How indirect tax integration for SAP S/4HANA enhanced system upgrades

If you're planning a move to SAP S/4HANA, it's important to consider your tax determination processes as part of the transition. While SAP S/4HANA offers many enhanced core features, integrating a comprehensive approach to indirect tax determination ensures that your system runs efficiently and minimises potential risks. By proactively addressing these processes, you can avoid relying on manual workarounds and outdated methods, reducing the chance of errors, audits and unexpected costs, and fully optimise the value of your upgrade.

In this blog, Roger Lindelauf explores how an indirect tax integration for SAP and a proactive review of tax management processes and systems are the best way to support compliance and make the most of your SAP S/4HANA upgrade.  

Do you need an indirect tax integration for SAP?

Imagine you've been using SAP within your business for many years to manage indirect tax on complex indirect scenarios. During this time, your internal teams have developed workarounds, often patching issues by implementing customised workflows or applying tailored logic to address new rates and rules you need to follow. You have implemented these fixes to ensure accuracy in your tax returns. For years, this approach has been sufficient. You had the luxury of time to manage those corrections manually. But with the advent of e-invoicing and near real-time reporting requirements, that time is gone. The landscape has shifted and it’s time to take a hard look at your existing setup.  

Re-evaluating your tax determination processes

Do the systems you’ve built over the years address changing compliance needs? It’s likely that many of the solutions you have in place were designed with static scenarios in mind. How well do they manage new rules, expanding markets and evolving business needs? If your solution was based on yesterday’s VAT rules or known cases, how adaptable is it to today’s requirements? Has IT accurately translated the evolving needs of finance and tax managers? Is your current or planned solution flexible enough to accommodate new products, markets and customers without requiring constant manual adjustments?

This is the time for a comprehensive re-evaluation of your tax determination processes in SAP. Are they still up to the task, is a major overhaul and new investment needed to keep pace with the changing regulatory environment and your growing business needs?  

Leveraging your SAP S/4HANA upgrade for improved tax management

Upgrading to SAP S/4HANA brings several advancements that can significantly impact your tax operations. From robust cloud integration, which offers scalability and reduced infrastructure costs, to real-time data access and processing vital for managing today’s dynamic tax environments. New advanced analytics enable real-time insights and can help predict business implications and optimise strategies based on both current and forecasted conditions. Simplified data models in SAP S/4HANA reduce data redundancy and enhance accuracy, while its modern, simple interface makes navigating complex tax data more intuitive, reducing errors and improving efficiency.  

To fully realise these SAP S/4HANA advantages it’s important to review your tax determination processes and proactively consider tax determination within your SAP S/4HANA implementation plan. Tax determination can easily become neglected because it can seem too daunting with other migration project aspects, such as data migration and system performance taking priority. Many businesses also assume that SAP S/4HANA includes all necessary tax functionalities by default. However, depending on the nature and complexity of your business operations, your tax determination processes, and compliance requirements may need additional attention and investment.

For businesses with straightforward operations, SAP S/4HANA's native VAT features, like the 'Plants Abroad' functionality and the DRC software suite, effectively enhance reporting capabilities and support reporting needs. However, for more complex, global and cross-border operations, specialised indirect tax integration for SAP is necessary to manage the intricacies of VAT compliance effectively. Taking this opportunity to audit and refine indirect tax determination within SAP will help you maximise the value and potential of your SAP S/4HANA upgrade.  

Timing and budget considerations

If you implement SAP S/4HANA without addressing the current, fast changing VAT and other indirect tax processes, you’ll miss the most cost-effective opportunity. The time and budget will have been spent, and tax determination will have been covered in the general upgrade without specific attention.  

When it comes to SAP S/4HANA implementation, you need to get your VAT and indirect tax determination right from the start, investing in a tax engine at the same time. Too often costs associated with updating tax determination processes are not clearly defined in the upgrade budget. The costs for implementing a comprehensive VAT determination solution in SAP S/4HANA to meet the e-invoicing and e-reporting requirements are often hidden, as there's no separate system integrator line item for the tax determination or VAT component. Yet in real terms we’ve calculated that VAT element of the configuration alone can reach £500,000 (or more, depending on your complexity)—money spent but without the full benefits of a dedicated tax determination solution.  

Maximise the potential of your migration project for indirect tax requirements. Time a review of your indirect tax management processes alongside your move to SAP S/4HANA to support indirect tax determination and long-term tax compliance in SAP effectively.  

Future-proof your tax processes - 3 key takeaways

Use your move to SAP S/4HANA not just as a technological refresh but to make sure that your tax determination processes are robust, compliant and fit for the future. Securing long-term compliance and efficiency involves aligning your tax determination strategy with your SAP S/4HANA upgrade. Here are some main takeaways on future-proofing your tax processes with a specialised indirect tax integration for SAP.  

• Review and reassess your indirect tax determination processes and systems. Are they still adequate for today and tomorrow’s compliance needs?  
• For more complex business models consider leveraging specialised indirect tax integration for SAP S/4HANA to optimise and enhance your overall tax management process.  
• Proactively align your SAP S/4HANA strategy and investment alongside your indirect tax management strategy and investment.