As SAP organizations grow in size and in scope, tax and compliance professionals are scrambling to keep up with a wide array of new challenges. Many companies are beginning to realize that they haven't maintained a clean core and as a result, have siloed data throughout their SAP landscape. Now that they must move to SAP S/4HANA, they are facing the reality that their data isn't in a position where they can easily generate the real-time insights that decision-makers at the highest-level of the organization need to guide the company. In SAPinsider’s recent Global Tax Management benchmark research report, growing complexity in compliance management, governance and regulations was the challenge most commonly cited that businesses have to overcome in their global tax management strategy.

Rethinking Tax Management

Organizations are beginning to rethink the way that they execute their global tax management strategy. In the past, they relied on declarative reports, aggregate reports and other traditional tax returns. However, these do not always contain the level of detail and granularity that modern organizations need in order to operate in real-time. Tax administrations have moved away from those declarative reports to harvesting real-time source data from both transactions and accounting systems in different shapes and forms. “We often say, ‘the truth is in the transaction.’ Administrations have discovered that they can get to the actual truth – not the truth as filtered by a company’s view of what needs to go into a return. When you get a broad set of data like logistics, documents, and payment notifications, you see everything that happens in your economy. That has driven the trend that we see around the world in which other parts of government use that data for other government purposes,” said Christiaan Van Der Valk, Vice President of Strategy and Regulatory Compliance at Sovos. For businesses, this means they need to transform the way that they have dealt with tax compliance in the past, whether that is through reporting focused compliance teams or operations. Companies must overhaul workflows to meet specific real-time reporting requirements in their transactional environments. SAP organizations cannot afford to let these regulations get lost, even with all the other priorities they have, particularly the move to SAP S/4HANA. “SAP customers have other priorities and planning around their ERP. They have upgrade plans or new country rollout plans, so they must plan for these and the regulatory changes together. This is the biggest challenge, because the transaction data is in their ERP for most SAP customers. They need to be compliant within the mandated timeline,” said Ayhan Boyacioglu, vice president of product management for VAT EMEA at Sovos.

Covering SAP Compliance Gaps

SAP is flexible, serving different industries, financial structures and countries. While it does offer some compliance coverage, these solutions are not always fully configured to cover all requirements that a company may have. Companies need an end-to-end solution to ensure that their entire SAP landscape is insulated from compliance threats that they face now, as well as those that may emerge in the future. One of the main challenges that companies face in plugging compliance gaps is data management. Most SAP customers have custom code throughout their SAP landscapes. Though this is helpful for many workflows, it poses a challenge from a compliance perspective. Companies cannot just “plug and play” any compliance solution they find, as standardized and customized code must be treated differently. Sovos takes care to separate these different types of data to ensure that all code within an organization is accounted for. “We are isolating the standard and the customized code from each other. Even for standard data, not everybody is using it in the same way, so we have alternatives to create custom environments to collect data from a custom table or an outside system. We're basically replicating how SAP is designed – we have our standard systems, and we have customized user exits for customers,” said Boyacioglu.

Preparing for SAP S/4HANA

Often, companies have data that is distributed in different environments – particularly large multinational corporations. It is vital that they consolidate their data into the cloud. This is particularly applicable to organizations moving to SAP S/4HANA. Many organizations have indicated that they are reluctant to take on additional projects in the midst of a digital transformation. However, this may actually be the best time to improve tax compliance processes. Not only is it a digital migration the best time to overhaul compliance projects because you're planning and redesigning a lot of your processes and data anyway, it's also dangerous to try to inherit any tax compliance solutions you might have associated with the previous version of your ERP system. If companies spend time and effort migrating legacy VAT reporting or determination solutions that rely on outdated practices or capabilities into new SAP instances, this can ultimately amount to a waste of time. Many organizations in this situation are turning to partners like Sovos to help guide them through the process. “As a compliance provider, we assist companies in completing their SAP design to ensure it is compatible with the regulations of the countries that they are serving. This is where we come together and help those customers. If it's a greenfield or brownfield migration, we have experience and different project plans for those methodologies. The SAP decision comes first, but then companies have to inject the compliance perspective,” said Boyacioglu.

Looking to the Future

As tax and compliance technology progresses, previously disparate categories are coming together to give companies one holistic look at their compliance workflows as a whole. Tax determination, reporting, standard audit files, reporting ledger content and more were all once seen as separate enterprise software categories. This was only complicated by the fact that companies would have to find individual software solutions for each of these issues in every country in which they operated. Now, organizations want their entire compliance picture consolidated into one bird’s eye view. “The markets and legislation are driving very aggressively for all of these requirements to come together in one solution. There has been a massive outcry from companies saying they don't want all those point solutions anymore. They don't want to have to deal with different vendors per country or per type of compliance because in the end it's all compliance and in the end it's also the same data that gets used by tax determination solution or reporting solution or an invoicing solution. It all needs to be in one platform,” said Van Der Valk. To meet these needs, Sovos recently announced its compliance cloud solution. It has a collection of solutions known as the Indirect Tax Suite that is designed to connect intelligently with the next generation of SAP technology. By making this suite of solutions available through one interface, users can be sure to take all requirements into account that the data is used more intelligently. “Invoicing and determination will be brought together much more closely using next generation technology, reporting will be done on the basis of invoice data that you've already sent to the government so that companies don't necessarily need to get it out of their ERP system anymore,” said Van Der Valk. The Indirect Tax Suite also accounts for natural workflows to optimize security, as well as the overall usability and quality of data along compliance workflows.

What This Means for SAPinsiders

As compliance requirements grow and change, companies must be able to alter their workflows to meet all necessary obligations. Yet data issues and outdated workflows hamper the abilities of these organizations to evolve their compliance management practices. Companies must ensure that their tax compliance solutions are able to meet the challenges not just of today, but tomorrow as well. Many SAP organizations are partnering with trusted third-party solutions providers like Sovos to leverage data from across their SAP landscape to gain a holistic understanding of their compliance issues and find end-to-end solutions.