10 Challenges of Native SAP Tax Compliance – Part Two

Alex Forbes
November 8, 2018

In my last blog, I discussed the first three challenges of native SAP tax compliance for growing companies facing multifaceted indirect tax requirements and continuous compliance mandates. These ranged from regional disparate ERP systems and custom workflows, shortsighted regulatory updates and ERP administration.

Additional challenges your IT, finance and tax teams face are discussed below.

Global Growth and Local Tax Challenges

With more companies focusing on global integration and trade, cross-border supply chains and expanding ecommerce, governments are utilizing more sophisticated technology and introducing new ways to enforce sales taxes, gross receipts taxes, excise taxes, shipping taxes and taxes on profits. The regulatory environment is digitally transforming around us, and it produces unique tax determination and reporting challenges in the U.S. and around the globe. These regulations disrupt operations and impede growth for businesses caught unprepared.

Financial Impact of VAT

Companies face new and varying VAT requirements at every turn. As manufacturers increasingly sell direct-to-consumer, countries expand their VAT requirements and governments worldwide employ sophisticated technology to keep pace with ecommerce and e-services. While some ERP systems handle VAT needs effectively at a basic level, their ability to keep pace with evolving rules in different jurisdictions is a major shortcoming, leaving companies with a patchwork of local providers, solutions and inefficient business processes.

VAT, if it is not managed properly, poses a major risk to a company’s bottom line and reputation. Often viewed as an unwelcome administrative task, businesses fail to realize just how much VAT the company is generating and the financial ramifications for errors in VAT filings. On average, at-risk VAT totals about 20 percent of sales and purchases within an organization, meaning multinationals manage billions of dollars of VAT daily.

Navigating Sales and Use Tax Requirements

There are 45 states in the U.S., including the District of Columbia, that have unique tax laws and reporting requirements. Identifying and applying the correct sales and use tax for each state or jurisdiction can lead to what some tax managers have described as, “death by a thousand paper cuts.” This can culminate in hefty fees and penalties for businesses if the rates and rules are not constantly tracked, updated and managed.

eCommerce tax collection in the United States has recently become more challenging, as the Supreme Court decided in favor of South Dakota in South Dakota v. Wayfair, giving states the freedom to amend their rules to impose sales tax based on “economic presence” or nexus. Remote seller legislation and state nexus threshold rules are being adopted by more states monthly to address remote sales, and businesses should pay close attention to any states moving to tax remote commerce where they have more than $100,000 worth of sales or more than 200 transactions to avoid potential fines.

Side note: On the last day of October, the state of South Dakota settled with online sellers, Wayfair, Overstock and Newegg. The settlement removed the injunction that prevented South Dakota from requiring the companies to comply with the remote seller law. Each will have to comply beginning January 1, 2019.

Companies still relying on native SAP tax compliance, manual processes, spreadsheets, and disparate instances of SAP ECC or S/4HANA and other tax data-related technologies may be ill-prepared to scale up the number of jurisdictions in which they are required to register, collect and remit sales tax accurately within the requisite timelines. Additionally, tax teams must be ready to extract and provide transactional data to regulators across the country. I’ve already addressed the use tax and procurement challenges the Wayfair ruling causes on the accounts payable side of the business that must now scrutinize a larger number of vendor invoices for correct sales and use tax determination.

In my final post, I’ll discuss the rise of real-time transaction controls, the global e-invoicing clearance model trend and the effect on cloud-native purchasing applications.

Read Part I, here.

Read the last installment, part 3, here.

Take Action

Learn how to minimize business disruption during an SAP S/4HANA upgrade project in the wake of modern tax: Read Preparing SAP S/4HANA for Continuous Tax Compliance and don’t let the requirements of modern tax derail your company.

Sign up for Email Updates

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

Author

Alex Forbes

Alex Forbes is Senior Manager, Content Marketing, at Sovos. When not helping readers navigate their tax-related digital business transformation journeys, he enjoys day tripping around New England with his wife.
Share This Post

LATAM VAT & Fiscal Reporting
May 20, 2020
Sovos Acquires Taxweb, Extends Tax Determination Capabilities in World’s Most Challenging Compliance Landscape

Earlier this month Sovos announced its second acquisition of 2020, completing our solution for Brazil with an unparalleled offering that solves tax compliance in the place where it is most challenging to do so.  Too many companies doing business in Brazil have been burdened by managing multiple point solutions for continuous transaction controls (CTCs), tax […]

Asia Pacific E-Invoicing Compliance EMEA India
July 31, 2020
India: Last-Minute Changes to the Proposed E-Invoicing System

The October deadline is fast approaching for the Indian CTC invoicing mandate, but it remains a moving target. In a swift move that was published just two months prior to go-live, authorities have now changed the scope of who is affected by the reform, as well as updated the JSON format. Why the change? The […]

ShipCompliant United States
July 30, 2020
2020 DtC Wine Shipping Mid-Year Report

Since we released the annual Direct-to-Consumer Wine Shipping Report in partnership with Wines Vines Analytics back in January, a lot has changed when it comes to how consumers are getting their wine. The COVID-19 pandemic swayed buying channels drastically, shifting traditional retail and on-premise sales over to ecommerce sales. With brick-and-mortar retailers being closed down […]

EMEA IPT
July 30, 2020
Filing Premium Taxes When Non-Authorised Insurer

A non-authorised insurer is the term used to describe an insurance company that isn’t licensed with a particular country to provide insurance. This can also be known as non-admitted insurance. The non-authorised insurer doesn’t have to comply with local laws and regulations, however, one consequence of not being authorised means it doesn’t get the same […]

EMEA VAT & Fiscal Reporting
July 28, 2020
Building a VAT Roadmap for 2021 and Beyond

At a time when the global VAT landscape is undergoing significant change, we teamed up with Shared Services Link to understand more about the key challenges faced by AP and VAT professionals at multinational companies and what their focus is for 2021 and beyond. What remains clear is that pace of digital change is increasing […]

July 28, 2020
Sovos Buys Keane’s Unclaimed Property Consulting Services & Software as States Accelerate Audits

Last week, Sovos purchased the unclaimed property consulting services and reporting technology of Keane. This acquisition boosts our SaaS and services offerings for unclaimed property compliance — just as states are hungry for revenue streams to offset their budgetary gaps. This is a critical time for insurers, financial institutions and other companies facing compliance regulations […]