As global enterprises further their digital transformation initiatives to move financial applications to the cloud, many are at a crossroads with how they choose a deployment strategy that consolidates disparate financial and other departmental solutions and processes. Many organizations that consolidated under the auspice of a single enterprise resource planning (ERP) solution to combine administrative and operational business capabilities are still finding it challenging to address incoming tax authority inquiries and audits.
In an effort to increase agility and improve financial and tax reporting, organizations have recently begun choosing a postmodern ERP strategy, deconstructing suite-centric, monolithic ERP deployments into loosely coupled applications, and surrounding their ERP with best-in-class cloud-native purchasing and financial management applications.
However, government digital transformations put efforts to simplify and automate in jeopardy since governments can change requirements whenever they see new revenue opportunities, not to mention it makes it easier for them to get at your data. Today, much of that opportunity is in the form of legislation requiring corporations to comply with detailed processes for invoicing, accounting and tax reporting, which forces businesses to further expedite digital transformation in every financial process, from purchasing to general ledger.
Cloud core financial management applications
Cloud core financial management applications, according to Gartner, include general ledger, accounts payable, accounts receivable, fixed assets, project accounting, and project costing and billing, along with financial reporting and analytics. They also include basic indirect purchasing functionality (from creating a requisition through to purchase order processing and AP invoice matching and payment). According to Gartner’s recent Magic Quadrant for Cloud Core Financial Management Suites, examples include Microsoft Dynamics 365, SAP S/4HANA Cloud and Oracle NetSuite, among others.
Cloud-native purchasing applications
Companies have in the past decade often prioritized accounts payable processes as a critical component of their digital transformation journey. These purchasing applications 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. Some well-known examples include SAP Ariba, Basware and Coupa.
Staying ahead of digital tax enforcement
While the functionality of all these solutions varies widely, the one thing they do have in common is that these solutions all come under pressure as indirect tax law enforcement becomes more focused on real-time integration with invoicing and other business transaction flows.
While organizations have begun to see value in this cloud-centric approach through improved automation and operational efficiency, these applications still lack the ability to provide adequate audit defense in the wake of global tax compliance mandates.
According to EY, digital tax administration is a rapidly evolving topic, and progress is not necessarily linear. Many countries are only beginning their journey, while others are far ahead, already experimenting with the possibility of reaching directly into corporate ERP systems or connecting directly to point-of-sale cash registers to track sales.
The decoupled, integrated modules approach to postmodern ERP has attempted to address some of the challenges that arise from the “local, short-term panic fixes” that many local vendor approaches have caused. But history has shown it isn’t enough, especially as governments and auditors become more aggressive and require more source accounting and transaction-level data to be submitted in digital form.
EY poses questions multinational corporations should consider
Do we have the proper governance and global operating model, demonstrating risk aversion, visibility and cost-effectiveness?
- Is our approach to digital and technology keeping pace with that of the tax authorities?
- How are we monitoring global changes to submission requirements and preparing for new mandates?
- Are we confident that our data quality and governance is sufficient?
- Do we have visibility and understanding of what the tax authorities are doing with our data?
- How do we integrate digital audit defense activities into our tax team’s daily processes?
If you are questioning your confidence in responding to any of these questions, learn how Sovos is on a mission to Solve Tax for Good.