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In the last few years, we have seen tax mature and increase in complexity across almost every regime around the world.
From the introduction of VAT in the GCC region to digital services, e-Invoicing and Brexit, there have been many new regulations for modern businesses to comply with – and one thing is for sure, this is set to continue!
This constant change in legislation, tax rates and the way business is conducted places real pressure on organisations – and especially their tax teams.
For what feels like millennia, tax determination using native SAP has been sufficient for large quantities of business users; however, many of the companies we speak with that are utilising native SAP (albeit often with a heavily customised setup) are multinational organisations with complexities across the supply chain and the sales structure. Within these businesses, it is not uncommon for tax teams to feel hamstrung by the ERPEnterprise resource planning (ERP) is a type of software that organisations use to manage main business processes. and at the mercy of IT.
But it’s not all doom and gloom. Each and every change in legislation, tax rates, reporting requirements or, best of all, a migration to SAP S4/HANA is an opportunity to take stock and consider the technology options. And thankfully there are a few.
To help, I thought I would break them down into three main categories: Native, plug-in and tax engine.
Native SAP
First, let’s consider the existing setup (most likely native). Our starting point should always be to make the most of the technology we already own, so let’s first consider how it can be optimised.
An ERP is a large investment so it’s likely you have been using the product for several years, maybe even a decade or more. But when was the last time it was reviewed?
For many, it hasn’t been reviewed since it was implemented, yet since the initial ERP go-live the business could have changed dramatically, possibly through organic growth or acquisition.
Either way, it’s often the case that the system has been chopped and changed under the demand of a pressing issue.
Reviewing the setup often highlights numerous risk areas and major inefficiencies.
Following the review, it might be decided that a third-party determination technology is not required and an optimised native setup will suffice, but if not, these same risks and inefficiencies can be used to build the business case.
If native SAP is no longer a viable option and you require more specialist tools, there are two other types of determination solutions to consider…
Plug-in or tax engine
A certified SAP plug-in or a tax engine both offer similar determination capabilities, but there are key differences and certain considerations to decide which is best for your business.
There are numerous plug-ins and tax engines on the market, all of which offer comprehensive determination capabilities and advanced rules and logic.
Many of the benefits of these solutions reside in the fact that they exceed the standard four tax drivers found in SAP. In most cases, they also allow you to manage tax codes and rates via tables rather than within the ERP, meaning updates and changes could be maintained by business users, rather than expensive SAP IT resources.
What are the differences between a plug-in and a tax engine?
- A plug-in sits within a single SAP instance, compared with a tax engine that connects via APIs; offering vast connectivity to a variety of ERPs, financial systems and e-Commerce platforms.
- A plug-in is typically focused on a single region or tax regime, whereas a tax engine tends to offer multiple regimes and regions.
- An external engine will maintain responsibility for all rate and code changes, while that is not always the case with a plug-in.
- Due to the added responsibility, flexibility and global coverage it offers, a tax engine is usually more expensive.
Now we’ve looked at the key differences between the two options, it’s time to consider which is right for you and your business.
Plug-in v tax engine: Finding the right solution for your business
Here are four crucial questions I’d always recommend asking yourself before deciding to invest in a plug-in or a tax engine:
- Do you own multiple SAP instances? If so, a tax engine is probably a better option as a plug-in sits within a single SAP instance.
- Are you able to maintain your configuration and content and keep it up to date? With a plug-in, configuration and content is often owned by the business and not the vendor, meaning you will need to stay up to date with all the latest legislation and rate changes.
- What ERP are you using? Not all plug-ins work with cloud-hosted ERPs and even fewer work with SAP’s S4/Hana public cloud offering.
- Does your business trade outside Europe? In most cases, SAP plug-ins cover VAT regimes across the European Union and UK. However, some are not compatible with tax determination in the US and the rest of the world, in which case you would need to look towards a tax engine.
By asking those four questions of your business and scrutinising the strengths and weaknesses of your current setup, you will hopefully be in a better position to make an informed choice between native, plug-ins and tax engines.
However, if you would like to benefit from the insight of our experienced tax technology practice, get in touch and we’ll be delighted to tell you more about how we could review your configuration and make key recommendations about your next steps.
