EY & SAP: The Journey to an Intelligent Tax Function using SAP S/4HANA

View our webcast here or read on for a summary of the key topics discussed.

EY and SAP tax and technology experts teamed up 13th April 2021, for our webcast, ‘The Journey to an Intelligent Tax Function using SAP S/4HANA’. On the panel;

·       Deirdre Hogan, Indirect Tax Partner, EY Ireland

·       Jason Coady, Chief Financial Officer, SAP Ireland

·       Chris Lewis, SAP Tax Lead , EY UK

·       Peadar Andrews, Business Tax Partner, EY Ireland

Setting the Scene

Peadar Andrews of EY explained that in the current climate of continuing global tax reform, the need for greater transparency  and the increasing digitalisation of tax  administration is putting significant pressure on organisations’ tax functions.

Peadar noted that tax functions now need to become more agile and integrated across functions and technology and that this technology will play a critical role in shaping that tax function of the future. Deirdre Hogan described what organisations, their clients, are experiencing as companies embark on this digital transformation journey, while Jason Coady, SAP CFO offered a CFO perspective on the subject of tax. Chris Lewis provided insights on the SAP solutions available and the value that can be realised through optimal configuration and tax operating model changes.

Finally, the team shared their views on how in-house tax teams can best engage with their enterprise-wide change and technology programmes, from tips on how to get early engagement on design discussions, through to business case build out and ultimately on to the design and implementation approach.

From a survey conducted at the outset of the webinar on what is the level of SAP S4 HANA awareness within the organisations, or indeed awareness around the implications of tax, it is clear that both rank low.

The Challenge

Businesses of all sizes across all industries are undergoing a digital transformation. The availability of technology-enabled solutions that drive efficiencies and mitigate risk, as well as the growing need for instant access to quality data, are driving this change. Tax functions today have a role to play in this transformation and need to be part of their company’s digital journey.

The Drivers Behind Digital Tax Transformation

Deirdre Hogan, Indirect Tax Partner, EY Ireland discussed the key drivers behind the digital tax transformation journey in the context of business and tax teams..

Digital Tax Administration

Digital Tax Administration has been observed by EY as a key driver of digital tax transformation, particularly from an operational tax perspective and the changing tax landscape.

Globally, both in recent years and continually, there has been an increase in digital tax administration. As Deirdre pointed out, that while we haven’t yet had the pleasure of it here in Ireland, we should watch this space! More and more, tax authorities are moving away from the standard VAT return with its relatively limited information to requirements in favour of more granular data requests and requirements. Examples include Spain’s SII requirements, Italy’s recently introduced e-Invoicing and more locally, the UK’s ‘Making Tax Digital’ initiative.

Transparency

Transparency is noted by EY when speaking to their clients as another key driver of digital tax transformation as businesses and tax teams face ever more scrutiny resulting from increased regulations, as well as public scrutiny and social responsibility. Nowadays, a company’s reputation can be quickly and adversely impacted if it’s thought they are not paying their fair share of tax, leaving no room for complacency on the side of organisations’ tax functions and their responsibilities. Deirdre noted that it’s very much a case of ‘the devil is in the data’.

Value-Added Business Partner

EY have seen a third key driver, particularly within more mature companies, of the tax function wanting and being expected to become a value-added business partner. Tax teams are no longer just about compliance and reporting, today they’re being looked at through the lens of how they can create value for the business. Increasingly, EY receives questions from their clients on how the tax function can partner with the business to support it more strategically. And critically, how tax teams can free up time to do this. This leads to and supports one of the drivers for automation of the tax function.

The War for Talent

Unsurprisingly, securing employees with the right skill sets and at the right level to undertake the roles needed for tax is a challenge and in EY’s experience, becoming increasingly difficult. As the tax landscape changes, different skills are required; data needs to be analysed more closely and organisations now need to consider options such as, Robotic Process Automation (RPA), software technology which makes it easy to build, deploy, and manage software robots that emulate humans’ actions, interacting with digital systems and software. Companies looking at their tax function are looking at these to address their pain points, with a view to moving the tax function to become more efficient.

Digital Tax Transformation – A CFO’s Perspective

Jason Coady, CFO of SAP Ireland provided a CFO view of digital tax transformation.

Jason noted the consideration of the CFO, first and foremost, as wanting to ensure compliance, not only as a matter of principal, but because the consequences for non-compliance can be detrimental both financially and to an organisation’s reputation. He stressed that organisations need to play by the rules and have the correct controls in place.

Jason cited the recent Brexit negotiations by governments, both locally between the UK and Ireland, but also at an EU level, and of course COVID-19. Both have resulted in governments temporarily changing tax rules, requiring tax leaders and functions to adjust in an agile way to manage these increased requirements and complexity.

Looking at cash flow, especially in times of economic crisis, Jason noted that now, more than ever, ‘cash is king’ referring to studies which demonstrate that indirect tax features as being the third largest item of working capital.

Regarding operational efficiency and business partnering, Jason sees finance functions as being expected to transform and deliver best in class services in a cost-effective way. This is even more relevant now as businesses seek to maintain business continuity during the pandemic, but also seek ways to optimise post-pandemic recovery.

Being able to streamline the tax activities through task automation and standardisation, without compromising accuracy, is essential.

Tax functions have the capability to transform from transactional and operational tasks to providing increased business partnering and supporting strategic topics, with CFOs being the co-pilots of this digital transformation journey. This enables tax managers to control data quality, allowing CFOs to concentrate on strategic steering of the organisation.

Considering digitalisation and big data, tax authorities globally are leveraging cutting edge technology to automate tax admissions and the number of digital compliance regulations worldwide is increasing. Big data has been widely adopted by tax authorities to perform tax audits using electronic data extraction.

To ensure consistency, Jason pointed out that it is incumbent on organisations to ensure they are utilising the same technology to report and run internal controls using big data, which can also improve their operational efficiency, business partnering and strategic steering. 

How can SAP S/4 HANA Help?

Increasingly, EY sees clients and organisations looking to move from the role of Tax Fire Fighter which is reactive, compliance focused and often manual, to that of Tax Value Creator with the help of technology and automation. This is affording tax functions the flexibility and agility they need to get a seat at the table in a much more business advisory capacity. SAP S/4 HANA can be a critical enabler in making this possible, according to Chris Lewis, SAP Tax Lead at EY, particularly around the data and the automation agenda.

Chris discussed the value of the enhanced SAP S/4 HANA front and back ends, which now offer improved user experience (UX) and easy navigation, while the Universal Journal function consolidates financial information with a single point of data, with additional reporting capability and integration capability with other SAP and non-SAP applications. Chris noted that SAP S/4 HANA offers a new kind of ecosystem of tax applications and other finance applications.

In particular, Chris highlighted that SAP S/4 HANA enables Tax functions to address a very wide range of tax requirements from indirect tax and statutory reporting, to direct tax and transfer pricing, and covering customs and trade as well. Clients should specifically drill into three application areas:

1.   Optimising their “core” S/4 ERP functions for tax e.g. Chart of Accounts, Fixed Assets and Withholding Tax

2.   Implementing specific SAP tax-related applications such as Advanced Compliance and Reporting (ACR), Profitability and Performance Management (PAPM) and Global Trade Services (GTS)

3.   Integrating with further SAP and 3rd party finance reporting and analytics applications

Chris noted that many of EY’s clients also speak of their challenges around data accuracy, as well as access to quality tax data. SAP S/4 HANA offers organisations the tools to meet both challenges.

More notably, the struggle to gain real insights, and make the most from that data, is resolved through SAP S/4 HANA’s Data Analytics management and presentation of information. This is possible using simple, easy to navigate dashboards, which draw from multiple different data sources, abolishing silos. SAP S/4 HANA also has the capability to run detailed tax analytics, right down to transactional and master data level.

SAP S/4 HANA’s analytics capabilities can show where improvements to tax data and source systems need to be made, making the tax function more efficient and reducing tax risk.

Process Automation is also possible with SAP S/4 HANA, which offers organisations the ability to automate many tax relevant processes. It allows companies assess the challenges of today and ensure you have processes and controls in place – future-proofed from an efficiency perspective, but also capable of responding to that digital tax authority agenda!

Predictive scenarios are also made possible, answering questions such as ‘what would my VAT throughput be in the next 6 months’ and ‘what’s the likely cash flow position in the next 3 months’.

When considering optimisation of the tax function, Chris believes that organisations’ priorities are to

·       Maximise efficiency

·       Ensure compliance processes are as cost effective and efficient as possible

·       Optimise cash or cash flow.

·       Water-tight compliance and risk management

SAP S4/ HANA presents an opportunity to make a big step change in the way that the tax is managed, the way tax functions operate and the way we think about the benefits for tax across its key pillars of efficiency, cash and risk and compliance.

How can EY and SAP help your organisation?

EY and SAP can explore with you and show you “the art of the possible”, carrying out current state scans to identify data challenges and helping you to develop a business case and roadmap for change.

EY are tax experts and can help you to develop an overall tax data strategy and governance model, aligned to your particular business requirements and maximising the value from your SAP S/4 HANA investments.

Why not start thinking about your organisation’s overall vision around tax data and how your company can react to the digital tax agenda?

Maybe select a specific area of tax that could be suitable for a proof of concept?

Connect with EY here, or with Fiona Moore, SAP and allow us to show you the art of the possible!