North America

Shielding SAP Central Finance Migrations from Tax Compliance Mandates

Alex Forbes
May 6, 2019

This blog was last updated on March 1, 2024

With more companies focusing on global integration, cross-border supply chains and expanding ecommerce, governments across the globe are introducing new ways to enforce tax rules and close their tax gaps. The evolving global regulatory environment produces unique tax determination and reporting challenges in the United States and additional VAT and e-invoicing compliance challenges around the globe. These regulations can interrupt operations and impede growth for unprepared businesses.

The era of digital tax and continuous compliance is here and presents two very different sets of challenges: immediate operational issues followed by long-term, strategic issues.

Immediately, companies face both compliance and cost issues. When a country introduces a new digital e-invoicing or e-reporting requirement, the local business unit needs to respond. However, the parent company most likely already uses a core ERP system such as SAP with its tax logic and transaction processing modules baked in. Such systems rely on standardization with local adjustments to any regulatory last mile.

This approach to tax localization no longer works in an era where tax authorities are announcing aggressive, real-time tax mandates. [Details of which may be found in our new white paper.] So, in order to comply with the new regulations around e-invoicing, e-matching, e-reporting and e-audits, local managers are pressed to create digital workarounds as these mandates arrive.

Often times, the pressure because of the timing is to use disparate, local vendors or create point solutions. This, unfortunately, if it continues unchecked, leads to the reality of a reverse digital transformation, where you end up with many different point solutions for this digital tax problem across your global landscape.

reverse digital transformation_tax mandates financial core

Centralizing Finances and Tax Compliance

And this reality is going to be a significant challenge in the SAP Central Finance deployment scheme and transition state, as this will take months, maybe years and it’s highly likely that your business will be affected by new government mandates and schema changes during this time. Not to mention the data matching problems that arise from data living inside and outside the legacy ERP systems that are difficult to cope with while in the middle of a transition.

point solutions for tax compliance

It’s crucial to recognize that a country-by-country, local approach is not only inefficient but also raises tax compliance risks. The opportunity here is to take inventory of changes across all jurisdictions in order to build a more consistent, efficient and effective enterprise-wide approach. This should incorporate all key business processes including VAT invoicing, payment, inventories and any other activities with an impact on taxation.

Protecting SAP Central Finance from global tax mandates

The alternative to this reverse digital transformation is a global strategy for tax compliance.

global tax compliance strategy_digital transformation

By using a unified system for tax compliance where regulatory updates are delivered automatically, the need for manual intervention each time regulations change is removed. CTOs also avoid surprises of an unknown point solution running custom code in another region and impeding their migration to SAP Central Finance and ultimately SAP S/4HANA.

digital transformation of tax

A global tax compliance strategy should be at the forefront of your SAP Central Finance project plans. Take inventory of your exposure, including local point solutions for digital tax determination, custom reporting built in-house, and SAP and third-party localizations.

For SAP customers moving to SAP Central Finance, given the massive scope of the project and the sensitivity of the data involved, tax compliance will likely start out as an afterthought in migration plans. But it shouldn’t be. Global tax mandates are complex and change constantly, and they can be invasive in a company’s business processes. Failure to comply not only courts potentially significant financial penalties, it can also seriously affect cash flow, as well as relationships with suppliers and customers.

So how do you go from this…

point solutions for tax compliance

…to this?

digital transformation of tax

Take Action

Read our latest Compliance at the Core whitepaper, “SAP Central Finance and Digital Tax Compliance: Critical Prerequisites to Successful SAP S/4HANA Digital Transformation,” and learn how the move to SAP Central Finance becomes part of a company’s quest to Solve Tax for Good.

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

North America Tax Information Reporting
July 7, 2025
The Hidden Cost of the One Big Beautiful Bill: Why Raising Tax Reporting Thresholds Could Cost America Billions

This blog was last updated on July 7, 2025 In the whirlwind of tax policy changes sweeping through Congress, one provision of the recently passed “One Big Beautiful Bill” (OBBB) has quietly slipped through with minimal public scrutiny, despite its potentially massive fiscal impact. The bill increases the reporting threshold for Forms 1099-NEC and 1099-MISC […]

ShipCompliant Wine Summit
North America ShipCompliant
July 3, 2025
The 20th Annual Sovos ShipCompliant Wine Summit: Top Takeaways

This blog was last updated on July 3, 2025 For 20 years, the Sovos ShipCompliant Wine Summit has been about gathering winery professionals with the authorities and leaders who make the industry move. At this year’s Wine Summit, attendees heard directly from the regulators, attorneys and brand leaders shaping the future of the wine industry. […]

E-Invoicing Compliance North America
July 1, 2025
SOVOS + KPMG Blog Series: Part 1

This blog was last updated on July 4, 2025 The Global E-Invoicing Revolution: What U.S. Multinationals Need to Know By Paula Smith, Managing Director, Indirect Tax Technology Practice, KPMG LLP; Lauren Tallman, Global Invoicing Specialist and Senior Manager, KPMG LLP; and Christiaan Van Der Valk, General Manager, Indirect Tax, Sovos    If you’re a financial […]

natural catastrophe insurance in iceland
IPT North America
June 23, 2025
Treatment of Natural Catastrophe Insurance in Iceland

This blog was last updated on June 23, 2025 Iceland holds a unique and critical position regarding natural catastrophes due to its extraordinary geography and climate. Situated on the Mid-Atlantic Ridge, the country is one of the most volcanically and seismically active regions in the world, with frequent eruptions, earthquakes, and geothermal activity. Its mountainous […]

North America Tax Information Reporting
June 11, 2025
IRS FIRE System Sunset: What the IRIS Transition Means for Filers

This blog was last updated on June 16, 2025 The IRS has officially confirmed a plan to sunset the FIRE system, marking one of the most significant transformations in information return filing in decades. After serving as the backbone of electronic tax reporting since the 1980s, the Filing Information Returns Electronically (FIRE) system will be […]

See for yourself how the Sovos Compliance Cloud can meet your business' unique tax compliance challenges.
Book a Demo
© 2025 Sovos Compliance, LLC. All rights reserved.
Why Sovos?
Resources
About
Products
Indirect Tax Suite
Information Reporting and Withholding Suite
Specialty Products
Solutions
By Tax or Document Type
By Industry
By Team or Initiative
By Region