What’s shaping the indirect tax management strategy in today’s evolving compliance landscape?

Tax compliance is an important focus area for businesses trading cross-border today.  

The way businesses interact with one another is becoming more and more complex, with the number of suppliers and parties involved in a single transaction continuing to grow.   

The speed at which businesses need to report these transactions to tax authorities is increasing too, with regulatory requirements such as (near) real-time reporting and e-invoicing creating an additional sense of urgency.  

This complex regulatory landscape, paired with the differences in indirect tax compliance requirements from region to region, means that now, more than ever, businesses must invest in a reliable VAT determination solution for their enterprise software (including SAP) in order to achieve better compliance on each transaction.  

Indirect tax teams feeling the pressure  

SAPInsider’s recent report looks at this issue in great depth. Surveying 128 members of its tax community, the Benchmark 2023 report sheds light on the common pain-points and challenges businesses are facing with their indirect tax management.   

Unsurprisingly, the regional differences and increasingly digital regulatory landscape have led to serious control and governance challenges for tax teams. So much so, they have been pinpointed as some of their main causes for concern.  

Thirty five percent of SAPInsider’s respondents cite these pain points as their main barrier to achieving indirect tax compliance. And increasing mandates for (near) real-time transaction reporting and e-invoicing across Europe have placed mounting pressures on tax teams to deliver a granular level of data and enhanced transparency over their indirect tax reporting.   

In light of this, tax and finance teams are now placing more focus on indirect tax regulatory updates. Forty four percent of survey respondents cited sales & use tax (SUT) as an important regulatory update that is impacting their workload, while 42% stated the same for VAT/GST. This suggests that, as a result of increased levels of automation across both SUT and VAT/GST compliance, businesses are seeing positive outcomes. It’s likely we’ll see an increased number of organisations invest in tax technology solutions for managing their indirect tax compliance requirements.   

The significance of digital transformation  

Digital transformation for core business functions has accelerated dramatically in recent years and this is highlighted by SAPInsider’s report. For the second consecutive year, digital transformation within finance and tax functions has been identified as a significant driver (32%) that is shaping global indirect tax management strategies.   

Additionally, SAPInsider’s CIO Transformation Report found that more than 50% of tech leaders are prioritising both business process automation and transitions to SAP S/4 HANA. This is a clear indication that more businesses today are leveraging the capabilities of SAP S/4HANA in order to minimise errors and bolster their compliance capabilities in today’s digital-first, globalised business environment.   

More businesses are focusing their SAP S/4HANA transformation efforts on processes such as accounts payable/receivable, material planning, data management and quality control. It’s clear that digital transformation projects within the tax function are driving significant improvements in organisations’ ability to perform and achieve regulatory tax compliance.  

Best practices for indirect tax automation and resource allocation  

Looking into the report, it’s clear that tax teams are continuing to leverage the benefits of SAP and its cloud-based platforms to better manage their global taxes, which facilitates real-time e-invoicing, reporting and tax controls, to remain compliant.   

Moving forward, organszations must embrace the full capabilities of SAP S/4HANA, as this can serve as a centralised, global repository for accurate data which will help drastically minimise errors caused by manual processing. Additionally, teams managing indirect tax can enhance their control and governance through advanced cloud analytics and reporting solutions, such as SAP Analytics Cloud, as this can provide valuable insights and expose any potential tax compliance risks.   

Organisations should consider partnering with trusted SAP certified indirect tax management solutions from leading vendors within SAP’s partner network. These robust global tax engines and solutions seamlessly integrate with SAP S/4HANA systems to overcome pain points and bring more efficient processes.   

With over half (58%) of SAPInsider’s respondents either currently implementing, planning to implement, or evaluating the benefits that a global tax engine will bring them, those that are not considering the benefits of a global tax engine may risk lagging behind the competition. It’s clear that organisations must utilise the advantages of global tax engines to allow them to use their time and resources more efficiently.