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Tax Calculation and Reporting – Story in sample content – Part 2

Introduction

Hello everyone and welcome to the extension of the story behind SAP Profitability and Performance Management Tax Calculation and Reporting sample content. In case you still have not read the first part of the blog post and you want to, visit the link.

In my previous blog post, Part 1, we have got familiar with the tax accounting terms and fundamental principles. I hope this was beneficial to all of you, who do not have accounting and taxation knowledge, but are keen on understanding the problematic of taxation.

In this blog post, I will give you insight into the sample content story and show how end user can benefit from this analytical solution. Then you will understand why this sample content is becoming more and more popular among potential users. So, let’s begin.

Tax Calculation and Reporting – Story in sample content

Process Application

 

Tax Calculation and Reporting Content is delivered with predefined active process template, as shown below on the processing application and user can see overall flow of the activities. As this is user friendly screen, end user can adjust this process template to fit to the monthly or yearly perspective.

Above predefined process template, timeline schedule covered with this predefined process template is stated. Except timeframe, end user can also benefit from creation of multiple process instances, that are visible in the palette on left side of the picture and can be easily added, simply by dragging and dropping. On the right side, there is property panel containing different information name, type of the process as well as parameter that will be used for what-if-simulation.

Predefined process template can be expanded giving end user more comprehensive overview divided into three nodes: Update assumptions, Execution part and Results.

User can trace interdependency between those activities by following arrows. As visible on the picture above, update assumption activities, according to the timeline schedule should be performed prior to execution function. Upon finalizing update assumption activities, overall calculation should be triggered by executing function. At the end, review results are available.

Due to the role-based screen, different users can access different parts of template based on the system role and organize activities under each node, according to their preferences and business needs. Hereby, predefined process look incorporates example showing dual control of the process activities, meaning that users from cutter team are assigned to perform activity, whereas users assigned in supper team can review and approve or reject activity. This is important because of the four eyes principle.

It is important to mention that system role assignment is subject of changes managed by end user on the single activity level. Panel on the right side of the picture will give user possibility to assign the performer and reviewer. Performer will act as executer of the activity, whereas reviewer will approve activity prior being released. This possibility of assigning roles is very important because of the four eyes principle, which minimizes possibility of the errors.nAll activities and changes are restricted by time frame, meaning after due date expires, activity will be locked for editing and user will not be able to make any changes.

End user has as well possibility to open activities through native web screen or to analyze it directly in the Microsoft Excel. Regardless of the way and preferences, user will have live access to data base, meaning that changes will be reflected in Microsoft Excel and system as well.

Accounting for Current and Differed Tax – Story in sample content

 

Goal of the Tax Calculation and Reporting sample content is performing current and deferred calculation based on retrieved data. Tax losses utilization and tax transfer between companies is supported by calculation as well. In the end, end user will have comprehensive list of the reports containing overview of the tax expenses and tax rate reconciliation.

In order to track the flow of the calculation and reporting, user should rely on already mentioned application process screen and predefined template.

Activities within the Update Assumption node give end user possibility to amend and manage data which will be used in calculation and which will trigger whole calculation. Therefore, user will be able to manage group tax rate and tax rates for current and deferred taxes and to align it to company needs. For determination of the current taxes we will be using relevant tax rate at the balance sheet day, whereas calculation of the deferred taxes should be performed using tax rate that is expected to be applicable when the asset is realized, or liability is settled.

End user is able as well to amend and manage retrieved data from the P&L, by doing further adjustments.

Upon all those setting have been performed, decision regarding the calculation scheme should be made. Current and deferred tax calculation could be executed either by using timing or temporary approach, meaning that different approaches for different entities could be executed in parallel. Overall calculation of the temporary and permanent differences slightly differs depending on the calculation scheme used but result data set is the same for both and that in simple words means that same data should give same result no matter which scheme in calculation is applied.

Therefore, it is up to end user to choose in Master Data report which approached to be assigned to corresponding company. Switching from one calculation approach to another one, will affect overall calculation.

After assigning schemes to corresponding companies, current tax calculation could be performed. In case user is following timing approach, temporary/permanent differences in Current Tax Calculation could be amended and those changes are later automatically reflected in Tax Balance Sheet Comparison. Overall process is illustrated in the screenshot below.

Vice versa, if temporary concept is used than user is managing Temporary/Permanent Differences in Balance Sheet Adjustment and overall effects of the changes are visible in the Current Tax Calculation Report.

In order to proceed, user should check if company has any losses from the previous years. In case there is, it is possible in Tax Loss Carry Forward report to use those losses to offset profits and to reduces corporate income tax. In simple words, user is manipulating how much it should be allocated in coming year or how to leverage loss from previous years in current year and affect current tax for current year.

Upon we have made above mentioned assumptions related to tax rates, calculation schemes used and tax losses, overall calculation could be triggered, and business user will be able to review the results based on the predefined criteria. Just to refresh your memory, those results incorporate reports under Results node.

Therefore, among other information, user will have overview of taxes received and sent by each company within the group.

Moving forward, amount of deferred taxes will be presented in separate report named as Deferred Tax Calculation. Deferred tax is calculated by multiplying Temporary difference tax base/ IFRS with deferred tax rate. If this amount is positive, greater than zero, than it represents Deferred Tax Asset. Otherwise, it is Deferred Tax Liability.

All those reports stated so far were on the single entity level, whereas Tax Position and Tax Rate Reconciliation are available either on single entity level or on the group level. Tax position report will give end user breakdown of the overall expenses on those referring to current period and deferred ones, as presented on the left side of the picture bellow.

On the other hand, Tax Rate Reconciliation report, available in the right part of the screen, represents explanation of the relationship between the accounting profit and tax expense.  Due to the different accounting and tax treatment of certain items, expected tax expense and actual tax expense will differ and this report will show reasons for divergency – drivers of the tax expense and effective tax rate.

Qualitative Report

 

Upon we have got familiar with data review and update through process application, I suggest moving to visualization part attached to this process template. This is as well way for end user to review the data.

For the purpose of Tax Calculation and Reporting report management, we have it divided into five tabs, Group Overview and one tab per each company in the group. All reports in those five tabs, are created on the top of the result queries, presented in the Review Results node. User can easily amend and adjust qualitative report by adding more tabs to suit its needs and preferences.

On the first tab end user has brief overview of standard current tax KPIs on total group level, presented in a dashboard. Moreover, these pieces of information are presented with purpose of showing the effect of increase or decrease of group tax rate, in a what-if simulation. This what-if simulation is controlled by changing parameters, in this case, for group tax rate. End user starts simulation via the Tools menu. New results for group tax rate and expected tax expense are shown in the dashboard after a short calculation time. We have created simplified version of the simulation just to show capabilities, but user has possibility of upgrading and creating more complex.

Except simulation, different chart types such as geo map, bar, line and pie chart are available to allow for flexibility in reporting and analysis. All those charts support slice drill down capability into the further dimensions, zooming and maximizing for deeper analyzes and configuration. Also, user can simply hover over the pie slices to see the type of tax expenses and the relevant amount.

As already mentioned, first tab gives overview on the total group levels, whereas others are on the single entity level. Second tab, together with all subsequents, on the top of the page contains company master data presented in a dashboard. User can easily amend which of the data will be presented in the dashboards. Interactive bar/column chart is used to show tax expenses, whereas pie chart for deferred taxes. Pie chart supports further drill down, therefore by clicking on it, user will benefit from more granular insight into the tax positions.

Important key figures regarding the Tax Expense Reconciliation are presented in a dashboard below followed by donuts chart showing breakdown of non-deductible items, changes of permanent differences, tax exempt income and impact on the tax group.

Having in mind that reports on the single entity level have same layouts among them, I have went smoothly through just one to show possibilities.

Conclusion

We came to the end of the second part of the blog post. We have covered current and deferred tax calculation. In upcoming releases, we are looking to improve compliance with IAS 12 Income tax, as well as with IAS 1 Presentation of Financial Statements.

Hope you find this blog post and topic covered understandable and useful. In case you have any comment or suggestions for improvements, please leave a comment and we will consider it.

Anyhow, as tax accounting and reporting is wide area, there will be great enhancement in our sample content. We will keep you updated.

Until next time,

Ana-Marija

 

1 Comment
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  • Hi Ana-Marija

     

    This is very well written explanation of the content. Thanks a lot for taking time to share. however I have a quick question on

    1. Tax master data - what are we capturing from end user as Tax master data? with tax code set as GT are we implying that the overall tax rate for the group is 30? Apologies for my limited understanding of the subject but isn't the direct tax different for each entity based on its registered country? maybe if you could shed some light on what is group tax %?
    2. Tax group : in here we are assigning the tax transfer percentage between legal entities which are not in the same country. maybe , again with my limited understanding you can consolidate the taxes for companies in the same country.  with this demo setup, are we of understanding the taxes can be transferred between entities based in different countries?

    I fully appreciate the fact that you might not be right person to ask this question but maybe you can share your opinion and understanding .

    Thanks

    note : These questions are in reference with SXT 5/6

    Best

    Chanchal Gupta