Will Tax Compliance Drive Digital Transformation? – SAP Expert John Appleby Weighs In

Anita Bruzzese
September 25, 2018

It’s clear that company leaders understand that digital transformation is key for their very survival in a world of constant disruption, but only a small percentage actually have finished a company-wide transformation – opening the door to potential problems from lost customers to tax compliance issues.

An SAP survey finds that 84% of 3,000 executives in 17 regions around the world say that digital transformation is critical for business success, but only 3% have crossed the finish line toward completion. Of the leaders who are fully committed to digital transformation, 80% say that transformation has increased profitability, finds the study done with research and analysis by Oxford Economics.

And now, more than 60 countries have embarked on digital transformation tax initiatives leading to a host of technical challenges for businesses and their financial processes, while introducing new risks to S/4HANA upgrade projects.

Preparing S/4HANA for the Digital Transformation of Tax

For many companies looking at digital transformation, moving from ECC to SAP S/4HANA is seen as a way to benefit from a system that uses data from inside and outside an organization to make real-time decisions, instead of using a transactional system that just records data.

SAP expert, John Appleby, most recently global head of DDM/HANA COEs at SAP, says that many organizations have “this tremendous complexity of systems,” with 20 to 100 systems of record.

“So, if you want to do anything, like adapt to changing taxation laws or a need to do rapid M&A, having that volume of systems just creates a tremendous problem. I think that the business driver of simplification – be it the number of systems or complexity of processes – is a need to update existing systems of record,” he says.

A study by HCL finds that large companies with more than $1 billion in annual revenue had five separate instances of SAP operating across their enterprise, with 39% reporting more than six instances.

Further, because more companies are operating in other countries around the world in an effort to stay competitive, they also are confronted with foreign rules and laws on everything from who can sit on a board to indirect taxes. Specifically, the Organization for Economic Co-operation and Development reports that indirect taxes make up about 31% of all tax revenue collected by its member country governments, and VAT/goods and services tax is reported to be the third most important type of global tax.

As a result, companies may find that ERPs limit their ability to deal with tax complexities including value-added tax (VAT) and sales and use tax rules.

Such challenges may be enough to keep some tax lawyers or risk compliance heads awake at night, but most company boards have adopted the attitude that the regulations and tax rules will be handled in time to avoid any penalties or problems with local laws, Appleby says.

“I think people have been quite reactionary to (tax compliance) but I do think that will change. Right now, they adapt on an ad hoc basis. They’re not systemically making changes,” Appleby says.

“I know one online retailer who is still trying to figure out the sales tax in another country. That’s pretty basic. So, when it comes to taxation, it’s pretty much a just-in-time approach that companies often take. No one has been stung really badly yet,” Appleby says.

He says that as digital transformation is adopted by more companies, ongoing tax compliance will probably be a part of any company’s investment in systems that are designed to improve the customer experience or promote better productivity or employee satisfaction.

Appleby says it’s not unusual for some companies to spend $1 billion or more on their transformations. While companies want to ensure that their tech solution will provide them with the best road to revenue growth, they may not realize just yet that the technology also will pay off in eliminating just-in-time tax resolutions, says Appleby, author of “Building the Business Case for SAP HANA: Engineering Simplicity.”

A report by PwC finds that companies embracing digital transformation can reap benefits when tax compliance shifts into a “value-added business partner” role that makes it easier to make trends analysis, forecasting, modeling and peer benchmarking. “It can focus on key performance indicators such as effective tax rates, cash flow and reducing tax-related variability in earnings— activities that allow management to adopt a ‘one step ahead’ rather than a reactive compliance mindset,” the report says.

Transitioning from ECC to SAP S/4HANA

As IT and SAP heads make the business case for digital transformation and move from ECC to SAP S/4HANA, Appleby advises that they be willing to do their homework before approaching the CEO with their ideas.

“It’s pretty straightforward: You’ve got to understand the context of the business you operate. You need to spend time with each business line to understand what they truly need. It’s been the scourge of IT products to give someone a system and it’s not what they need. I think that’s really changing. You’ve got to understand what really matters to them and then frame the transformation in those terms,” Appleby says.

Take Action

Read Preparing SAP S/4HANA for Continuous Tax Compliance – How Tax Will Impact Key Processes in Your S/4HANA Upgrade and don’t let the requirements of modern tax derail your S/4HANA project.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Anita Bruzzese

Anita Bruzzese is an award-winning journalist with more than two decades of business writing for such outlets as USA Today, Mashable and Shape.
Share This Post

Tax Information Reporting United States
2019-03-22
How to Respond to the Growing Challenges of 1099-R Reporting

The demographics don’t lie: Reporting for form 1099-R is only going to grow more difficult as baby boomers retire. The form used to report distributions from IRA, pensions, annuities and other similar retirement accounts is poised to explode in volume. As such, financial institutions (FIs) and insurance companies can’t afford to mishandle 1099-R reporting. The […]

E-Invoicing Compliance EMEA
2019-03-21
Portugal Issues New E-Invoicing Rules: A Flavour of Clearance but Not Quite There

On 15 February 2019, Portugal published Decree-Law 28/2019 regarding the processing, archiving and dematerialization of invoices and other tax related documents including: The mandatory use of certified invoicing software General requirements for paper and electronic invoices Dematerialization of tax documentation Archiving of tax documentation (including ledgers, etc) Adjacent tax rules and obligations The decree aims […]

EMEA LATAM VAT & Fiscal Reporting
2019-03-18
Are We in the Golden Age of VAT Recovery?

The value-added tax (“VAT”) was described in the EU as a “”money machine” over 20 years ago. Yet according to a 2015 study by the European Commission by the Centre for Social and Economic Research (CASE), the “VAT gap” was approximately 168 billion EUR. This represents 15 percent of the theoretical VAT that would be […]

Tax Information Reporting United States
2019-03-15
As Legal Sports Gambling Grows, So Does Growth in W-2G Reporting

With the NCAA basketball tournament approaching, the US is gearing up for its biggest gambling weeks of the year. And while most “March Madness” pools might technically be illegal, legitimate sports betting is sweeping the US following last year’s landmark Supreme Court decision allowing states to legalize sports gambling in casinos.   As legal sports […]

E-Invoicing Compliance EMEA Italy
2019-03-14
Italy E-invoicing: Esterometro Reporting Requirements for Cross-border Transactions Updated

What is Esterometro? The Italian government’s e-invoicing mandate became effective on 1 January 2019.  While cross-border invoices are exempt, all domestic B2B and B2C invoices must be cleared through the SDI platform. This means that the Italian government and tax authority now have real-time access to the data of all B2B and B2C VAT transactions […]