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This blog explains the current business trends in tax and how SAP S/4HANA Cloud can support enterprises to fulfill local mandates while increasing at the same time their agility to enter new markets and to adopt new business models. In addition, we will look at two 2202 innovations from the area of global tax management which support our customers in managing their e-invoicing and statutory reporting for domestic and foreign indirect tax registrations.
Business Background
As digitalization continues, new trends and challenges are emerging:
- New Business Models in the Digital Era
Companies act in a digital and dynamic world which allows them to explore new markets and to try out new delivery models to increase their top line. A recent study from McKinsey mentions ‘Business leaders predict that by 2026, half of their revenues will come from products, services, or businesses that haven’t yet been created‘, and this trend will accelerate even in the future (see [1]). In order to reach this goal, tax compliance plays a key role: for example, enterprises need to be able to simulate the tax impact of alternative options to manage the tax position accordingly and readily comply with compliance requirements as they enter new markets. Otherwise, they might risk inefficiencies or penalties and thus an increase of their bottom line. - Digitalization of Governments
In order to enable these above-mentioned new business models, an increasing number of governments even beyond EU allows non-resident companies to register for indirect taxes in their country without having to set up a permanent establishment. This offers legal entities the opportunity to extend their business abroad more easily. However, the other side of the coin is that companies have to deal with different tax legislations and need to find ways to seamlessly manage tax processes to prevent unnecessary manual work. On the governments’ side, digitalization results in tighter regulations due to the fact that one of the primary objectives is to reduce the VAT gap and increase revenues (as per McKinsey research (see [2]), governments are seeing huge returns with digitization - $30 in additional revenue for every $1 spent. This translates into constant introductions of new local regulations, from e-invoices to periodic and audit reports. Governments even start putting themselves in between businesses and their customers, a trend which is called continuous transaction controls, where governments are taking control of invoicing processes and are altering operations that have been optimized for long time. - Sustainability and climate change
As the focus on environment and climate change increases, governments are introducing new regulations to further incentivize and force businesses to transition to sustainable enterprises. A prominent example are the already implemented 60+ carbon pricing initiatives that have been recorded by the World Bank in its Carbon Pricing Dashboard (see [3]). The sustainability and climate change trend brings new challenges for tax professionals that need flexible solutions ready to manage new types of taxes and fulfill corresponding reporting requirements. Otherwise, they face inefficiencies that result in an increase of the bottom line.
More Information
- [1] - McKinsey: 2021 global report: The state of new-business building
- [2] - McKinsey: Improving the effectiveness of tax collection: $30 in additional revenue for every $1 spen...
- [3] - The World Bank: Carbon Pricing Dashboard
End-to-End Tax Process with SAP S/4HANA Cloud
SAP S/4HANA Cloud offers a platform for growth that enables tax transparency and seamless tax compliance with processes standardized worldwide. At the heart, with its localized content, it allows to embed tax in each transaction in order to capture tax-relevant data and offers a single source-of-truth that can be leveraged to manage tax compliance end-to-end. This is the foundation for gaining control of tax data quality, for seamlessly complying with different types of regulatory requirements in all local jurisdictions, for automatically calculating direct tax and, ultimately for enabling strategic tax management.
In addition, further automation can be achieved by seamlessly integrating with the following solutions:
- SAP Financial Compliance Management*:
Offers a holistic approach to financial controls, from SOX to tax compliance. With automated checks across the whole company, the application enables you to systematically detect your compliance issues, improve the quality of tax data, manage corrections, and promptly mitigate the risk of non-compliance. - SAP Document and Reporting Compliance*:
Provides peace of mind to manage all types of mandates, from electronic business documents to statutory reporting worldwide, enabling seamless adoption of constantly arising legal reforms while reducing cost of tax compliance operations. With its localized content, the product supports over 350 scenarios across more than 40 countries.
*Please note that these solutions require additional licensing.
Tax Innovations with SAP S/4HANA Cloud 2202
Let me introduce two tax innovations with the 2202 release.
Registration for Indirect Taxation Abroad (RITA)
As the name reveals already, RITA allows non-resident tax payers to seamlessly perform indirect tax calculation and reporting in all countries in which a company has foreign indirect tax registrations. However, it is important to keep in mind that RITA is not intended for permanent establishments abroad. With RITA, you can automatically determine the correct country for tax compliance as well as the correct tax registration to be applied on all third-party purchasing and sales transactions. In addition, RITA eases the maintenance of the required rules, as they have to be defined only once for the tax country that they are related to and can then be seamlessly reused by all business transactions that are subject to tax in that country. As you can imagine, this significantly reduces the manual effort and increases efficiency. And, more importantly, it allows to prevent manual errors and, of course, minimize the risk of non-compliance.
Please note that RITA is currently only available with SAP S/4HANA Cloud for Early Adopters (see Early Adoption Care program).
More Information
- Blog on ‘Registration for Indirect Taxation Abroad with SAP S/4HANA Cloud 2202’
- SAP Early Adopter Care for SAP Registration for Indirect Taxation Abroad (RITA)
SAP Document and Reporting Compliance
Embedded into SAP S/4HANA Cloud, SAP Document and Reporting Compliance uses the business transactions which have been recorded in the single source of truth to fulfill all types of mandates from electronic business documents to statutory reporting worldwide. This is a key prerequisite to facilitate a seamless transition from periodic statutory reporting to continuous transaction controls which are becoming more and more the new operating standard.
And its value goes even beyond compliance: By standardizing processes across countries and by eliminating dependencies on local experts, SAP Document and Reporting Compliance increases the sustainability of tax operations and maximizes efficiency by creating the opportunity to run compliance processes centrally.
Please note that SAP Document and Reporting Compliance is available for all editions of SAP S/4HANA and it also integrates with other applications for electronic documents processing in the Intelligent Enterprise, e.g. SAP Business Network.
More Information
Practical Example: Tax Processing with SAP S/4HANA Cloud
Let me give you a practical example here:
Fig. 1: Demo Story Flow: Tax Compliance on Billing-to-Cash with RITA and SAP Document Reporting Compliance
A Dutch company registered for indirect tax in Spain sells products from stock to final consumer Maria in Spain. When the internal sales representative Mike creates the sales order, the system automatically determines the right tax country and accounts for local VAT in Spain in order to fulfill the local obligation there. When the invoicing specialist Ashley processes the invoice for Maria, the system automatically creates the invoice based on local rules and sends it to Maria. In addition, the corresponding e-document is being created and an SII list (containing e-documents) is sent electronically to the tax authorities. At the month’s end, the G/L accountant Tom produces periodic VAT returns that include all the documents which were previously included in the SII lists. He submits the statutory reporting and processes the VAT payment.
More Information on Tax Management, RITA, and SAP S/4HANA Cloud:
- Tax Management: SAP Innovation Showcase #15, Streamline e-invoicing and statutory reporting for you domestic and foreign tax registrations here (free, registration required)
- Help Portal Product Page for RITA here
- How-To Videos for RITA here
- SAP Note 2907372
- In-Depth with SAP S/4HANA Training for RITA here
- Presentation incl. Roadmap&FAQ on RITA here
- SAP S/4HANA release info: here
- Link Collection – Governance, Risk and Compliance (GRC) with SAP S/4HANA and SAP S/4HANA Cloud here
- SAP S/4HANA Community here
- SAP S/4HANA PSCC Digital Enablement Wheel here
- Inside SAP S/4HANA Podcast here
- Join the SAP S/4HANA Movement
- Best practices for SAP S/4HANA here
- Help Portal Product Page here
- Implementation Portal here
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