Growing Compliance Complexity Driving Approach to Tax Planning, Tax Technology and Innovation

⇨ Finance and tax leaders face the increasing complexity of compliance management, governance, and regulations.

⇨ SAP S/4HANA-enabled transformation has far-reaching impacts on tax departments, including Direct Tax, Indirect Tax, Transfer Pricing, and Trade & Customs.

⇨ Tax teams should harness advanced technologies to enable more robust tax compliance.

SAPinsider’s latest research on global tax management reveals finance and tax leaders face a significant challenge: the increasing complexity of compliance management, governance, and regulations. This complexity is reshaping tax management priorities, prompting organizations to rethink tax planning, technology, and innovation in their digital transformation efforts. As part of this shift, many are adopting SAP S/4HANA, the next-generation ERP platform for intelligent enterprises, to facilitate their transformation journey. 

SAP S/4HANA-enabled transformation has far-reaching impacts on tax departments, including Direct Tax, Indirect Tax, Transfer Pricing, and Trade & Customs. To explore the implications on tax planning, tax technology, and innovation, we sat down with Kelley Lear, Vice President of Partnerships and Alliances at Thomson Reuters and Sanford Fisher, Director of Tax Management Services at KPMG. Our conversation highlights trends across tax compliance, transformation, and innovation that are steering the tax planning strategies of SAP customers. 

Growing Digital Tax Administration Challenging Finance and Tax Teams 

Both Lear and Fisher confirm finance and tax leaders are facing new challenges due to increasing digital tax administration. Governments worldwide are tightening regulations, implementing real-time auditing procedures, and enhancing their tax collection capabilities. This shift is most evident in the global trend of real-time reporting mandates, with Mexico’s e-invoicing requirements serving as a recent example. Tax authorities in Mexico now scrutinize every transaction in real time at the point of sale, placing a significant compliance burden on businesses. This trend necessitates a higher degree of tax system sophistication and compliance vigilance. 

Lear emphasizes the challenge posed by real-time reporting, noting, “Previously, when an incorrect invoice was submitted, it could be amended and resubmitted. With e-invoicing, that’s no longer an option. Businesses must adapt to this new reality by reevaluating their processes and operations.”  

On a global scale, tax authorities are investing heavily in technology and skilled auditors to scrutinize corporate activities. The Organization for Economic Co-operation and Development’s Base Erosion and Profit Shifting Pillar One and Pillar Two initiatives highlight the international nature of these changes. Governments strive to ensure that companies pay their fair share of taxes and standardize enforcement across jurisdictions. Fisher highlights this trend, stating, “There is now an intense focus on corporations and their activities to ensure proper taxation.” 

Embracing Holistic Tax Planning in the Digital Era 

Considering these complex tax landscapes, Lear and Fisher emphasize the need for organizations, particularly SAP customers, to adopt a holistic approach to tax planning. Gone are the days when tax compliance was a checkbox exercise; it is now an essential business function as Lear states, “Tax planning is no longer an isolated activity; it’s a strategic imperative. Businesses need to consider tax implications at every stage of their operations.”  

In an era of regulatory complexity, understanding the tax implications of strategic moves like mergers and acquisitions is essential. This not only optimizes tax benefits but also minimizes tax liabilities, a critical consideration for organizations of all sizes. 

Fisher adds, “Tax planning is not one-size-fits-all. It requires a deep understanding of an organization’s operations, the evolving tax landscape, and the ability to leverage tax planning opportunities within the framework of new tax regulations.”  

Holistic tax planning aligns tax strategies with broader business goals, ensuring that tax considerations are embedded in every facet of an organization’s operations. 

Leveraging SAP S/4HANA for Tax Planning 

The migration to SAP S/4HANA represents a unique opportunity for SAP customers to enhance their tax compliance and reporting capabilities. This next-generation ERP suite empowers organizations to transform their core systems, streamline processes, and simplify their data model and architecture. Additionally, SAP solutions like SAP Business Technology Platform (BTP) enable seamless integration of third-party tax technology solutions within the SAP environment. This integration streamlines tax compliance and reporting processes, significantly improving overall efficiency. 

To make this strategy successful, organizations must analyze their current tax operations and incorporate new tax requirements. This analysis helps develop a target operating model aligned with best practices for efficient global tax compliance. 

Lear highlights the importance of considering tax implications during SAP S/4HANA migration: “End-to-end integration is vital. Tax departments must actively participate in the migration project to embed tax considerations throughout the new system, enabling real-time compliance and reporting.”  

Fisher adds, “Tax departments are the largest user of business data, and data migration provides an opportunity to cleanse and validate tax data, ensuring accuracy and completeness, which is crucial for compliance in the new systems.” 

Leveraging Advanced Technologies for Tax Compliance 

Automation is the linchpin of efficient tax compliance. Advanced technologies like artificial intelligence (AI) and cloud deployments play a vital role in achieving this efficiency. Both Thomson Reuters and KPMG have made significant investments in these areas to support tax automation and innovation. 

Lear explains, “Automation is the linchpin of efficient tax compliance. Advanced technologies like AI can help organizations automate compliance processes, reducing manual efforts and potential errors.”  

AI-powered analytics offer real-time insights into tax data, enabling tax departments to make informed decisions and identify opportunities for tax planning and optimization. 

Moreover, cloud-based tax solutions integrated with SAP systems ensure seamless data flow across the organization, reducing data silos, manual data entry, and enhancing accuracy. Fisher emphasizes the importance of tax planning: “Migration offers a chance to reevaluate tax planning strategies, allowing organizations to optimize their tax structure and leverage tax planning opportunities within the new system.” 

Embracing the Future of Tax Compliance 

With digital tax administration expanding globally, it is crucial for organizations to take a proactive approach to tax compliance and reporting. By embracing advanced tax technologies and adopting a holistic approach to tax planning, particularly during SAP S/4HANA migrations, organizations can position themselves for success. These strategic decisions not only align tax strategies with broader business goals but also ensure that tax considerations are integrated into every aspect of operations. This proactive stance reflects a shift from approaching tax compliance as a mere obligation to recognizing it as a crucial aspect of strategic business decisions. 

What Does This Mean for SAPinsiders? 

Adopt a Holistic Approach to Tax Planning. Recognize that tax compliance is no longer a standalone activity but a strategic imperative. Integrate tax considerations into every stage of your organization’s operations. This approach helps optimize tax benefits and minimize tax liabilities in an increasingly complex regulatory environment.
Embrace Cloud Deployments and SAP BTP for Tax Technology Integration. Leverage cloud-based tax solutions and SAP BTP to seamlessly integrate third-party tax technology within your SAP environment. This integration not only streamlines tax compliance and reporting processes but also enhances overall operational efficiency. By moving tax-related processes to the cloud, you reduce data silos, minimize manual data entry, and significantly enhance data accuracy. SAP BTP provides a robust platform for such integrations, ensuring that tax data flows seamlessly across your organization. 

Harness Advanced Technologies to Enable More Robust Tax Compliance. Embrace automation, AI, and cloud-based tax solutions to streamline tax compliance processes. These technologies reduce manual efforts, minimize errors, and provide real-time insights into tax data. Investing in these areas can significantly enhance tax planning and optimization. 

Stay Informed About Evolving Tax Landscapes and Growing Compliance Complexity. Stay updated on global tax trends, especially real-time reporting mandates and government investments in tax systems. These changes can impact your organization’s tax compliance and reporting requirements. Consider working with SAP, consulting, and technology partner experts to navigate these complexities effectively.