S4 Hana Deadline Tax [shutterstock: 210444748, Gustavo Frazao]
[shutterstock: 210444748, Gustavo Frazao]
Blog Compliance

Tax Compliance Can’t Wait For The New SAP S/4 Hana Deadline

Bowing to customer feedback, SAP recently rolled back a deadline that would have forced users of ECC 6.0 to transition to its new platform, SAP S/4 Hana. With the announcement, many IT departments tasked with the epic job of migrating disparate, legacy systems to the new platform surely breathed a sigh of relief. But now is not the time to take the foot off the gas.

SAP hasn’t put out an Enhancement Pack to support ECC 6.0 since early 2016. To keep pace while running an antiquated system, IT teams rely on a patchwork of point solutions and custom code, particularly when it comes to keeping up with rapid change in tax compliance. Their reliance on stop-gap solutions will only grow with time, creating technology scar tissue that will make the ultimate and inevitable move to S/4 Hana even more challenging.

Regardless of SAP’s latest deadline for moving to its new ERP platform, IT teams should feel urgency now to replace temporary band aids with a global strategy that will support tax compliance on ECC and S/4 Hana.

Global wave of continuous transaction controls

Governments around the globe continue to move forward on the digital transformation of tax mandates. Continuous transaction controls – including e-invoicing clearance and real-time reporting – put the onus on businesses to share information about their commercial transactions with the government in real-time. The goal? Cut down on tax gaps that could add billions to governments’ coffers.

Implementation varies around the world as each country creates its own processes to minimize the gap in value-added tax (VAT) collection. For instance, Italy mandated clearance e-invoicing last year for domestic business-to-business and business-to-consumer transactions, with a goal of closing a 35 billion euro tax gap. This first clearance e-invoicing model in Europe requires all companies established in Italy to submit invoices electronically to the tax authority, giving the Agenzia delle Entrate, Italy’s revenue agency, real-time audit control of invoices and tax information.

India recently announced a mandatory e-invoicing scheme that had multinational companies scrambling before it was set to take effect in April. (The deadline has since been reset to October.) Under the final rule by the Indian Goods & Services Tax Council (GST), an invoice will only be considered valid if it contains a unique reference number that will be obtained through the government platform for e-invoicing. Considering that 54 percent of India’s offshoring partnerships come from U.S. companies and another 200 U.S. businesses report plans to move their manufacturing base to India, this mandate will have a huge global impact.

Wherever these mandates pop up – Latin America, Europe or Asia – non-compliance is not an option. Companies that don’t meet regulations will pay the price, with penalties that can vary from audits to fees and even criminal sanctions in some countries.

Why now is the best time to modernize tax compliance

Centralizing finance within SAP enables businesses to manage and stay ahead of fast-changing, complex tax reporting requirements in the countries in which they operate. For those still relying on ECC, keeping up with these constantly varying obligations is not just a challenge but a risk.

During the four years since SAP last updated ECC, the world of tax regulations has changed, and multinationals need to weigh the benefits of:

  1. updating their existing ECC system manually or via country-specific point solutions;
  2. creating a global strategy that allows for smoother operations within ECC (and eventually S/4 Hana); and
  3. accelerating their transition regardless of SAP’s deadline, while modernizing supporting systems.

The longer companies wait, the harder it will be to migrate.

To comply with tax requirements, companies could set up new rules and processes within their existing ERP systems. But a majority of SAP users have not yet automated all procurement and customer interactions, and a large number of orders and invoices are still exchanged via paper.

Companies could push out a series of short-term workarounds, but custom Z-code point fixes to address various continuous transaction controls imposed by governments will only make future migrations to S/4 Hana more difficult. A more attractive alternative is to accelerate the SAP transition together with the adoption of a global strategy to modernize VAT compliance.

SAP moves ahead with S/4 Hana

SAP has released four updates to S/4 Hana in the past four years, and the company remains clear that eventually, businesses will need to make the switch. The pushback on the deadline might feel like a reprieve; IT teams should view it as a call to action.

SAP’s advancements in recent years can help companies create end-to-end automation with suppliers and buyers. A logical next step is pushing ahead with the transformation to electronic procurement, travel and expense management, as well as e-commerce relationships, all of which will maximize return on investment when businesses make the move to S/4 Hana.

While SAP is leaving the lights on for ECC a bit longer, tax authorities are rarely as flexible with their mandate deadlines. Whether IT teams keep to the previous schedule for migration to S/4 Hana or take advantage of every single day of SAP’s new deadline, now is the time for thinking globally and strategically about the other digital transformation – the one governments are driving to ensure they collect the revenue they’re due.


About the author

Pawel Smolarkiewicz, Sovos

Pawel Smolarkiewicz is Chief Product Officer at Sovos.

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