Africa Tax Conference - Global Tax Compliance and reporting trends


Global tax compliance and reporting trends – impact for Africa

EY Africa Tax Conference

September 2014


Moderator Warren Taylor

Africa Compliance and Reporting Leader EY South Africa

Panel Aidan O’Carroll

Global Compliance and Reporting Leader EY London

Daryl Blakeway

Tax Performance Advisory Leader EY South Africa

Natasha Meintjes

Africa Tax Coordination Services Leader EY South Africa

Robert Zalucki

Tax Partner EY Nigeria Page 2 Global compliance and reporting trends


Page 3 Global compliance and reporting trends

Global trends in tax compliance and reporting and the practical implications for companies operating across the African continent

Page 4 Global compliance and reporting trends

Growth of investment into sub-Saharan Africa (SSA)

Key trend 1 Share of SSA in FDI projects and job creation reaches an all-time high in 2013

► There is a clear dichotomy between FDI flows into North Africa and SSA. ► Since 2007, SSA has accounted for an increasing share of projects, both by number and value. ► ► This trend accelerated in 2013, with SSA’s share of overall African FDI projects and job creation achieving all-time highs of 82.8% and 79%, respectively. This growth is underpinned by solid FDI flows to four countries in particular: South Africa, Kenya, Ghana and Nigeria. Page 5 Global compliance and reporting trends

Growth of investment into SSA (continued)

Key trend 1 Southern Africa: South Africa acts as an anchor, attracting most interest Top 15 countries by FDI projects (2007 – 13)

South Africa Egypt Morocco Nigeria Tunisia Kenya Angola Ghana Algeria Tanzania Uganda Mozambique Zambia Libya Rwanda

Share of projects (%)

16.9 9.4 9.0 6.0

Share of amount (%)

8.7 12.8 7.1 10.0 5.4 5.4 4.8 4.4 4.3 3.0 2.8 2.7 2.4 2.3 1.7 7.0 1.7 5.5 4.3 6.8 1.6 2.9 5.6 1.7 1.7 0.6

Share of job creation (%)

11.6 11.0 11.2 6.1 6.5 2.7 3.3 3.7 6.0 1.8 1.8 3.5 3.2 2.0 0.5

CAGR (FDI project) (%)

+16.8 -3.4 -5.9 +19.4 -8.7 +40.1 -7.4 +50.5 -10.4 +22.8 +20.1 +32.8 +30.8 -11.6 +6.3

South Africa expands FDI projects’ lead in Africa since 2008

► FDI projects in Mozambique and Zambia have grown at a CAGR in excess of 30%. ► Angola remains an important FDI destination with GDP growth averaging 11%.

West Africa: the power of Nigeria and Ghana

► Ghana has attracted investor attention on account of its abundant natural resources, its strong investment environment and its stable and well-established democracy.

East Africa: regional integration drives interest

► FDI projects in East Africa have grown at a CAGR of 23.4%, the second-highest rate in Africa. Source: fDi Intelligence Page 6 Global compliance and reporting trends

Expansion of the intra-African investment

Key trend 2 Largest intra-regional investors in Africa (Share of FDI projects from Africa as source region)

Source: fDi Intelligence

Intra-regional FDI projects grow rapidly

► African investors tripled their share of FDI projects over the last decade, from 8% to 22.8% in 2013. ► ► ► The rate of intra-African investment expanded even faster in value, growing from a share of 4.4% to 22.3% in 2013. Intra-African investment has driven job creation on the continent. It is now the second-largest source of jobs behind Western Europe, jumping from fourth position in 2012.

CAGR in FDI projects by source region (2007 – 13)

Africa Asia-Pacific Middle East Western Europe North America Latin America (and the Caribbean) Rest of Europe Source: fDi Intelligence +31.5% +16.6% +5.8% +5.7% +5.5% +0.0% -1.4% Page 7 Global compliance and reporting trends

Shift from extractive to consumer-facing sectors

Key trend 3 Financial services, telecoms, media and technology (TMT), and retail and consumer products (RCP) account for 47.7% of FDI projects Top 10 sectors by FDI projects (2007 – 13, share) Projects (%) Value (%) Job created (%)

► Foreign banks and other financial services companies are either launching or expanding operations in Africa to tap the growing but under-serviced financial services market. Financial services TMT RCP Business services RHC Mining and metals Coal, oil and natural gas Transport and logistics DIP Automotive 17.5 16.3 12.9 9.2 8.6 6.6 5.5 4.9 4.8 4.1 2.1 8.7 4.8 1.0 22.9 14.2 31.8 2.3 1.3 2.7 2.7 7.5 16.8 1.9 19.2 21.2 5.3 2.0 3.5 11.9 ► ► ► Regional banks and other financial services firms in Africa are also ramping up their presence across the continent. A rising, relatively underpenetrated consumer market and improving communications infrastructure have encouraged TMT companies to invest in local knowledge transfer, and to establish country offices across the continent. Expected increases in consumer spending, especially on discretionary goods, indicates continued, strong RCP investments in Africa. Source: fDi Intelligence Page 8 Global compliance and reporting trends

Large urban clusters in the key hubs

Increasing FDI flows

The number of African cities with a population of over 3 million is expected to more than double from 16 in 2012 to 34 in 2030.

Cities with a population of over 1 million 34m > 3m 16m > 3m

Page 9

1m – 3m 3m – 5m

Source: Oxford Economics

5m – 10m 10m – 15m

Global compliance and reporting trends

15m – 20m > 20m

Large urban clusters in the key hubs (continued)

Increasing FDI flows Top 15 African destination states and provinces by number of projects (2007 – 13)

Page 10 Source: fDi Intelligence; EY analysis Global compliance and reporting trends

Africa has steadily moved ahead of other regions

Regional attractiveness Africa’s relative attractiveness is on the rise

Relative to the following markets, is Africa more or less attractive as an investment destination? ► ►

2011 2012 2013 2014 1 Asia (+31) 1 Asia (+26) 1 Asia (+16) 1 North America (+4) 2 North America (+16) 2 North America (+13) 2 Oceania (+11) 2 Africa

Markets more attractive than Africa

3 4 Western Europe (+16) Middle East (+8) 3 4 Oceania (+5) Western Europe (+5) 3 4 Latin America (+8) North America (+5) 3 4 Asia Oceania (-2) 5 Oceania (+6) 5 Africa 5 Africa 5 Western Europe (-3) 6 Latin America (+2) 6 Middle East (0-3) 6 Central America (-1) 6 Latin America (-14) 7 Eastern Europe (0) 7 Latin America (-1) 7 Western Europe (+4) 7 Middle East (-15)

Markets less attractive than Africa

8 9 10 Africa Central America (-14) CIS (-19) 8 9 10 Eastern Europe (-3) Central America (-5) CIS (-17) 8 9 10 Middle East (-10) Eastern Europe (-12) CIS (-14) 8 9 10 CIS (-17) Eastern Europe (-17) Central America (-19)

Africa’s stronger investment attractiveness is best explained by its own sustained growth rates in the context of slower global growth and, more recently, by structural weaknesses in many other emerging markets in the wake of the unwinding of US quantitative easing. Africa’s growth prospects are likely to remain solid, as an urbanizing and rising middle class drives demand for consumer products and improved services. Page 11 Global compliance and reporting trends

A giant leap in Africa’s relative attractiveness

How investors view Africa’s countries, cities and sectors

  


year go most desirable regional investment destination in the world, tied with Asia, up from fifth place a  


of respondents with presence in Africa believe the continent’s attractiveness improved in 2013


of investors expect its investment climate to continue improving 


see infrastructure offering the most growth potential South Africa in the south, Nigeria in the west, Kenya in the east, and Morocco and Egypt in the north are perceived by investors as the most attractive Perception gap between those already doing business in Africa and those with no business presence remains stark Page 12 Global compliance and reporting trends

Global trends in compliance and reporting

Page 13 Global compliance and reporting trends

Global trends

Four key trends we are seeing globally in discussions with our clients: ► ► ► ► Companies are looking to reduce cost without compromising value. For example, many multinational companies are undergoing

finance transformations

and exploring the use of

shared service centres

and new enterprise resource planning (


) systems. Companies are continuing to


at an increased rate and forge expanding growth into

emerging markets ( e.g., BRICS).

Companies are dealing with an increasingly




legislative and regulatory environment (e.g. transfer pricing, base erosion and profit shifting). Companies are looking to

drive value

through an increased focus on cash tax management and effective rate planning. Page 14 Global compliance and reporting trends

Looking at the numbers

EY global survey 68%

of companies indicated

local resources

are important to tax compliance and reporting processes (i.e., they need in-country support).


of companies indicated that

changes in regulatory requirements

will impose significant challenges on tax compliance and reporting process.


of companies consider the use of

outside providers

as an effective means of accessing local expertise.


of companies indicated they have recently completed or will soon complete a

finance transformation.

Page 15


of companies identified


cost of compliance and reporting as a risk of


tax compliance and reporting from a finance transformation. Global compliance and reporting trends

Going beyond transactional activities

Finance transformation projects are mostly driven by cost-efficiency Cost of finance (COF) ratio Finance process areas

Decision support ► ► ► ► Perform planning, budgeting and forecasting Perform cost management and profitability analysis Evaluate and manage financial performance Manage capital Today (1% –2%) Control ► Manage internal control ► ► Manage treasury Manage taxes Reporting ► ► Manage policies and procedures Perform product and general accounting ► Deliver reporting Transaction processing ► ► Process accounts payable Process expense reimbursements ► ► Process payroll Process revenue accounting “Value” of the activity for the business – adding or protecting In the future? (<0.75%) Reduction in COF


: become more efficient by reducing transaction processing and reporting work – strengthen the ability to provide decision support Page 16 Global compliance and reporting trends

Tax is embedded in every finance process

Finance process Order to cash Procure to pay Intercompany Fixed assets Record-to-report Treasury

Page 17

Tax relevance or impact

► ► ► Tax on invoices Tax point Tax registration ► ► ► ► ► Recoverable taxes Withholding tax Tax exemptions Tax deductibility Tax registration ► ► ► Transfer pricing Tax on invoices Withholding tax ► ► ► Tax deductibility Capital allowance Tax depreciation ► ► ► ► Tax adjustments Tax disclosures and enforcement Tax loss management Tax filings ► ► ► Tax paid Interest deductibility Thin capitalization Global compliance and reporting trends

Direct tax Indirect tax

Companies deciding on the right speed and path

Depth of insight

H G 2 D E F

Control, access and visibility over local process

C B A 3

Simplification, standardization and cost reduction


EY clients

Leading software company Worldwide networking company C D Oilfield services provider Foreign automotive company E F Global computer manufacturer Global media company G Financial services company H Global diversified company 1

Local country approach Local Degree of standardization Regional and global

Global compliance and reporting trends Page 18

Issues to consider when embarking on a finance transformation

Page 19 Global compliance and reporting trends

Finance transformation


► ► ► ► Large-scale finance transformation programs: ► ► ► ► Driven by business change Often technology enabled Change management focused Finance-led business transformation Leveraging technology: ► ► New technology implementations (e.g., financial systems such as SAP and Oracle) Upgrading older ERP systems or consolidating different instances Shared services and outsourcing: ► ► Global finance delivery model Outsourcing, off-shoring, shared services centers (SSCs) and regional centers of excellence Global standardization and global delivery models: ► ► Process and reporting efficiency Robust controls Page 20 Global compliance and reporting trends

Finance transformation

Overview (continued)

► Finance transformation will help to create a lower-cost finance function by changing the way finance processes are delivered.

Finance process class

Transaction processing

Level of process


Typical change achievable*

Saving 25% –40%


Aggressive globalization – shared services and outsourcing Reporting Medium Saving 10% –20% Control Decision support Medium or low Low Saving 10% –20% Saving 50% –100% Rationalization of reporting process and systems; extensive use of shared services for record-to-report Investment in people and tools to support a global control framework Investment in resources to support the business areas with value-adding finance activity *Indicative benefits based on typical maturity levels and scope for standardization. The benefits available will depend on individual company circumstances. Page 21 Global compliance and reporting trends

Why should tax be involved?

► Example of client objectives and potential impacts for tax:

Client objectives

Design the finance function organization, including operating model and roles and responsibilities. Improve the operational efficiency and effectiveness of processes. Improve finance systems effectiveness, including transactional systems. Improve consolidation and close, reporting, planning and budgeting.

Sample tax organization impacts

► ► ► There are fewer local finance resources available to support tax organization and various tax processes, such as provision reporting or managing outside service providers Delivery of tax activities supported in business will change (e.g., local country vs. SSC) There is an opportunity for tax organization to better align to new finance model ► ► ► Shorter close cycle places additional pressure on the tax-provision process New standard global finance or business processes no longer support tax planning or supply chain structures Functions performed by “shadow tax” resources may be altered and need to be assumed by the tax function ► ► ► Systems changes may affect current data sources and lead to more data rework and data gathering Redesign of the chart of accounts (COA) may result in change of tax-sensitized accounts There is an opportunity to significantly improve tax data and tax-sensitize systems ► ► Improved financial reports and forecasts may be optimized for management and oversight needed for legal entity reporting Budget is available to improve global tax provision process through new tools and technology Page 22 Global compliance and reporting trends

Why should tax be involved?

► Tax is embedded in every finance process. Understanding finance processes is a new language and challenge for tax departments:

Example finance process

Order to cash Procure to pay Intercompany

Tax relevance or impact

Tax on invoices such as value-added tax (VAT), tax registrations and changes to accounting methods Recoverable taxes such as VAT, withholding tax, tax deductibility, tax registration, inventory, customs, changes to accounting methods Transfer pricing, tax on invoices, withholding tax and supply chains Fixed assets (acquire to retire) Record-to-report Treasury Tax deductibility, capital allowance or tax depreciation, changes in accounting methods and tangible property regulations Tax adjustments, tax disclosures and enforcement, tax loss management, tax filings and tax accounts Tax paid, interest deductibility and thin capitalization, changes to functional currency, tax hedging rules and changes in accounting methods Page 23 Global compliance and reporting trends

Why should tax be involved?

► The tax sensitization of ERP involves building tax requirements into the company’s business processes and practices.

Tax accounting and reporting controls Training and guidance for tax users Tax technology solutions

Procure to pay Order to cash Record to report Transfer pricing AP tax decisions Jurisdictional segregation AR tax codes AR tax determination AP tax codes Segregation of sales and returns International sourcing Tax depreciation rules Supplier master data Material master data Customer master data Fixed assets master data Critical tax-sensitive accounts GL account reports Tax fixed asset reports Intercompany and jurisdictional reports Foreign jurisdictional indirect tax reports T&E systems Base ERP system Third-party logistics Legacy systems Middleware solutions Page 24 Global compliance and reporting trends

Why should tax be involved?

► Driving tax value from non-data finance transformation:

Project types

Shared service implementation Process and sub-process redesigns Finance service delivery model

Potential tax benefit

► ► ► ► Improve the consistency, timing and access of key tax inputs, such as statutory accounts preparation Re-evaluate tax personnel roles and deployment and use of outside providers Create consistency and standardization across tax processes Move to lower-cost tax operating model ► ► ► Reduce overall effort from both tax and accounting personnel by incorporating tax- sensitization decisions at the source of recording Increase ability to automate manual tasks, resulting in significant time savings Redesign and automate tax financial close to support shorter close with increased accuracy ► Centralize tax activities across business units and geographies to reduce costs ► Consider how to migrate activities to achieve cost efficiencies without increased tax risk or lost tax opportunities Page 25 Global compliance and reporting trends

When should tax get involved?

► ► ► ► ► When the business is discussing or evaluating global organization models When the business is doing benchmarking studies and evaluating performance When the CIO is evaluating ERPs and technology solutions When the CFO is developing short- and long-term agenda Pre- or post-transaction event Page 26 Global compliance and reporting trends

How does tax get involved?

Areas to focus on when looking at tax value drivers ► Efficiency ► ► Reduction in effort of tax processes Optimization of tax software ► Effectiveness ► ► ► Increased productivity with better automation Better visibility of tax positions and risks Enhanced process and controls ► ► Tax efficiencies ► ► Enable sustainable tax planning Improved quality and access to data and reporting Lower costs ► ► Process standardization and simplification Leverage shared services models Page 27 Global compliance and reporting trends

Key challenges for the tax director

► ► ► CFO ► ► ► Why do we need to spend money now? Why can we not get these benefits without the initiative? Why and how additional budget is necessary beyond the proposed project team – quantify value? CIO ► ► ► ► You will get what you get today Tax’s involvement will slow down the project How do the benefits link to the technology component? Why would you need additional resource to support tax? Business ► There is a lack of integration with the business owners Page 28 Global compliance and reporting trends

Success factors

► ► ► Understand the initiative(s) ► Learn your CFO’s agenda ► ► ► Align with key initiatives of the business Develop link from tax case to broader initiatives Align tax function with business Secure a seat at the table ► ► Never too early to build the case for tax Keep it simple; don’t boil the ocean Gain sponsorship ► ► Identify initiative sponsor (such as CFO, CIO or CEO and Board) Understand key stakeholders (including enterprise leadership and program management team) Page 29 Global compliance and reporting trends

Practical challenges companies are facing across Africa in the tax compliance and reporting space

Page 30 Global compliance and reporting trends

Getting to know Africa

Business language considerations in Africa

Page 31

French Portuguese Spanish Amharic Arabic

Global compliance and reporting trends ► ► ► With an estimated 1,500 to 2,000 languages spoken, Africa is a continent with exceptional linguistic diversity. In both Angola and Mozambique, returns are completed in Portuguese. UEMOA countries complete returns in French.

Ease of paying taxes in Africa

Page 32 Global compliance and reporting trends

Ease of paying taxes in Africa

Top 10 FDI destinations EY 2013 – 14 Africa by numbers Country Number of payments Time to comply hours

Cameroon 44 630 49 348 Congo Cote d’Ivoire Ghana Kenya Mozambique Nigeria 62 32 41 37 47 270 224 308 230 956 Tanzania Zambia Zimbabwe 48 38 49 176 183 242 Source: The World Bank – tax payments (number) and time to prepare and pay taxes (hours) 2014 Page 33 Global compliance and reporting trends

Corporate income tax

Page 34 Global compliance and reporting trends

Due dates for corporate tax returns

A total of 27 returns due in June

December 21 November October 7 5 5 January February 6 19 March 20 April September 16 August 5 9 July 27 June 7 May Page 35 Global compliance and reporting trends No information available

Due dates for corporate tax returns

Annual CIT returns

July December 4 2 March 7 June 7 12 April May 4 ► No annual returns due in January, February, August, September, October and November Page 36 Global compliance and reporting trends

Provisional or minimum tax returns

December 17 5 6 February 19 March November 5 October 7 8 April 16 3 May 3 ► September 20 5 7 June August July No provisional returns due in Nigeria and Libya

A flavor of penalties and interest in Africa

In Nigeria, a


penalty and interest at the prevailing bank lending rate are imposed for late payment of assessed tax In Kenya, late payments are subject to


penalty of tax balance

plus 2%

per month. Late filing is subject to a


penalty with a minimum of KES10,000 (US$115) In Cote d’Ivoire,


of the first month,


thereafter are imposed for late payments In Equatorial Guinea, profits.

100% 50%

of amount not declared if shortfall is one-tenth of declared in the case of bad faith In Mozambique, fines for non-payment of taxes vary between the amount of the tax due to double of this amount, without prejudice of payment of the tax due. The maximum cap on the fines is

MT2.5m (US$84,000)

per offense In Angola, penalty of


of tax due for non-payment Global compliance and reporting trends In South Africa, penalty of up to


for intentional tax evasion Page 37

VAT compliance

Page 38 Global compliance and reporting trends

VAT compliance in sub-Saharan Africa

VAT filing dates (monthly returns) 8% 19% 35% 19% 8% 11%

10th 15th 20th 21st 25th 30th

Manual or electronic return

21% 79% Manual Electronic Page 39

Changes in VAT legislation: Promulgated

Kenya (2013) Ghana (2014) Global compliance and reporting trends

Forthcoming changes

Angola (2015) *Consumption tax

Payment EFT or cheque

54% EFT Cheque 46%

Payroll tax compliance (PAYE and social security)

Page 40 Global compliance and reporting trends

Payroll tax compliance in sub-Saharan Africa

Number of payroll taxes due monthly

3% 68% 29% 1 - 2 2 -4 > 4

Manual or electronic submission

18% Electronic Manual 82% Page 41 Global compliance and reporting trends

Recent changes to Social Security

Kenya – new NSSF Act (2014)* Namibia – vocational education and training levy introduced (2014) Nigeria – new pension reform act (2014)

Annual employer return

25% 75% Yes No

Statutory reporting in Africa

Page 42 Global compliance and reporting trends

Statutory reporting considerations in Africa

Local GAAP (8) OHADA (17) IFRS (28) Benin Congo Guinea-Bissau Burkina Faso Cote d’Ivoire Mali

OHADA member states

Cameroon Central African Republic Democratic Republic Equatorial Guinea of Congo Chad Gabon Niger Senegal Togo Page 43 Global compliance and reporting trends Comoros Guinea No information available

A client perspective

Page 44 Global compliance and reporting trends


Page 45 Global compliance and reporting trends

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