Customs & Border Modernization, Trade Facilitation and Technology

1. Customs & Border Modernization, Trade Facilitation and Technology Markus A. Werling, Vice President SAP AG, IBU Public SectorMichael C. Eads, VP Marketing/Board MemberTatis S.A.

2. Summary of SAP Today • SAP AG in 2005 revenues: €8.5 billion • More than 32,000 companies run SAP software • Providing more than 25 industry solutions • 35,873 SAP employees (Dec, 2005) • 12 million users in 120+ countries team with us to… • Integrate their business processes • Extend their competitive capabilities • Get a better return on investment at a lower total cost of ownership • Unique partner ecosystem • More than 1,600 partners • Overall more than 180,000 SAP partner certificates

3. Summary of TATIS Today • TATIS SA was founded in Switzerland in 2000 • developed a comprehensive customs management system application suite • The TATIS business strategy is to develop alliances with global technology and business partners • Solution of TATIS SA • TATIScms V1.01 is a modular customs management system that incorporates methodologies, business applications, tools and best practices: • Designed to address revenue and trade compliance, enforcement and trade facilitation • Risk-centric • Based on intervention by exception • WCO/ WTO aligned (ACV, Kyoto, UCR, SAD)

4. sample for a picture in the title slide Customs & Border Modernization TATIS/SAP Solution Offering: Overview & Demo Luxembourg Project Highlights & Lessons Learned to Date Wrap up and Discussion

5. Customs’ Challenges & Modernization Drivers

6. System Landscape & Functions at Customs Business Areas and Business Activities Declaration Handling (pre-arrival and post-arrival) Waren-orientiert Declaration Handling Steuer-orientiert Risk Account management Inspection Other Functions Entry Import Export Transit Exit Meldungen (Reports) ergänz. An- meldung VSt Anmeldung KFZ Motrorrad Steuer besondere Erledigung Risk Mgmt.. Account Mgmt. Lizenzen administr. Über- wachung Inspection Lab 3rd Party- information Rechts- mittel Einwand Tarif Maintenance Enterprise information management Code lists maintenance Operations receive EU ECN CCN/CSI (CCN/ CSI) TARIC (CCN/ CSI) (CCN/ CSI) • Multiple, redundant, stand-alone systems (CCN/ CSI) send EU receive DE AÜV ATLAS BSV AURA KOBRA RAMSES ATLAS KOBRA ATLAS EZT ONLINE EMCS EWSE EZT ONLINE send DE Risk Selection (Wert und Gefahr) Abschöpfung AIDA • Limited view of taxpayer/trader SIGMA • Expensive Point-to-Point Integration MOZART • Risk of non-Compliance NIZZA Einkommen Sammlung NIZZA NIZZA NIZZA MVS Support CIS TARIC ZEUS. • Risk of uncaptured revenue/duty ADLER AFIS EBTI BIBER BENGALI QUOTA TIGER CUTEPAD PRÜF TARA DIANE ZEBRA RIS BISON Data Areas Waren- bewegung AÜV ATLAS KOBRA ATLAS KOBRA nicht-finanzielle Verpflichtungen • Fragmented access and Inefficient billing & collection Payment NIZZA NIZZA NIZZA Accounts ATLAS ATLAS KIS KIS KIS KIS KVK KIS SEED Sicherheits- leistungen Tarife & Maßnahmen EZT- ONLINE EZT-ONLINE TARIC Risikoprofile ATLAS ATLAS PRISMA Domeinen TAB TAB TAB Personal & Organisation COSINUS

7. ? How can IT help Reforming Tax & Revenue Management and Customs & Border Management • Specific Pain points Business Practice Improvement needed • Multiple, redundant, stand-alone systems • For each tax, fee, revenue and payment type, and for each step in the revenue lifecycle a separate system is required. These are often, silos, custom-built, “one-off”, or legacy in-house systems with outdated technology. • Agility to meet business and legal changes • Outdated stovepipe systems using point to point integration aren’t prepared to meet changing business and legal requirements • Fragmented access and Inefficient billing & collection • Limited channels of access hinders taxpayer interaction, causing low constituent satisfaction and negatively impacting compliance rates • Taxpayers have no ability to access accounts and make payments on-line • Single revenue type limitations • Multiple systems, processes and personnel for different revenue types, (fees, taxes, duties, payments) causes redundant data capture • Limited view of taxpayer • No single view of taxpayer or taxpayer’s total obligation, resulting in lost revenue and lower compliance • Limited view of taxpayer/trader • Risk of non or low compliance • Low compliance • No risk scoring capabilities, limited visibility into taxpayer total obligations and status, and inability to track or match documentation results in poorly targeted, incomplete audit coverage • Uncaptured revenue/duty • Uncaptured revenue • No method for detecting and reducing fraud and non-filing

8. Customs Modernization Fundamentals Modernization Strategy Enforcement Data Analysis/ Business Information Automation/Technology Process Management/Improvement Training & Knowledge Transfer Quality Assurance (KPI) Compliance PROCESSES Audit (Internal/External) Risk Management ENABLERS Customs Integrity Customs Expertise FUNDAMENTALS Baseline (Environmental Analysis) Commitment ©TATIS SA

9. High SECURITY FACILITATION Low Market Trends and Drivers • Key Drivers • Increased Trade Volume • Regulatory Changes e.g.: • WTO • Supply Chain Security • Authorized Economic Operators • EU MASP Convergence • Legacy Systems • Organizational/Operational Changes & Mergers • Customs & Revenue Management (UK, SARS) • Border Control (USA, SARS, UK) • Service Oriented Architecture (SOA)/Enterprise Services Architecture (ESA)

10. Customs Role in Trade Facilitation • Trade Facilitation: “the simplification and harmonization of international trade procedures (the activities, formalities and practices involved in collecting, presenting, communicating and processing data required for the movement of goods in international trade”)*. • Countries with a Low TF Index have the following problems: • Border/Port Delays • Lack of Transparency & Predictablity • Complicated Documentation Requirements • Outdated, innefficient Customs Procedures • Resulting High Trade Transaction Costs (from 1 to 15%). • Higher impact on SMEs • Direct Relationship Between High TTCs and FDI • Marginal Improvements in TF Would Result in US$ Billions of Savings to World Economy

11. sample for a picture in the title slide Customs & Border Modernization TATIS/SAP Solution Offering: Overview & Demo Luxembourg Project Highlights & Lessons Learned to Date Wrap up and Discussion

12. Tax & Rev Management Social Services & Social Security Defense Health Postal Services Public Security Banking Services Education Public Utilities Transportation Public Administration Democracy Public Broadcasting Energy Government & Constituent Services Justice Environment, Health & Safety Customs & Border Management Aid & Development Retail Services A Snapshot on the Business of Public Services Organizations

13. Tax & Rev Management Industry Value Networks Enterprise Services Customers System Integrators Social Services & Social Security Defense Health Postal Services Public Security Banking Services Education Public Utilities Transportation Public Administration Democracy SAP ISVs Public Broadcasting Energy Government & Constituent Services Justice TechnologyPartners Environment, Health & Safety Research Aid & Development Retail Services Differentiated Approach Enables Government TransformationCo-Innovation on Open Platform

14. Enterprise Services Oriented Architecture (Enterprise SOA) Easy to change, user friendly, encourage innovation … is a Service Oriented Architecture with Enterprise Services for flexiblepublic sector specific application landscapes. Open through web services and other standards – including a repository of public & private industries services No product but basis for developing and assembling of new applications and for integration of existing applications Open, secure, reliable, scalable

15. Agencies Declarant Customs Analytics Partner Composite Application Risk Management Declarations Tariff book Inspection SAP Composite Application Registration Business Rules Framework Dunning Clearing Invoicing Payment Exception Cockpit Enterprise ServicesRepository Business Process Platformfor Public Services Application Components Partner BI(internal) ERP(internal) The Key Elements of Enterprise Services Architecture PEOPLEPRODUCTIVITY EMBEDDEDANALYTICS APPLICATIONCOMPOSITION SERVICEENABLEMENT BUSINESS PROCESS PLATFORM • n Service-enabled n Process-integrated n Model based

16. Process Tax Return Example: Electronic Filing Services – Process View Lin Smith Tax payer Validate Taxpayer Details Check Filing History Enter Return Data Check Pre-payments Print-out Result with Payment Form Send Return Data Tax & Revenue Management Michael Foster Tax agent …

17. Example: Electronic Filing Services – System View Analytics Validate Taxpayer Details Check Filing History Enter Return Data Check Pre-payments Print-out Result with Payment Form Send Return Data Process Tax Return Get Taxpayer Details Enterprise Service Repository Get Taxpayer Address BP Platform PS Get Taxpayer Filing Objects Get Taxpayer Filing History Validate Taxpayer Select Pre-Payment Items SAP Public Sector Collection & Disbursement External Portal

18. Services Example - Extended Electronic Filing Services Agility: Calculate additional penalties and interest Analytics Calculate Penalty and Interest Validate Taxpayer Details Check Filing History Enter Return Data Check Pre-payments Print-out Result with Payment Form Send Return Data Process Tax Return Business Process Platform for Public Sector Calculate Penalty Calculate Interest SAP Public Sector Collection & Disbursement External Portal Exchange Infrastructure

19. TATIS Technical Specifications TATIScms was developed on open source technology using J2EE compliant open architecture. It is database and platform independent and can work with any 3rd party or legacy system: J2EE (Java) Linux / Unix Platform Oracle 9i (10i) RDBMS Drools Rules Engine Internationalization (Multi-language Support) SAP Netweaver Migration & Certification Integration to External Financial systems (SAP, Oracle, etc) WTO/WCO & Best Practices Alignment Aligned with WCO Revised Kyoto Convention Harmonized System WTO Agreement on Customs Valuation (ACV) WCO Best Practices (e.g. SAD) Provides Comprehensive Risk Management-based Enforcement Program Based on concept of “intervention by exception” Solution Overview

20. High Level Solution View TATIScms + mySAP Business Suite • Tariff Book • Risk Engine • Valuation Control • Bonded Warehousing • Bonded Manufacturing • Transit • Inspections • Traveler • Manifest • Invoicing • Payment • Clearing • Task & Resource Management • Business Rules Framework • Dunning • Exception Cockpit Core Functionality Multi Channel Interface (Web, FAX, EDI) Case Management Business Data Warehouse Document Management Cross Functional Tools Trader Correspondence Analytics User Management Engine Usability Extensions Business Workflow Mobility NetWeaver Integration Platform

21. Compliance & Enforcement Risk Management and Inspection Valuation Control and Inspection Transit DutySuspenseRegimes Bonded Warehousing Bonded Manufacturing Comprehensive Customs Application Stack Traveler Management Manifest Reporting Core CustomsAutomation Declaration Processing Tariff Book Bond Management, Prepayments Administration & User Management

22. Customs Declaration Life Cycle Pre-Arrival Submission Formal Registration 1 7 2 Reporting/Audit Classification/Valuation Integrated Case Management 6 3 Invoice/Billing/Payment 4 5 Duty/Tax Calculation Risk Assessment

23. Changes With Time Partially Unknown Manageable Risk Management: Strategic Objectives of RM Program • Developing a Customs Intelligence infrastructure or coordinating planning and steering operational activity; • Ability to gather, analyze, validate, store and retrieve intelligence; • Manage Customs interventions as exceptions to normal processing; and, • Focus limited inspection resources on where they are most needed.

24. Candidates for Green Channel Risk Management: Trade Segmentation RISK

25. Risk Management Program Overview • Building the Foundation • Workload Analysis Drives Key Policy Decisions Related to Risk: • Identify Primary Focus Industries • Establish Trade Priority Issues • Focus on Largest Importers • Develop Account Management Strategy • Strengthen Partnerships with Compliant Traders and Service Providers • Initiate Legislative Program Reforms if Necessary

26. All selection parameters are under Customs control Inspections are assigned to specific teams Solution Risk Engine Sorts reliable traders from unreliable ones based on their demonstrated compliance over time Uniform risk management system for customs transaction processing systems (declaration processing, manifest)

27. = Selects for high priority intervention, where a particular threat is certain to occur Low Risk Trader RandomRule Transaction Profiles Risk Filters KnownThreats Applies filters sequentially - in order of the potential severity or probability of threat NewTraderRule Selects for control any transactions involving a new trader, who presents an unknown threat = High RiskTrader Selects for control any transaction involving a trader who has demonstrated poor compliance in his customs business = Selects transactions at random to sample general trader population and provide “honesty” check on low risk traders = Selects for release transactions involving traders who have demonstrated a high degree of compliance over time in their customs business = Selects for control transactions that match Customs defined criteria of possible threat (automatic step up/step down with each hit/miss) =

28. Automatically updates profiles with inspection feedback – the system “tunes” itself Risk Analysis System automatically calculates a compliance rating for each trader who does business with Customs

29. Targeting Screen (sensitivity adjustments) Customs sets system selection parameters for high and low risk traders (negative and positive selections)

30. Wear-Off effect Customs decides impact of old violations on trader rating

31. Valuation Control: Objectives • Prevent tax loss from under-valuation, false invoicing and Customs fraud in general • Collect price data of “identical or similar” goods needed for Customs valuation purposes (i.e., valuation under methods 2 or 3, audit support, validation of related party prices, etc.) • Identify operations or traders that may require audit or investigation • Prevent evasion of hard currency controls through over-valuation • Ensure accuracy of external trade statistics

32. Valuation Control: Design Features • Allows Customs to obtain product data from importers at the level of detail required to make valid price comparisons • Allows Customs to target imports that present high risk of under-valuation (“reasons to doubt”), and deliver a control message to Customs valuation examiner • Allows the Customs examiner to analyze declared prices against historic data, and adjust for different trade levels, currency fluctuation, mode of transport, and other WTO-allowed factors • Automatically builds an in-country, price database, accessible by Customs managers, of good and bad prices for analysis, creation of risk profiles, planning, etc.

33. sample for a picture in the title slide Customs & Border Modernization TATIS/SAP Solution Offering: Overview & Demo Luxembourg Project Highlights & Lessons Learned to Date Wrap up and Discussion

34. Customs Management Luxemburg: Objectives

35. B2B Interface Web UI Core NCTS SAP UI Tatis UI MCC UI Rules Engine Customs Management Luxemburg: Solution Architecture Enterprise Portal Luxemburg Customs Customs Agent Economic Operator Taric SAD Rules PSCD BI Arctic Engine SAP Application Components Tatis cms Business Process PlatformPublic Services WebsphereTuxedo SAP NetWeaver 2004s EnterpriseServices

36. Customs Management Luxemburg: Schedule Deliver to SAP Deliver to Lux Deliver all Functions For Lux Phase 1 12 May 07 30 Apr 07 12 Apr 07 • COE • FAT Fixes • SAP Stds • Lux CRs • Final tests Lux Tests Intg. Sol. Tests in Lux COE Final Delivery to Lux Go Live Q3/07 14 Mar 07 COE FAT Cycle 1 Development + Integrate Oct 06 Now 20d Data clean / Data migration Take-on/Rollout Milestones Review by Lux and SAP in Capetown x mths SAP Stds partially included SAP Standards completed Integration test: SAP PSCD Arch. to Cpt – Feb-07 Tests: SAP PSCD Func. to Cpt – Mar-07 PSCD Integration & Tests done in Cape Town Final Qualification in Lux – Apr-07

37. Key Lessons Learned so far • Commercial off the Shelf provides open, secure, scalable solution for specific LoB like Tax & Customs Management • Tax & Customs Policy and Administration needs to consider lead time for implementation of new regimes (e.g. Multi Annual Strategic Plan in Europe) • Policy needs to provide clear guidance and governance • Business needs to be on board for modernization project • Lux Airport 2nd largest cargo airport in Europe • Significant impact on Luxemburg Economy (Transit Country for CEE goods to the US market) • Strong alignment between development (enhancement) project and implementation project needed • A new and fully integrated solution requires top executive commitment for change management

38. sample for a picture in the title slide Customs & Border Modernization TATIS/SAP Solution Offering: Overview & Demo Luxembourg Project Highlights & Lessons Learned to Date Wrap up and Discussion

39. Reforming Tax & Revenue Management and Customs & Border Management • Business Practice Improvement needed • IT can help • Pain points specific • Multiple, redundant, stand-alone systems • For each tax, fee, revenue and payment type, and for each step in the revenue lifecycle a separate system is required. These are often, silos, custom-built, “one-off”, or legacy in-house systems with outdated technology. Best Practice aligned (WCO, WTO) • Agility to meet business and legal changes • Outdated stovepipe systems using point to point integration aren’t prepared to meet changing business and legal requirements Intervention by Exception – Risk Management Continuous Innovation to meet regulatory and business process changes • Fragmented access and Inefficient billing & collection • Limited channels of access hinders taxpayer interaction, causing low constituent satisfaction and negatively impacting compliance rates • Taxpayers have no ability to access accounts and make payments on-line • Single revenue type limitations • Multiple systems, processes and personnel for different revenue types, (fees, taxes, payments) causes redundant data capture Worldwide 24x7 Support • Limited view of taxpayer • No single view of taxpayer or taxpayer’s total obligation, resulting in lost revenue and lower compliance Comprehensive Customs and Revenue Management Suite • Limited view of taxpayer/trader Based on an open, scalable, secure Business Process Platform • Risk of non or low compliance • Low compliance • No risk scoring capabilities, limited visibility into taxpayer total obligations and status, and inability to track or match documentation results in poorly targeted, incomplete audit coverage • Uncaptured revenue/duty • Uncaptured revenue • No method for detecting and reducing fraud and non-filing, wrong or incorrect declaration Maximize revenue collection and trader compliance

40. è Internet www.sap.com/industries/publicsector/ SAP Service Marketplace: www.service.sap.com www.tatis.com è Contacts Gonda Marcusse, gonda.marcusse@sap.com, SAP AG Michael Eads, michael.eads@tatis.com , TATIS Further Information