy retrieval and clean audits.
Why it Works
Tytho ITL offers a sustainable, long-term solution to the complexities of Indirect Tax determination. By integrating this solution into an existing SAP environment will create overall cost savings and exponential reduction of risk for your Company for a number of reasons:
- Flexibility: Tytho ITL can be integrated into any SAP system, with or without Tax Automation Software. Due to its modular characteristics, Tytho ITL suits the specific needs of any company. There will be no loss of SAP support, only enhancement of its capabilities in a standard SAP user exit.
- Accuracy: Tytho ITL offers two additional levels of accuracy for SAP. Firstly, it transforms more than 14 variables into seven parameters, thereby safeguarding accuracy in determination. Secondly, the Tytho ITL Single Source of Truth virtually eliminates complication and increases control for all areas that impact Indirect Tax determination.
- Transparency: Tytho ITL provides a transparent overview of all relevant tax parameters, decisions about every transaction, and even details about related transactions, such as in the case of triangular supplies. This data is stored in the system, making it easy to retrieve, thus eliminating the need for complicated reconstruction exercises.
- All-encompassing: Tytho ITL goes beyond standard determination. It drives VAT-relevant information, such as invoice number, billing document ranges and exemption reason sentences, to customer-facing documents and forms.
- Intelligence: Tytho ITL uses a one-of-a-kind algorithm that goes far beyond the standard SAP capabilities. The algorithm, when combined with tax determination features, makes Tytho ITL an intelligent system capable of determining the relevant VAT for every transaction within one or more supply chains.
- Usability: The system’s easy-to-use configuration cockpit and modular structure allow for simple implementation of changes and updates by the IT teams responsible for Indirect Tax.
- Sustainability: Once in place, Tytho ITL fixes the system, and keeps it this way. There’s no need for add-ons or additional software and the system will be working as effectively ten years from now as it is today.
Well-renowned international companies are already using Tytho ITL to control their Indirect Tax requirements. But Tytho ITL isn’t just a solution for the big companies. It is a customized answer to the specific tax challenges that all multinational companies face.
Tytho ITL offers a comprehensive solution to ongoing tax and compliance concerns. The reduction of risk and time spent on manual effort and IT fixes makes this short-term investment yield long-term benefits.
To find out more about how Tytho ITL can make the difference in your company, please contact us to begin the conversation!