Oracle eBTax – The Best Return on Investment You Will Get
As with everything, ‘if you want a better solution, you need to first have a better understanding of the problem’ and this is so true when it comes to indirect tax. Oracle’s eBTax (e-Business Tax) and Fusion Tax (or Oracle Cloud as it is now known) are probably the most powerful and certainly the most versatile tax engines on the market, but their versatility is because they are Oracle modules and not a third party product.
As published in Issue 60 of the Oracle Scene from the UKOUG – Summer 2016.
One thing I learnt many years ago (whilst on my first Oracle project), when I was trying to work out how to correctly setup transaction types, was that the best thing about Oracle is how configurable it is. Conversely, the worst thing about Oracle is how configurable it is! It’s a double-edged sword and if you know how to control the power given to you then Oracle can be configured to achieve what you need. Unfortunately, there are many who cannot handle the number of choices Oracle provides; who cannot decide what path to take; and who are unable to stick to a chosen path, consequently the project quickly becomes a failure. The same is true for indirect tax configuration and as one delegate said to me during a training session, “it’s like an ocean; where do I start?”.
Oracle vs SAP – Indirect Tax Solutions
Oracle’s tax engine is extremely powerful, something which we believe should be promoted with fanfare. Let’s consider SAP, the biggest ERP product by market share, who do not have a tax engine at all. Consequently, SAP actively promotes the use of third party bolt on products or tax engines, as that is the only option if you are using their product. The problem with third party bolt on products or tax engines is that they all come at a significant cost and a continuous cost each year, every year. Oracle eBTax on the other hand, once setup, does not need to cost you a penny more because it can be maintained in-house and it is part of the Oracle licence.
A good indirect tax solution can be the differentiating factor between choosing Oracle over SAP or any other ERP provider, but it’s rarely included in the sales pitch; quietly mentioned but not pushed forward into the spotlight even though it is such a powerful and cost effective tool.
When eBiz Answers implements indirect tax within Oracle we can guarantee 100% compliance and we can guarantee efficiency savings over your current solution; and these are not small savings either, which I outline further down in this article. The Return on Investment with an eBiz Answers’ indirect tax solution is realised well within 5 years’ post-implementation, usually under 3 years and, in some cases, just a matter of months! It’s rare that any other indirect tax project can boast these types of returns, so you would be right to question why more companies are not trying to do something in order to take advantage of these returns. But when you look at the current tax processes for most companies you will soon understand why.
Tax Processes – the issues!
The first issue is that the indirect tax process has not changed in decades. Month end is processed, then the tax team run GL based reports and try, usually based on pointers from previous audits, to find any issues with their data and then make manual adjustments; all very protracted and subject to human error.
When was the last time anyone challenged this time consuming process? When was it even possible to challenge this process?
Continuing in the same vein of ‘that’s how we’ve always done it’, due to the lack of tax engines in other ERP products, the status quo is to simply default a tax code from a supplier or customer and then allow a user to override the value. That’s how it has been for decades and that’s the only way people know how to process tax. And here lies the nub of the first issue; that no one knows what’s possible and they simply accept what has always been done. Add to this the fact that setting up tax properly takes time and a great deal of skill/tax knowledge (the second issue), not only in Oracle but also in the understanding of indirect tax; and usually on a global scale. So, when an integration partner has agreed to a fixed price for an Oracle roll out do you think they are going to cut deeply into their profit margins by spending ten times the amount of time they would need to configure eBTax properly? So whilst issue number one means that your own tax team are unlikely to know what to ask for, issue two is that the consultant (integration partner) is not going to tell you either; why would they?!
Moving onto the third issue – in most cases, if the tax is setup to be fully automated, the solution provided is going to be severely lacking and very time consuming unless the person doing the setup knows what they are doing and they have the right tools for the job. It took me 2 years until I understood the tax module and I remember it clearly. I was working on a project in Europe for a well-known accountancy organization. It was only then that I was able to really start making the tax logic work properly (at a huge cost to the client due to the time it took to configure properly as I didn’t have the tools required at that time to speed up the process).
It took 5 years before I was able to nail down a standardised automated indirect tax solution and this is when eBiz Answers was born.
It took many iterations of ultimately the same solution to perfect it and make it work time after time and this is why, to overcome issue number three, you must get someone with the right experience to deliver the right solution, with the right tools; a solution which provides a valuable return on investment in the short to medium term.
Only this week we were on an advisory call for a rather complex European tax solution which involved multi-tax regimes and land purchases. The US integration partner, after several months of telling the client that they knew what they were doing, brought in a “tax expert”, only for us to discover that they had only worked on rollouts in the US and India. Both these countries are completely different from implementing VAT as used in Europe. It was painful being on the call as the consultant dug a hole so deep there was no climbing out. Could they have set the tax up so tax was calculated? Absolutely. Would it have met the client’s most basic needs? Maybe, but it would have been very manual and not very efficient, with a higher chance of user error and not futureproof. Did they give the client any confidence that they could deliver? No! Would they have fully automated the client’s requirements and been fully compliant? No chance! And this is the problem, especially on the Oracle Cloud. You don’t have months and months and multiple environments to play around with and perfect what you have.
You have to hit the ground running because, as with many Fusion (Oracle Cloud) projects, speed and cost are the driving factors. With one test instance then straight to production, you cannot mess around ‘having a go’ – you need to know what you are doing.
The VAT Gap (Europe) – does it matter?
The VAT Gap in Europe is over €200 billion with 50% of this being related to international fraud, often linked to organised crime; but what about the other 50%? That’s down to users making mistakes because they don’t have an automated indirect tax solution. Claiming too much back, not charging tax when they should do and not reporting it correctly. What interests us is that there is not much around to assist companies with tackling these errors; nothing proactive anyway. The reason is simple and it’s the reason for so many things – money!
We were at an indirect tax conference held at Durham University last year and in attendance were leading academics, heads of tax consultancies and barristers and lawyers from all over Europe who specialised in indirect tax. Every single one of them was focused on the litigation side of indirect tax – the areas where the money is – and no one seemed to care about the other €100 billion because, let’s face it, only HMRC (or their international equivalent) would benefit from getting that tax back in. Maybe they will be more interested with the current focus being turned more towards tax on purchases rather than tax on profits?
With over €100 billion up for grabs you can be sure that the Tax regulator will be tightening their controls on how VAT is reported, recovered and collected; with more fines and more pressure to be 100% compliant.
We can guarantee that many companies are walking a very fine line and are already risking fines (not to mention bad publicity!!). It’s not unknown for global companies to declare no EU sales even though they had them because they could not produce a European sales report! One company we know of used the simple approach (in good faith) of taking a set percentage of their total purchases (23%) based on a GL report and recovered it, later realising (under closer inspection) that 25% of their procurements related to purchases on VAT; the 23% being based on the previous year’s 21%! Could that have been seen as unintentional fraud?
The South American approach – will it catch on globally?
With the surge of countries in South America adopting the process of issuing a unique government ID for every invoice entered in order to get in billions more in indirect tax, it won’t be long before the US and Europe follow suit and, with it, will be an increase in the need for 100% tax compliance. I believe that in the near future things will change (similar to the South American process) meaning there will be nowhere to hide and no more accepted excuses in terms of ‘not knowing’.
Getting the best out of your Oracle Tax Engine (including post-upgrade implementations).
So, how do you get the best of what you have when it comes to Oracle’s Tax engine? First of all, it may sound obvious but, get the best resource possible; someone or a company that has a proven track record on delivery and which has already made and learnt from their mistakes. There are a lot of consultants on the market claiming to be an eBTax expert but are they (ask the right questions and this will become apparent)? Painting your living room does not make you Van Gogh!
eBiz Answers offers a complete solution straight out of the box which uses our eBTax Rapid Install™ tool, significantly reducing the time needed to configure your solution. On a recent implementation of 37 countries we were able to provide 99% of the setup in just 3 days! This would typically take up to 6 months. This means that your concerns about ‘having enough time’ when doing an upgrade involving the implementation of an 100% compliant indirect tax solution should dissipate. We have the tools available to put your indirect tax solution in, in a matter of hours; not weeks or months!
We have taken the implementation time per instance from 15 days – as was being done by the main integration partner for a major bank – down to just 2 hours!
If you know what needs to be done and have the right tools (like we do) it’s an extremely easy and smooth process.
If you have upgraded from 11ito R12, don’t even try to salvage the upgraded tax solution as it will take you longer and, in many cases, it is not possible to start adding comprehensive rules to an upgraded tax solution. The problem is that Oracle need to have one common route to make the upgrades that cover all countries, and because the US Sales and Use tax is very different to EU VAT, a common solution is needed which will work with both. So if best practice would dictate only two taxes are needed for most tax regimes, VAT and OFFSET. Should you do an upgrade you will potentially get hundreds of taxes setup because during the upgrade process Oracle can create a tax for each 11itax rate! If you manage to get some logic in an upgraded eBTax solution, then the maintenance required to first understand and then know where to make the changes is near on impossible – just make sure your team turnover is very low because once the person goes who put it together you may as well be trying to read ancient Egyptian hieroglyphics.
So with any new solution, dump the upgrade and put in the new solution.
Avoiding common mistakes around automated indirect tax solutions
Something we strongly advocate is using the functionality available! Time and time again we see clients who believe they have put in an automated solution but their entire solution is designed around one core component, which is often the Product Category. A huge global Asian company, who we are working with, spent a significant sum of money with a well known accountancy organisation to build their indirect tax solution, which was based on a complex structure around the Product Category; their “automated” solution made it mandatory to choose one Product Category each time a transaction was entered. They had the country on one level, then whether it was payables or receivables, then the type of tax (standard, exempt, reduced etc.) and finally whether it was goods or a service. So whilst they had a ton of rules, the majority of which were linked to the product type, technically their solution was still a manual one because a user needed to choose extra information every time.
eBiz Answers recommends you use the determining factors provided; Product Type for the split between goods and services; and the location of your customer or supplier, their registration status or any Party Classifications. The Product Category can then be used only as the driver for the tax type of exempt, reduced, zero rated, etc. There is also no need to put standard – assume you will have standard then you only need to have product categories for the exception. Making the Product Categories specific to a country means you can now make the Product Categories specific to the country of the Operating Units (OU) used. Consequently, something that was very manual has now become far more automated with much less user intervention required.
We also recommend that you never setup your solution to be party specific and by that we mean putting all the setup under one OU. Every company grows and changes so your decision now could ultimately cause huge issues later on, because each new entity created means a new tax solution has to be created rather than using the one you already have. The only argument for this is that by making a setup OU specific, it will only show for that OU because any GL based requirement can be handled by sub-ledger accounting. In this case, put a country code in front of each rate and you can now easily filter by each country.
You no longer have to worry about maintaining multiple tax regimes for the same country.
The only time party specific configuration is needed is if you require tax rules to be solely applicable to one OU. An example being that you have a multi-regime setup and need the ability to turn off Germany tax when selling from Italy. You don’t want to make this rule global because all your German entities will then turn tax off for Italy, even if they have no registration for Italy. You should always be thinking of how you can futureproof your solution.
There is also no reason to use the ‘guided rule entry’ when creating tax rates. Even if you lack the ability to setup tax properly and use the guided rule entry, you should at least attempt to put structure into the logic and tidy up the rules before setting up in production. A sub-standard design now (which is not futureproof) makes it very difficult to maintain the solution later on.
Fully Automated Indirect Tax Solution – how you can save money
Let’s look at some of the cost savings our indirect tax solutions provide:
If we take a conservative and average figure of $250 a head per day for a tax resource, saving just one day per month across 20 countries is a saving of $60,000 a year! One day a month is very conservative and we think we can probably save around 3 days, but it’s not just the processing of the tax.
Fines, when they come in, can be huge and your Senior UK Accounting Officer won’t be pleased if they are fined £5,000 for not being compliant. Whilst £5,000 may not sound like much, it won’t look good on anyone’s resume!
How much audit time is spent investigating the VAT? Let’s say 5% of the audit is spent on VAT/indirect tax. Saving just 10% of this time (and we should be able to save you 50%) based on an audit fee of £1m is another £5,000 a year saved.
Tax advice/guidance is not cheap, it can be in the thousands per day, so having a robust solution in place will undoubtedly reduce time spent on this/your costs. But these are just generally accepted costs because that’s how it’s always been and there is no point trying to make a change, right? Wrong – with a fully automated global indirect tax solution you can have 100% compliance and consequently reduce your time and costs.
So, get yourself a promotion by saving your company a ton of money, reducing time spent on indirect tax and guaranteeing the Senior Accounting Officer (wherever he/she is based) will never be fined for being non-compliant! eBiz Answers has the knowledge, skills and tools needed for implementing your cost effective, automated and 100% compliant indirect tax solution within Oracle eBTax or Oracle Fusion (Oracle Cloud).