The Rising Tide of Digital Tax: Are You Surfer or Shark Bait?

Anyone familiar with the Discovery Channel’s Shark Week and the portrayal of hungry sharks setting their sights on surfers may be surprised to learn that tax and IT professionals may be feeling every bit as wary as those surfers as they enter their own version of shark-infested waters.

The reason: IT and tax pros are facing a giant wave in the form of two significant digital transformations — real-time VAT reporting and SAP ECC migration to S/4HANA. While these events are posing migration and integration challenges, they also are providing a great opportunity for businesses that get out in front of it.

For those willing to ride the wave, this becomes a once-in-a-lifetime tax and IT career opportunity as it provides an opportunity to pull ahead of the competition by using tax compliance modernization and centralization to drive financial digital transformation. 

But for those who don’t take on the wave and continue to settle for local point solutions that could be non-compliant by the time SAP S/4HANA digital transformation project ends? They may just become shark bait for the competition trolling the waters in their industry.

The other digital transformation 

In an effort to close tax gaps, governments worldwide are embracing their own form of digital transformation in an effort to enforce collection of transactional taxes. As a result, businesses are being pressured to adapt ERP systems and associated financial cloud applications for modern, continuous VAT reporting requirements that require integration with a third trading partner, the government.

This challenge to prepare financial systems for SAP S/4HANA is now here, driven partly by a 2025 SAP ECC support deadline, but also for improved data and analytics and additional operational efficiencies. What not all businesses may realize however, is that these changes will also support their plans for growth into countries where continuous tax compliance is mandatory or soon to be mandated. How?

With SAP S/4HANA, for the first time, not only will organizations be able to take full advantage of deploying hybrid scenarios, combining on-premise and cloud functionality for greater IT flexibility and business innovation, but faster data processing and analytics. This will better support transaction-level tax compliance mandate requirements for clearance e-invoicing (real-time or near-real-time control of business transaction data submitted electronically to tax administration platforms whose approval is required for those data points and their continued business processing to be valid from a tax perspective) and digital VAT reporting (such as SAF-T, a standard for digital reporting being adopted by a growing number of EU member states). 

Challenges in catching the wave 

Tax compliance may lend itself much more seamlessly to conversation than execution, but that’s no excuse to paddle slowly. The roadblocks of transitioning to SAP S/4HANA will be demanding enough without having to contend with tax compliance in-house, in tandem. Failing to comply with complex, rolling global tax mandates could not only threaten migration using the SAP Central Finance model to transition to SAP S/4HANA, it could bring business to a screeching halt in some countries around the world. 

It’s not all doom and gloom, however. SAP Insider found that organizations proactively preparing for SAP S/4HANA adoption see the migration as an opportunity to establish new financial processes and eliminate inefficiencies. In many cases, those inefficiencies are the result of deployment of splintered financial architectures and disparate local applications handling different operations, such as local tax mandates in different global regions.

Outsourcing tax compliance to a third-party in the cloud can fix this, isolating systems from ongoing disruption while enabling IT leaders within a business to focus on other crucial steps in the SAP Central Finance to SAP S/4HANA digital transformation journey.

By putting tax compliance software in the digital financial technology core, Sovos is helping SAP customers keep their own digital transformation initiatives moving by isolating systems from ongoing regulatory disruption and transaction-level tax compliance. A virtual shark cage to protect your own digital transformation investment.

Image courtesy of Slate