Conquering Internal Company Challenges in Handling Canadian Taxes and Other VAT

Transcription

1 Conquering Internal Company Challenges in Handling Canadian Taxes and Other VAT DuCharme, McMillen & Associates Canada, Ltd. Darryl Rankin, CPA, CGA, Director, Commodity Tax WestRock Company Panel Members: Marina Lomako, Senior Tax Analyst Sandra D. Robertson, Director of Indirect Taxes Conquering Internal Company Challenges in Handling Canadian Taxes and Other VAT Managing GL Reporting Managing Tax Codes Accounts Payable Issues Audit Issues Tax Compliance page 2 1

2 Managing GL Reporting Setting up different Tax GL accounts Example: Manufacturer registered for the GST/HST, Quebec QST and PST in British Columbia, Manitoba and Saskatchewan 2 separate GL accounts for GST/HST One account for tax collected ex. GST/HST Collected One account for tax paid ex. GST/HST Input Tax Credit 2 separate GL accounts for QST One account for tax collected ex. QST Collected One account for tax paid ex. QST Input Tax Refund 1 separate GL account for BC PST, MB PST and SK PST page 3 Managing GL Reporting Setting up different Tax GL accounts Two separate GL accounts for Recaptured Input Tax Credits (RITC) Must report the provincial component of the HST for Ontario (8%) and PEI (9%) on restricted expenses One account for Ontario RITC One account for PEI RITC page 4 2

3 Managing GL Reporting Setting up different Tax GL accounts Optional GL Accounts: GST/HST Clearing account QST Clearing account Ensures balances owing/refund are cleared out of the collected and paid accounts to simplify reconciling issues. page 5 What WestRock Inherited Canada 2012 There was no oversight or review and reconciliation of Canadian tax G/L account balances and activity The G/L structure for Canada taxes did not align with the Canada tax structure, making it problematical to differentiate between the taxes Global VAT due to merger 2015 Historically little oversight or review in the U.S. of VAT for over 30 countries Complexities and issues with intercompany billings page 6 3

4 Reporting - WestRock Process Determine who is responsible for filing VAT/GST returns Set up a reconciliation process to reconcile each tax return to the balance sheet Adjust balance sheet accounts based on a detailed analysis of historical activity Centralize and standardize the calculating and filing of VAT returns where appropriate Regular review process for locally handled returns and audits page 7 Managing GL Reporting Mapping various systems to the applicable Tax GL accounts Legacy systems AP systems Billing systems Ensure all systems are accounted for and perform the necessary reconciliations to ensure completeness page 8 4

5 Managing GL Reporting Managing and understanding the different document types that post to a tax GL account: Sales/Receivable transactions Typically should only post to a tax collected GL account Accounts Payable transactions Typically should only post to a tax paid GL account Manual Journal entries Credits and adjustments Electronic transactions May post to both collected and paid GL accounts page 9 GL - WestRock Process Resolve registration and legal entity issues and name changes for all jurisdictions Restructure GST & other VAT account structure in the GL to take into account country differences Work with the division and country controllers to ensure all interfaces were mapped to the correct accounts Attend seminars on GST/VAT whenever possible Rely on support from advisors experienced in Canadian and other VAT law and practice page 10 5

6 Managing GL Reporting Strive to ensure all tax corrections are done through the system Ex.: AP invoice corrections for tax should be done with the appropriate debit memo Ex.: AR invoices should be corrected with credit/rebill invoices This ensures adequate audit trail Avoid doing corrections with a manual journal entry Problems with Manual journal entries to tax account Hard to trace to original transaction Usually part of a larger journal entry Multiple corrections combined into one entry lacks clarity Insufficient detail or explanation as to why entry made page 11 Managing GL Reporting Control access to the Tax GL Accounts If possible, only allow Tax Department to make manual journal entries that post to a tax account At a minimum, ensure a tax journal entry has approval from the Tax Department and sufficient supporting documentation is retained for audit purposes page 12 6

7 Managing Tax Codes Using a tax engine vs. home grown system Ensure tax tables and codes are up to date and current Periodic review Assigning exempt or taxable status to products using tax codes How are tax decisions made on customer invoices At the product or sku level At the invoice level Both? page 13 Accounts Payable Accounts Payable Issues GST/HST/QST Refunds (ITC/ITR) GST/HST/QST are recoverable taxes Generally GST/HST/QST should to be booked to GL account Expect to see GST/HST/QST on Canadian invoicing for inventory, capital assets (including real property) and services page 14 7

8 Accounts Payable Use of Tax Codes by Accounts Payable How to capture tax in a complex environment, i.e.: 13 Tax jurisdictions Multiple Provincial Tax Rates Different potential Tax Treatments: GST 5% only (no Provincial Tax) GST+ Provincial HST GST + PST PST Only (i.e. Ontario Insurance) No Tax page 15 Canadian Commodity Tax Rates at Sept 1, 2015 Province GST/HST Rate PST Rate Combined Rate Alberta British Columbia Manitoba New Brunswick 13 Harmonized 13 Newfoundland/Labrador 13 Harmonized 13 Northwest Territories Nova Scotia 15 Harmonized 15 Nunavut Ontario 13 Harmonized 13 Prince Edward Island 14 Harmonized 14 Quebec Saskatchewan Yukon page 16 8

9 Accounts Payable Tax Code Options No tax code, use manual AP entry (default no ITC) Implement Tax Codes: No Tax GST + PHST GST + PST PST Only GST + Self Assess PST page 17 Accounts Payable Tax Code Challenges Need to account for Jurisdiction i.e., Province Code. What is the default, i.e., no Tax? How to account for vendors with no GST/HST#? No tax code set up but have tax on invoice? How to handle this? Self-assessment challenges. On posting invoice, need to Dr. GST and Cr. PST with an offsetting Dr. to the expense or asset. page 18 9

10 AP - WestRock Process Evaluate Tax Rate setup and processes by jurisdiction Work with IT Department to correct tax rate structures and tables in the primary AP system Continually review GL transactions for accuracy Conduct internal reverse audits of historical activity Educate and train key employees page 19 WestRock - Ongoing Issues Customer issues: Drop-shipment transactions Customers with multiple legal entities some are registered with Canada and/or Quebec, and some are not Centralized purchasing from the U.S. for Canadian and other non-domestic legal entities Commodities (recycling) business has numerous cross border transactions along with limited records because of the nature of the business page 20 10

11 Accounts Payable Documentary Requirements Input Tax Credits Documentary Requirements Must meet the requirements of Subsection 169(4) Refer to the Input Tax Credit Information (GST/HST) Regulations for information on what is required to support an ITC claim Supplier Name Date of Invoice/Date Payable Total Payable GST/HST Registration Number Amount of Tax Payable Recipient Name Terms of Payment Description of Supply page 21 Audit Issues ITC Documentary Requirements Wrong Entity on Invoice Large multi-national companies with related entities Numerous name changes and/or re-organizations ABC Canada Ltd. ABC Logistics Corp. ABC Transport Ltd., ABC Testing Ltd. ABC Holdings Ltd. ABC BC Corp. ABC Ontario Canada Corp. ABC Quebec Ltd. page 22 11

12 Audit Issues ITC Documentary Requirements Wrong Entity on Invoice Invoices from suppliers in name of wrong member of the group Invoices from supplier with incorrect name on invoice, i.e., instead of ABC Canada Ltd. was issued to ABC Ltd., or ABC Logistics Corp instead of ABC Canada Ltd. DBA name causes issues. Central A/P processing or shared services names cause problems. CRA may look to deny ITC page 23 Audit Issues ITC Documentary Requirements Validating Vendor s GST/HST Registration # s Must validate Vendor s GST/HST Registration # s as part of meeting the documentary requirements GST/HST Registry website manual process to validate! Need correct legal name of vendor Require the 9-digit BN # How often to check a vendor s GST/HST #? page 24 12

13 WestRock Canada Audits Verify Legal Entity Names on invoices; ITRs were claimed without proper support documentation so Revenu Quebec has disallowed these ITRs A portion of certain ITCs and ITRs were disallowed on audit: Telecommunication services (local and long distance telephone) Energy adjustments We engaged a third party to conduct energy studies for manufacturing usage, for all Ontario and Quebec locations to support a partial recapture Insurance Contracts from US are subject to 10% Excise tax and the Canadian Legal Entity should self-assess the tax Volume discount paid at the incorrect rate (should be at the ship-to rate, not the bill-to rate) page 25 Tax Compliance and Reporting Supporting Documentation for Returns Documentation to satisfy Tax Authorities i.e., CRA Audit Include the following: Invoice samples (collected and paid) Download of Tax Account Activity (GL) Use of other reports to capture tax (ex., tax engines) Reconcile to tax returns Provide sales detail and link to financial statements Reasonability tests page 26 13

14 Tax Compliance and Reporting GST/HST Reconciliation to Returns GST Return GL GST/HST Account Sales and Purchases Register Financial Statements page 27 WestRock Canada Process Monthly reconciliations tax return to GL Run GL detail reports for each GL account from our financial system (JDE) Review questionable invoices listed on the GL details Gross sales reports from financial system and financial reports Canadian Entities must file GST/HST/QST returns electronically US entity must file/remit payment on tax return for CRA electronically QST only is filed manually with paper check for US entities only page 28 14

15 CONTACT INFORMATION Darryl Rankin Director, Commodity Tax Toronto, ON (800) , ext page 29 15