Embracing SAP BTP and Avalara Solutions During S4 Migration to Meet Tax Compliance Mandates

⇨ SAP S/4HANA presents companies with the opportunity to reduce the true cost of compliance requirements.

⇨ The transition period to S/4HANA also gives organizations a chance to review and overhaul compliance practices.

⇨ Partnering with experts, such as Avalara and DMA, helps your organization add tax compliance to an S/4HANA deployment while avoiding costly customizations with SAP BTP.

In today’s rapidly evolving digital landscape, businesses must adapt to new technologies and regulatory requirements. The migration from SAP ECC to SAP S/4HANA is gaining momentum as businesses recognize how the latest technology can benefit business processes and data management. According to SAP, thousands of companies have already made the transition from SAP ECC to SAP S/4HANA, and many more are expected to follow suit. As of September 2021, over 16,000 customers adopted SAP S/4HANA, and this number is expected to grow significantly as the 2027 deadline for ECC support approaches.

As organizations migrate to SAP S/4HANA, compliance requirements with indirect tax regulations stay the same but S/4HANA presents companies with the opportunity to reduce the true cost of implementing these solutions. If approached correctly, S/4HANA is more than a step up in functionality, it is a breakthrough in maintainability. Some would argue that over a 30-year ownership term, the ability to continually upgrade is S/4HANA’s biggest value gain.

In a recent interview, SAPinsider gained valuable insights on how organizations embrace SAP BTP to meet tax compliance mandates while planning for SAP S/4HANA migration from three experts — Global VAT Practice Leader at Ducharme, McMillen & Associates, Inc. (DMA), Angelo Torres, and SAP Strategic Partner Director at Avalara, Anders Knox.

“In the past, businesses focused on the actual tax result of a tax technology solution. As the market matures and more businesses have experience with tax technology solutions, we see that the focus is moving to the integration capabilities of tax technology solutions and whether that meets its SAP governance model. Businesses are realizing that the integration is as important as getting the correct tax results,” said Torres.

The Indirect Tax Regulatory Environment in SAP S/4HANA Migration

The current indirect tax environment presents a challenging testing period for businesses, with constant regulatory changes requiring organizations to continually adapt.

The transition to SAP S/4HANA is a point in time where organizations re-evaluate their existing global tax management systems to ensure that they are fully compliant with the latest indirect tax regulations. That evaluation covers several tax challenges for businesses, including:

• Ensuring accurate tax calculations and compliance in a complex regulatory environment. Accurate tax calculations are crucial for businesses moving to S/4HANA. Inaccurate calculations can lead to under- or over-payment of taxes, resulting in penalties, interest charges, and reputational damage. Ensuring that indirect taxes are calculated correctly the first time helps businesses maintain compliance and avoid unnecessary costs.
• Adapting to e-invoicing and e-reporting requirements. As governments worldwide embrace digital tax systems, e-reporting and e-invoicing have become integral components of tax compliance. Companies migrating to S/4HANA must ensure their systems can meet these digital requirements to maintain compliance, operate globally in key markets, and avoid penalties.
• Navigating the shortage of talent with the right skillset. Specialized knowledge and expertise are required for a successful S/4HANA migration, but there is a significant shortage of talent with the right skill set. This can make it challenging for businesses to find the right team members to manage the migration and ensure tax compliance.
• Automating the indirect tax function to minimize compliance costs. Businesses face increasing pressure to minimize compliance costs, leading to a greater emphasis on automating and streamlining the indirect tax function. Automating tax processes can reduce manual errors, streamline workflows, and decrease the overall cost of tax compliance.

Non-compliance with tax regulations can lead to significant penalties, reputational damage, and increased operational costs. However, the migration to S/4HANA presents an opportunity for businesses to streamline tax compliance processes and leverage new technologies to their advantage.

“The global trend by tax authorities is to digitize indirect tax compliance and mandate that compliance needs to be performed electronically. This offers an opportunity for businesses to obtain more accurate transactional data that will result in more opportunities to automate their tax compliance processes,” said Torres.

But the transition to SAP S/4HANA is also a time where tax management systems need to be evaluated in how their integration impacts S/4HANA. SAP built its Business Technology Platform (BTP) to allow extreme technical functionality to be integrated by SAP partners in a way that still allows S/4HANA to be continually upgraded.

Avalara’s Solution Built on SAP BTP

Avalara, an industry leader in tax compliance solutions, understood that software partners shared much of the blame for ECC being difficult to upgrade. SAP software partners’ integrations were part of widespread customization that resulted in ECC deployments being frozen in place. When SAP executed a massive effort to solve for this by creating BTP, Avalara decided to change course in how it approached integrating to SAP’s products.

The company developed a comprehensive offering built on SAP BTP that addresses the tax compliance challenges all S/4HANA customers have, along with maintainability and upgradability. Its offerings provide a single global platform covering tax calculation, reporting, and invoicing, making it easier for businesses to maintain compliance and easier for customers to maintain and advance their S/4HANA instance.

“We recognized early on that BTP combined with S/4HANA is providing SAP customers a path to the flexibility of single tenant ERP with the upgradability of a multi-tenant ERP. But for this to work, SAP’s software partners would need to change how they integrate,” said Knox.

By leveraging SAP BTP, Avalara can seamlessly integrate with S/4HANA, allowing businesses to easily manage tax compliance without compromising their ERP system. SAP BTP facilitates flexibility and compatibility between Avalara’s solutions and S/4HANA, allowing businesses to grow and adapt to changing tax regulations.

Avalara chose the BTP platform for several reasons:

• The BTP platform simplifies integration with S/4HANA, allowing businesses to add tax compliance functionality without compromising their ERP system.
• BTP enables a more agile and maintainable solution, making it easier for businesses to adapt to changing tax regulations and requirements.
• The BTP platform supports co-innovation, allowing Avalara and other partners to collaborate and develop new solutions to meet evolving customer needs.

Some key benefits of Avalara’s solution built on the BTP platform include:

• Streamlined tax compliance: SAP BTP enables businesses to automate tax calculations, invoicing, and reporting, reducing errors and minimizing compliance costs.
• Flexibility: The BTP platform allows businesses to choose the capabilities they need to meet their unique and complex tax requirements without compromising their S/4HANA core.
• Scalability: Avalara’s BTP-based solution can grow and adapt as a business expands or faces new tax challenges, ensuring ongoing compliance.
• Future-proofed integration: BTP enables businesses to scale and add components as needed, ensuring that their tax compliance solution remains up-to-date and effective.

“SAP must have done a lot of research on what has worked and not worked when it comes to integration platforms. BTP is flexible, reliable, full of tools, and loosely coupled enough to prevent the platform from getting in the way. We love BTP,” said Knox.

Avalara and DMA: Expert Partners for a Seamless Integration

Partnering with experts, such as Avalara and DMA, helps your organization address the scope and complexity around adding tax compliance to an S/4HANA deployment while avoiding costly customizations with SAP BTP. Avalara and DMA offer several advantages for businesses looking to enhance their SAP S/4HANA systems:

• Expertise: Avalara and DMA possess deep knowledge and experience in integrating tax compliance solutions with SAP systems, ensuring seamless and efficient implementations.
• Risk Mitigation: By partnering with Avalara and DMA, businesses can minimize the risks associated with adding third-party functionalities to their S/4HANA deployments. These experts ensure that the integration is done in a way that doesn’t impact the maintainability of the ERP system.
• Cost Savings: Integrating tax compliance functionalities through SAP BTP can help businesses avoid costly customizations, resulting in significant savings in both time and resources.
• Flexibility: With the support of Avalara and DMA, businesses can adopt a flexible approach to integrating tax compliance solutions, ensuring that they can adapt to changing regulatory environments and evolving business needs.

When migrating to SAP S/4HANA, organizations may find that the out-of-the-box functionality doesn’t address all of their unique needs. In such cases, businesses must turn to third-party technology providers to fill the gaps. However, integrating additional functionality into S/4HANA can pose risks, as it needs to be executed in a way that doesn’t hinder the maintainability of the ERP system.

“An honest discussion with software vendors needs to cover both benefits and costs of using their product. For S/4HANA customers, S/4HANA is almost always the most important system they buy. Most ‘other’ software purchases have a high likelihood of needing to integrate to it. We wanted to engage the market by being able to discuss the tax features we provide that help their business and the integration philosophy that we have employed that limits the costs of those features,” said Knox.

Embracing an SAP S/4HANA migration and SAP BTP, along with Avalara’s tax management solution suite, provides a path for businesses to efficiently meet tax compliance mandates in today’s complex and ever-changing regulatory environment. By leveraging the power of these solutions, businesses can streamline their tax compliance processes, minimize compliance costs, and reduce the risk of non-compliance and potential audits.

Avalara’s comprehensive suite of tax compliance solutions, combined with the flexibility and scalability of the SAP BTP, allows businesses to adapt to the constantly evolving tax landscape. By choosing to integrate these solutions with their S/4HANA migration, companies can ensure a smooth transition while maintaining compliance and maximizing the return on their investment. This strategic approach to tax compliance can empower businesses to thrive in the digital age and effectively navigate the challenges of the complex modern tax landscape.