VAT managers need to understand the migration agenda, check that their VAT solution is fit for purpose, and consider using a tax engine to improve the transition, as Roger Lindelauf of Vertex explains.
With the deadline to migrate to SAP S/4HANA still five years away, many businesses may be in the early stages of their migration process. The new functionality offered by SAP S/4HANA is designed to boost business agility, and it will have an impact on most internal business functions, including indirect tax and finance.
While IT will lead on migration plans, it is critical for the VAT and finance teams to be involved and understand what impact the transition to a new system will have on VAT determination and compliance.
There are three key priorities tax managers must consider to ensure their current and future VAT determination needs are met when the business makes the move to SAP S/4HANA:
1. What’s on the agenda?
It is important that VAT managers liaise with their IT colleagues as soon as possible to understand their organisation’s SAP S/4HANA agenda. Before the transition, they should also do the following:
Assess the level of compliance of their current VAT settings;
Analyse and allocate process steps, from master data to reporting and archiving;
Design their futureproof VAT knowledge and content framework; and
Investigate VAT determination options.
2. Fit for purpose
SAP’s VAT function helps businesses address base-level requirements, but as VAT complexity increases, or if companies expand or their sales channels grow, the need for real-time reporting and e-invoicing increases. Custom VAT determination solutions built for SAP ECC6 need to be reviewed because, if they are no longer correct, they can put business operations at risk.
Ultimately VAT and IT teams need to question whether their existing VAT solution will fit in with SAP S/4HANA (both now and in the future, in light of the rapidly increasing complexity and speed of reporting), or if it needs to be rebuilt.
If their solution does need to be rebuilt, coding cannot just be copied and pasted into the new system, so additional time and effort will be needed for the design, test, re-design, and re-test phases.
The SAP team that built the original solution for VAT determination will need to be involved – and if they are not, the rules to be embedded into the system will need to be explained all over again. The process could be outsourced, but who will retain this level of knowledge in the business once the service provider has finished the job?
3. A new approach?
Extending the power of SAP S/4HANA with the right tax technology can help streamline VAT determination and compliance, helping organisations to adapt to new business and regulatory changes quickly.
For many businesses, specialist tax engines can help address the complexities of VAT determination. A tax engine is a third-party system that integrates with the enterprise resource planning system (ERP) to replace its VAT functionality. This eliminates the need for in-house tax research and constant updates to improve VAT determination accuracy.
Implementing a tax engine before the migration to SAP S/4HANA begins (by adding it to the current SAP ECC system) will help to de-risk the process, as VAT challenges will no longer need to be part of the transition.
The move to SAP S/4HANA is a massive undertaking for any business, and it is crucial that the VAT team remains part of the conversation. Working together with colleagues in the IT department, the VAT team can build the business case for a more effective way to manage future indirect tax determination needs. This will also remove the burden from IT of the VAT automation complexities that will continue to exist within the new digital platform.
If you’re implementing or migrating to SAP S/4HANA, learn more about how a tax engine can help here.
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