Key Considerations When Deploying a Tax Solution for Procurement

MS. SCHAWBENBAUER:  Hi, I'm Kristin Schawbenbauer.  Welcome to Tax Today, a Vertex Podcast series.  On today's episode, we'll be exploring key finance considerations when deploying a tax solution for your procurement system.  And our guest will be Les Jackson from Deloitte.
    Les offers his clients more than twenty years' experience dedicated to sales and use tax, value-added tax, and global tax transformation.  He's a leading authority in indirect tax automation, including SAP/ERP, SAP Ariba, and he specializes in enabling tax automation via native tax table functionality or third-party bold-on applications, such as Vertex.  
    Les, thanks so much for taking the time to join us today.
    MR. JACKSON:  Thanks, Kristin.  Great to be here.
    MS. SCHAWBENBAUER:  Awesome.  So I know and I've said this to you a couple of times, our conversations over the past couple of years kind of helped to create this idea of this podcast series.  I wanted to be able to record some of these conversations because I know, a lot of times on a day-to-day basis, especially over the past couple of years, you and I have been having a lot of the same conversations with clients.  
    So talk to us about that, if you will.  Bring us some of your experience, especially from a big accounting firm.  How do your conversations normally go with clients on a day-to-day basis with regards to procurement and tax?
    MR. JACKSON:  Sure.  So I think oftentimes tax is an embedded process, obviously, within the procurement function.  It ultimately resides in multiple different workflows or business processes.  And specifically indirect tax, so transactional-based taxes like a VAT, sales and use tax in the U.S., or Canadian GST, HST, PST.  Those create tax challenges and complexities when it comes to procurement.  
    So what we often see is, is that we may have a conversation with a tax professional at a client organization and they have a view of how they address the tax exposures or the tax compliance and the profile for the company.  But oftentimes, that is not something that is necessarily visible to a procurement function or an accounts payable function.  
    And so many of our conversations start out with, hey, I have to file a certain number of tax returns and I have to get the information and data necessary to do that.  And ultimately, what we kind of drive back upstream, Kristin, into the process, the business process, and understand, okay, what's happening upstream of tax that may impact the level of accuracy when it comes to some of these indirect taxes.  
    So that's kind of how the conversations usually start.  
    And then one other way that we do see is, whenever there's a transformation happening in procurement, so if a new e-com or e-procurement system is coming into place or some type of transformation on an ERP system around procurement, oftentimes that's a good catalyst for a conversation about tax.  So it kind of comes in one of those two forms generally.
    MS. SCHAWBENBAUER:  Okay.  Yeah, that makes a lot of sense.  That makes a lot of sense.  And I just have a question for you.  Are these conversations coming from procurement professionals or more on the tax side?
    MR. JACKSON:  I would suggest it's probably generally on the tax side because tax is ultimately responsible.  They're signing off on returns and --
    MS. SCHAWBENBAUER:  Right.
    MR. JACKSON:  -- they need to be able to have accountability for the data that they're putting onto those filings.  So I think most of the time it comes from tax, but what we find is, is that oftentimes the sooner you can have a conversation with procurement or some of the accounts payable function, many times they are also aware, I would say, that there's an implication, but maybe not aware of the details of how evasive it could be just from a processing perspective.  And I know we'll talk probably a little bit more about that in some of our later conversation. 
    MS. SCHAWBENBAUER:  Yeah.  And no, that makes perfect sense.  It's almost like the procurement folks know enough to be dangerous, but I know I heard from a lot of our -- we had a customer or client like roundtable type of discussion and lots of decent sized, large, large companies and the heads of tax were part of the participants.  And they said we were the last to know.  They kind of just, hey, we're in.  We came in late in the game, which I think is hard.  I think the sooner you partner procurement IT and tax together, I think the more successful you're going to be in making this transformation happen.  Because it can really go right on track with your procurement transformation and it should include tax.  Like just include tax in your procurement transformation if you're looking at efficiencies and things like that.
    ERP is important and we talked about a new term that you came up with recently that I hadn't heard before, feeder systems which makes a lot of sense.  How do you identify that there's tax relevant information, not only in the systems, but also the processes.  Like is there a solution design?  Can you talk to us a little bit about that?
    MR. JACKSON:  Yeah.  I think the really important -- most of our finance and procurement transformation engagements that we work on with clients, many times, it is all about the tools that are being put in place.  So various different systems that are leading edge systems in the marketplace.  And what we're finding is, is that a lot of our clients are looking for how they meet operational metrics and exceed those metrics, either in procurement, or in invoicing processes, or in some of their data analysis and analytics that they do.  
    And oftentimes, what we see is, is that the systems are kind of the starting point, right?  So it's the fact that, hey, I'm automating my supplier enablement or my contract management.  And ultimately, that can lead to other areas of process improvement, such as buying procurement function, purchase order, purchase req, and then all the way into the deep area of accounts payable processing and invoicing processing.  
    And so depending on all those kind of facets of what a transformation looks like, oftentimes, that's kind of where we first identify that, hey, there's indirect tax and tax considerations for this type of project.  So I guess the best way to say it is, is that it is very kind of circumstantial, but we do see a lot of themes, right?  
    An ERP is oftentimes the financial book of record, but the feeder systems, the source systems, and the source data that is coming from other systems that get to ERP is also something that can be very influential when it comes to tax compliance.  Because if that dataset is not what tax needs and it ultimately gets into the financial reporting of the company, it makes it a lot harder for tax to do the things that they need to do on a daily basis when it comes to reporting and filing their fiduciary duty.
    MS. SCHAWBENBAUER:  Yeah, that makes sense.  I mean, I think what we're seeing is that more technology is being created, right, with the Aribas, and the Coupas, and everything else, and it's good in a way because procurement professionals have their own almost mini ERPs to help manage their whole processes, all their processes.  But that then, from a tax perspective, may actually complicate things because it's another system you've got to go to, are you getting all the right information that you need to for the basics of what you need to do for reporting, and filing, and things like that, and making sure you're compliant.  Or how much harder is it going to be if, when you get audited even?  
    So I think that makes a lot of sense.  I know it's something that clients I know they're aware of.  I think talking about this on a broader sense, I think, should be really helpful and hopefully is resonating with our audience.
    So at the end of the day, why should procurement care?  And we've talked about this in a couple of our other episodes.  Why should tax be considered upfront?  Why is indirect tax and procurement so critical?
    MR. JACKSON:  Yeah.  So I think like for a couple of reasons.  One is, is that tax is an area that generally, I'll call it, the broader operational organization doesn't necessarily have the detailed certainly global knowledge of various tax regulations.  And so I think the fact that you have the technology in place for Tax O Series and exemption management processes and things of that nature that can be additive to the procurement process is really advantageous at this point and kind of our evolution of systems. 
    And the reason I say that is because tax can be a process that can be very automated and it can lead to less manual, I'll call it, people time reviewing during the transaction processing in a given system.  It can lead to less time and effort there for manual reviews.  And I think that should be important to procurement.  
    Some of the buzz words that are out there are kind of touchless processing or seamless processing, right?  
    MS. SCHAWBENBAUER:  Yep.
    MR. JACKSON:  And so that includes not just getting a purchase req through the system in a very efficient manner, that also includes making sure that the taxes that may be due or may necessarily be applicable to that transaction are also looked at in an automated fashion.  Because the last thing you want to do is to have your procurement buyers and approvers either thinking that they have to look at tax table of some sort or also trying to make business decisions and not having the full landed cost of the purchase in consideration.  Because tax, globally, it could be as much as twenty percent of a transaction.  And if you've got a large spend, then obviously that's a big dollar amount.  
    MS. SCHAWBENBAUER:  It is a big dollar amount.  It is.  And I think you really hit upon a couple of really key points that we keep hearing throughout our episodes.  Like let tax own tax and like do you really want your AP people, A, focusing on tax, or B, having the ability to make decisions and you don't.  It's the same argument from, gosh, forever ago, I'll totally age myself here, but 20, 25 years ago where the push to even use a third-party tax engine like a Vertex, the whole reason was to give tax the control and the power to make the decisions and to automate that so that you didn't have your sales reps making tax decisions for you because you don't want that.  That's a scary thing.  
    And it's the same thing for the accounts payable process.  If you can automate as much as possible, then do it.  You're going to get some benefit out of there.  I  think touchless AP is -- I've heard and I hear that here and there, I don't know that that's possible.  And I think a lot of our subject matter experts that we're bringing into this series have said that too.  They're like, no, I don't think so. 
    I think we can though, I'd love to see it in the future, the ERPs, or the best of breed procurement vendors and tax, and the Deloittes of the world really come together.  And that would be my vision to say like, hey, I think we can actually, through added functionality, potentially automate this more, but I think that's something that -- it's the vision right now that we all have to work for and work towards.    
    Coming from your experience as a major accounting and consulting firm, are there certain best practices you would advise firms to follow during these processes, during these transformations?
    MR. JACKSON:  Yeah, certainly there is.  I mean, I think a lot of times we talk about accelerators and how you can address tax in the most efficient way.  And I think some of those are -- obviously, you may have systems and processes in place today and you need to -- first and foremost, I would say you need to understand current state.  And current state, at least, gives you an idea of this is how the organization functions when it comes to the tax obligations.  I think that's important.
    And many times what we say is, is well, then you can take information that you've learned from that exercise and that informs you to your new kind of your transformation process.  Oftentimes, we hear the word requirements.  Well, requirements means a lot of different things to lots of different individuals.  And I think what you want to do is make sure that you don't replicate a bad business process.  You want to make sure that you're certainly looking at data intensively because this is very transactional-based, right?  So every spend item on goods and services for the company ultimately can attract some level of transaction-based tax.  And it's important to understand those nuances because the dataset and how the process needs to function going forward is kind of their critical angles to take a look at that point , Kristin.
    So I think that's part of the, certainly, what I would do as a client is making sure that I understand current process, I understand data and where that data is important for tax.  And then take that to the next level and obviously design the future state such that it's taking in those considerations.
    MS. SCHAWBENBAUER:  Yeah, I think that's key and critical.  I've been seeing a lot of people, potentially, jump over that step too and, I think, that leads them down a rabbit hole.  I think a lot of times what we're seeing too when we talk to clients is, they expect to have certain functionality just to be included in these newer procurement systems, especially from a tax standpoint because they're so used to having it within an ERP.  Now they skip that step of really taking a look, hey, what do we have now?  What do we need?  What's the barebones or what's the ideal state?  Then they're jumping right into implementation and gathering and they've got timelines, and strict timelines, and things like that, then they're setting themselves up to fail.  And it's been scary.
    So I think that's a huge point that you bring up.  And especially, as I'm seeing this all really evolve from the Aribas.  And a couple of years ago, Ariba didn't even have a tax API, never mind a partner ecosystem.  And the SAPs and the oracles have had that forever.  So, I mean, those are considerations and if you skip that key and critical step and don't take the time, you're not setting yourself up for success, unfortunately.  
    MR. JACKSON:  Right.  I almost equate it to, obviously, like building a structure.  If you don't get the blueprint and spend a little time in that blueprint area to make sure that you understand not, just as importantly, how many bedrooms and bathrooms do I have in this structure, but certainly, how they're laid out and where you have walkways and things of that nature that connect them, I think that is a very relevant analogy because when you're looking at a system transformation and a process transformation, on the order of magnitude that can affect a lot of the different business users operationally in the company, both buyers, sellers, and obviously, in our case, tax, I think it's really important to kind of spend some time in that foundational process.  
    MS. SCHAWBENBAUER:  Yeah, I completely agree and that's why we're so lucky to be partnered with Deloitte and your team specifically because that's where you guys come in for sure in helping to guide and you really shouldn't be doing one of these implementations without the help of experts like yourself.  
    So that'll do it for today's show.  But, Less, I really thank you for taking the time.  I appreciate it.  Thanks for joining me.  I hope you'll join us in a future episode as well.
    MR. JACKSON:  Sounds great.  I appreciate it.
    MS. SCHAWBENBAUER:  That's awesome, thank you.  And thanks to our listeners.  Make sure you tune in for our next episode when we will be discussing key and direct tax points during the procurement buyer invoice process.  

Episode 1: Why is Indirect Tax in Procure-to-Pay So Critical?

Episode 2: The Differences in Tax in the Procure to Pay Process: U.S. vs. Global

Episode 3: Indirect Tax in Procurement – Landscape, Opportunities, and Challenges

Episode 4: Indirect Tax in the Procurement Landscape: Opportunities and Challenges with Global VAT

Episode 5: Industry Perspective: Integrating a Tax Engine for a Global Motor Manufacturer

Episode 6: Aligning Tax and Procurement to Streamline Business Processes

Episode 8: Invoicing Explained: Understanding Indirect Tax During the Procurement Process

Episode 9: Keys to a Successful Procurement Platform Implementation

Episode 10: Tax Reporting: Why Internal Audit and The Sarbanes-Oxley Act (SOX) are Essential

Episode 11: Technology Trends in P2P and Tax Automation

Episode 12: Understanding International Accounting: Global Indirect Tax and Procurement

Episode 13: Integrating Vertex with SAP Ariba: An Overview

Episode 14: Consumer Use Tax Audits: Pain Points and Solutions