By Pawel Smolarkiewicz, Chief Product Officer, Sovos
Governments will do what they can to increase revenue and close gaps in the tax system. That’s why many governments around the world are undergoing a form of digital transformation, mandating real-time tax enforcement and new forms of digital reporting in an effort to capture billions in lost tax revenue.
With the technology now available to enforce continuous compliance, for example, they are inserting themselves into every transaction a business makes, changing taxation requirements wherever they see an opportunity to claw back a little extra revenue.
But if they don’t keep up with these changes, organisations could soon find themselves overwhelmed by the accompanying complexities and costs, and on the wrong side of compliance requirements. Many businesses in the process of migrating their ERP system to SAP Central Finance and SAP S/4HANA may find that these changes severely impact their plans. Even if they haven’t, they soon will, so they must act fast.
Changes and compliance
It’s unlikely that tax compliance will be high on the agenda of every SAP customer planning to migrate to SAP S4/HANA. But this could prove to be a costly oversight. Organisations that fail to comply with global tax mandates can find themselves facing financial penalties, expensive audits, depleted cashflow, and damaged relationships with customers and suppliers. What’s more, migrations to SAP Central Finance and S/4HANA can be derailed by non-compliance and, in some countries, entire businesses can even be brought to a complete halt.
Consider the example of India which, following the likes of Spain, Hungary and – most recently – Italy, has become the latest country to digitally transform its taxation system. Having established a committee to examine the viability of e-invoicing as a means of curbing tax evasion under its Goods and Services Tax (GST) programme, the Indian government announcedthat, from September this year, all B2B invoices above a certain amount will need to be generated on a central government portal.
The initiative is designed to provide greater transparency into the country’s system, helping to avoid fraud and close the country’s tax gap. A failure by businesses to understand the new process, however,could result in non-compliance. This, in turn, could lead to financial sanctions, negatively impacting a business’s bottom line, as well as jeopardising relationships with customers, suppliers and authorities. Given its position as a global manufacturing powerhouse, the implications of India’s new e-invoicing system could be far-reaching, potentially affecting any corporation with a footprint in the country. When India changes its tax laws, every global business in the supply chain needs to know about it.
Look to the cloud
It’s essential, then, to understand how and when governments are updating their tax mandates and the consequences of not complying with these new systems. Indeed, the financial and reputational damage a company could leave itself open to only serves to highlight why compliance should be at the heart of any IT transformation initiative.
When it comes to transitioning to SAP S/4HANA, it’s clear that compliance must now be a prerequisite, rather than just a nice-to-have. Fortunately, the technology exists – predominantly in the form of cloud-based solutions – to isolate the risks associated with constantly changing tax mandates, and ensure they’re automatically included in all of an organisation’s relevant systems, including SAP Central Finance, as they happen.
Backed by continuous support, a connected, cloud-based compliance solution can provide isolation from digital tax regulatory change disruption that a business needs to carry out its IT migration without hindrance.In fact, throughout the migration period, trusted third-party systems based in the cloud will ensure that a business can function as per usual, by prioritising the systems necessary for centralising finance functions, along with those for centralising compliance.
The benefits of managing tax compliance entirely in the cloud in this way are manifold. Automatically delivering regulatory updates removes the need for manual intervention each time a country changes its regulations. As a result, businesses can enjoy continuous compliance updates, while saving on resources such as time and personnel. What’s more, this approach helps avoid the issue of unknown point solutions running custom code in another region, which would otherwise impede an organisation’s SAP S/4HANA migration.
Time to change
As demonstrated by the recent transformation of India’s tax system – and the potential implications of non-compliance – global corporations would be well advised to treat national tax authorities as major stakeholders in their core business processes. Among other considerations, this requires them to stay abreast of constantly evolving compliance requirements.
But, while navigating the complexities of tax compliance may not be a walk in the park, it is certainly a necessity. Indeed, transitioning to SAP S/4HANA is already enough of a challenge for most CTOs, without having to address the different compliance requirements of various tax authorities around the globe. But by outsourcing this compliance to a cloud-based third-party provider, it’s possible for an organisation to isolate its systems from continuous disruption. Doing so will then allow its IT team to focus on other, more critical aspects of its SAP Central Finance digital transformation journey, safe in the knowledge that compliance updates will be made automatically.
India might be the latest country to transform its tax system, but it certainly won’t be the last. Moving to SAP S/4HANA with Central Finance and – significantly – with a central cloud-based tax compliance solution will help businesses overcome any issues around tax compliance. The time for change is now, before it’s too late.