In my last blog, I discussed three additional challenges of native SAP tax management for growing companies facing multifaceted indirect tax requirements and continuous compliance mandates. These ranged from sales and use tax nexus rules to VAT requirements and filings.
Additional challenges your IT, finance and tax teams face from native ERP tax management due to the requirements of modern tax compliance are discussed below.
Real-time transaction controls
The digital transformation of public administrations and law enforcement are being spearheaded by tax authorities globally. The success of Latin American countries to narrow the VAT gap by introducing real-time transaction controls and electronic audits has inspired European Union member states and countries around the globe to announce similar radical changes to their VAT, GST and other indirect tax controls. In this “clearance” model, the local tax administration places itself between a supplier and a buyer to monitor end-to-end business transactions as they happen.
Companies are already going through major changes in adopting modern information and communication technologies, making the transition toward real-time tax control regimes over the next several years even more chaotic. Those companies that can take advantage of business process automation improvements while also meeting the complex data exchange requirements of hundreds of tax mandates without incurring major business disruption and IT administration costs will be the leaders of tomorrow.
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.
Europe and other post-audit countries – today and tomorrow
For many countries in Europe and globally, electronic invoicing and archiving are still optional and can be adopted by businesses as long as integrity and authenticity are guaranteed for a decade or longer. These countries are also adopting new ways of submitting and increasing the velocity, granularity and frequency of periodic indirect tax reports (“returns”) that must be submitted to the tax administration.
Many countries today require reports of individual transactions based on structured data of each invoice that is sent or received, and may have to be sent automatically to the tax administration within only days, or even hours, after the transaction. During the mandatory storage period of the original e-invoice, tax administrations may audit companies to verify that each booking in their accounting system corresponds to such verifiable e-invoices and match those with electronically reported data. These post-audit regimes are slowly transforming into full-fledged clearance environments where invoices cannot be validly exchanged between trading partners until approved by the tax administration. Italy has mandated e-invoice clearance starting January 1, 2019.
How ‘clearance’ regimes are crossing the chasm
In most Latin American countries, such government-orchestrated e-invoicing processes are now mandatory for all businesses. Every participating country has different requirements for how businesses should implement these systems, often including requirements for the clearance of other commercial data, as well as the controlled printing of – for example – transport documents to allow every step in the flow of goods and money to be audited in real time. These countries have also adopted their periodic reporting requirements to include additional information such as inventory, immovable assets, HR and other data.
Cloud-native purchasing applications
Examples of cloud-native purchasing systems include Electronic Data Interchange (EDI), supply chain management, strategic sourcing, procure-to-pay, electronic AP invoicing, travel and expense management, and AP scanning and workflow solutions. Even if these different types of AP automation systems leverage similar technologies to automate supplier relationships, they cater to very different business processes that are often managed by disparate teams. The one thing they have in common, however, is that these systems all come under pressure as indirect tax law enforcement becomes more focused on real-time integration with invoicing and other business transaction flows.
Another complexity introduced by e-invoicing compliance is the need to acknowledge the reception and validity, or rejection, of vendor invoices received within a government-defined period of time. Some governments have reduced that timeframe from 30 to just eight days. ERPs, and even business processes, are not adapted for such aggressive response times. This increases the need for a tax compliance platform that is flexible enough to be able to adapt to the increasing data requirements imposed by governments.
Safeguard your SAP S/4HANA implementation
Taking a tactical and native SAP tax management approach is not the most optimal solution to maintain regulatory compliance, as it can limit the ability of organizations to scale with growth. The pressure from affiliates and local teams to adopt local vendor approaches to panic-fix short-term digital tax mandates can be significant. The fragmentation and lost opportunities that arise from the resulting patchwork of e-invoicing, reporting and B2B transaction automation systems drives significant cost and risks as they torpedo company wide attempts to standardize on strategic solutions and approved best practices.
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.
