Caterpillar has decided to use an external tax engine to manage the VAT determination on its AP invoices and is in the designing and testing phases. In this presentation from the SAP Control for VAT Compliance conference 2011, Patricia Oakley, VAT Process Improvement Manager at CATERPILLAR, shares what prompted Caterpillar to opt for an external solution and provide practical insight as to how the external solution compares with the status quo, as well as early success and pain indicators. VAT errors associated with booking AP invoices can significantly increase the risk of VAT non-compliance. This session will explore how VAT professionals have used both manual controls and system automation in different environments to transform the accuracy of VAT coding on AP transactions towards 100%.

1. CATERPILLAR
SAP and Vertex implementation
AP Automation

2. Caterpillar overview
 World’s largest manufacturer of construction and mining equipment, diesel
and natural gas engines and industrial gas turbines
 Technology leader in construction, transportation, mining, forestry, energy,
logistics and electric power generation
 #1 or #2 for each industry we serve with a 2010 goal of market leadership
for every major product group on every continent
 Gl b l enterprise
Global t i
- over 112,000 employees 55% based outside of the USA
- nearly 500 locations in 50 countries
- more than 500 products; sold in every country
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3. Introduction
Patricia Oakley, VAT Manager - Caterpillar
Current role - VAT systems implementation and improvement
 Working on SAP & Vertex implementation globally
 Baan LM
 SPM
 Arriba
 Proof of concepts to link Baan, SPM and Arriba to Vertex
VAT experience
 12 years industry (Petrochemical, Tobacco and Plant Manufacturing) all global
companies
 5 years HMRC VAT Assurance Officer
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4. Vertex solution for automation
How did we select Vertex?
Options available for managing VAT in SAP were:
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 Native SAP
 Tax Engine (Vertex, Sabrix or Taxware)
6 Sigma project to decide which to choose, team included
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 CAT Global Tax team
 SAP/Tax Engine specialists
Issued RFP to SAP, Vertex & Sabrix
,
 Response documents from each
 One day workshops with each
 Follow up questions/meetings
 Visited SAP user & SAP/Vertex Users
/
 Completed scorecard (on which decision was based)
 Vertex was the preferred choice
 Decision was ratified by the Tax Council
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5. Vertex solution for automation
Overall conclusion leading to Vertex decision
Advantages of Vertex:
 Reduced risk of error
 Outsourced management of world wide VAT rate, rules and regulations
 Limited need for SAP changes when business flows change
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 Flexibility and control
 No IT support to modify VAT rules and rates
 Fewer Caterpillar resources required to manage Global VAT
 Potential to use Vertex with legacy systems:
- SPM, CBS, My Supply Cabinet (Ariba), Baan LM, Oracle Lease Management
 Allows single global solution for VAT management and reporting
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6. Vertex solution for automation
Overall conclusion leading to Vertex decision contd.
Risks in using Native SAP:
 Limited number of tax codes – Cat business very complex & global.
- multiple intercompany invoicing
- intra-company transactions
 Complex condition records
- country specific rules
- multiple warehousing regimes in place
 Time constraints in changing condition records
- resource requirements for maintenance both for development and validity.
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7. Vertex solution for automation
Project team
Important to have correct skills from the members of the team:
 CAT VAT Group members
 IBM SAP implementation partners
Tax, SD knowledge
 KPMG VAT advisors
SAP and tax engine advisors
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 Vertex Consulting
SAP integration specialist
Vertex software / reporting specialist
Caterpillar views this very much as a “Partnership”
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8. Vertex solution for automation
Project design and build
Key to project success:
 Good understanding of the business and the transaction flows
-documented with tax treatment
 Data elements required to make a correct Tax decision
 Data elements required for VAT / Intrastat reporting
 Up front knowledge of compliance requirements e g
e.g.
- invoice requirements by country
- purchase order requirements
- electronic invoice requirements
 Integration with other SAP teams on project
-AP, AR, FI, SD, IM, MM
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9. Vertex solution for automation
Project design and build
Gaps addressed in relation to AP:
 Plants Abroad
- implemented code in a standard user exit to allow plants abroad to work with
jurisdictions for non US – no core modifications required
 Currency issues
- wanted to pass correct exchange rate to Vertex for VAT / Intrastat reporting as
well as SAP ‘M’ rate used for financial postings
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- required changes to be made in Vertex software to pass and record both for
reconciliation
 Vendor Exchange Rate (UK, SG CZ etc)
(UK SG,
- ability to convert the document currency to the reporting currency at the
specified vendor exchange rate.
- used OSS note 776105 as basis for solution and made some changes to Vertex
functionality.
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10. Vertex solution for automation
Project design and build
Gaps addressed in relation to AP: (contd….)
 Alternative ‘Ship from’
- for AP automation added text field in MIRO and FB60 to note the VAT
registration number from AP invoice if different to the vendor details
- allows correct tax determination and Intrastat / EU purchase listing reporting
 Sequential numbering reverse charge postings in AP ledgers (IT)
- using Vertex determined VAT registration number as basis f Sequential
for
numbering on sales invoices. RICEFs required to import from memory to a
table the VAT Reg number to be used when billing document being created.
Ensures credibility between 2 systems.
- use this theory to have separate table for AP numbering where necessary for
Plants Abroad registrations
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11. Vertex solution for automation
Project Go Live
 Currently live with US since April 2009
 Non US - Canada and EU and Australia active in Sandbox
 Production go live for non US Feb 2012
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12. Vertex solution for automation
Conclusion
Caterpillar believes that the use of Vertex with SAP is the right and best way for it
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to manage and report global VAT:
 It is in line with business transformation
 It is in line with Global Tax and Trade’s strategy
 It facilitates VAT compliance and reporting in a shared service environment
 It is an integral part of the Global VAT MGPP to achieve world class VAT
Management
 It gives Caterpillar the best opportunity to manage risk of VAT error
 It is the most cost-effective and value-for-money solution
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13. Vertex solution for automation
Conclusion
Is it right for you?
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 How complex is the business?
 How / Where are AP invoices processed – in business – or Shared Services?
 Up front capital outlay required ‘vs’ long term costs.
 Availability of internal and external resources?
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