Why businesses can’t afford to ignore tax transformation

Tax departments are also hiring people with technology expertise rather than simply tax proficiency. These tech-centric hires are helping companies streamline work and improve efficiencies. Additionally, higher-revenue companies can anticipate an increase in their technology capabilities in tax functions, whether through outside hires or shifting current job roles, as indicated in the tax department technology report.

A lesson for businesses

Businesses benefit from adopting tax automation, enabling tax teams to step up and become strategic partners to the broader business, focusing on value-added activities such as improving margins, risk management, strategic planning, and corporate governance. By allocating less time to gathering and preparing data, the tax team can focus more on extracting deeper insights, meeting the evolving demands of tax authorities, and analyzing the implications of these changes for the organizations’ future success.

This white paper examines how embedded tax automation enables tax teams to spend more time guiding their company to better success rather than being weighed down by mundane data entry and extraction tasks.

The challenging complexity of indirect tax management

As an organization grows, expanding its product offerings and markets, tax management becomes increasingly complex. The larger the business, the more data it must consolidate, synthesize, and analyze to complete an increasing number of tax compliance returns each month.

In the United States alone, there are thousands of sales and use taxing jurisdictions, each with its own rules. Large national companies may face hundreds of thousands of taxing decisions in a single day for orders shipped or used across multiple counties. Additionally, variations of a product may be subject to different taxation rules across various tax authorities.

While e-commerce and third-party fulfillment services can help accelerate market expansion, they also add complexity to tax calculations. Determining where tax presence, or nexus, exists can be challenging, especially when dealing with multiple states. The rapid pace of change in tax regulations can be particularly difficult for these digital commerce companies and can be further complicated by sudden, surprising developments like 2018’s South Dakota vs. Wayfair court case. The ruling in that case eliminated the requirement that a seller must have a physical presence in the taxing state to collect and remit sales taxes to that state.

Simply obtaining data can be demanding. It often requires the tax team to compile data from stand-alone applications, making it a tedious, time-consuming process. For mid-sized businesses using Excel to manually consolidate, analyze, reconcile, and prepare data for returns, preparation can take two to three weeks. Non-standardized processes lead to errors and provide inadequate controls, and suboptimal processes create inconsistencies in how returns are prepared, referenced, and reviewed. The lack of transparency and traceability further intensifies the returns preparation process and complicates audits.

Errors in data entry can result in decisions based on incorrect information, causing the company to either under or overpay its taxes. Underpaying can lead to severe penalties, while overpaying can harm the company’s working capital and bottom line, negatively impacting customer experiences. Correcting those errors at the end of the month consumes valuable time tax professionals could spend on strategic activities and potentially delays month-end closing.

The 2024 State of the Corporate Tax Department report illustrates the danger faced by tax departments with limited resources that struggle to manage even the most basic tasks:

• While 61% of businesses surveyed incurred tax audits in the previous year, 72% of them did so with under-resourced tax departments.
• Nearly half (47%) of companies with under-resourced tax departments incurred tax penalties, compared to 42% of all businesses.
• In both cases, more than one-third of companies underwent six or more audits and incurred penalties.

Even those respondents who felt their department had the necessary resources often complained about inefficiencies, citing time and data management and process improvements as challenges within their corporate tax departments.

Cloud technology is helping to simplify the process and connect multiple users. Maintaining the workflow environment is easier, faster, and simpler while also providing cost savings.

The power of automation and the integrated ecosystem

Businesses need an instant process for applying up-to-the-minute tax rates to all transactions, regardless of location. That’s where automation with AI comes in. With this technology, they can automate manual tasks, manage sales tax, predict and proactively identify compliance and identity issues, and cross-check to better flag errors and high-risk transactions.

Survey respondents cited automation and quality control as the most effective measures for reducing risk in the corporate tax department report. That’s why the most common areas in which organizations plan to apply technology are updating systems that require tax calculations and tracking changes in indirect tax rules and regulations across jurisdictions. Automation typically maintains the highest level of accuracy, allowing the tax team to spend less time calculating taxes or researching numbers. This efficiency reduces the overall financial burden on businesses facing rising inflation costs.

In addition to ensuring reporting accuracy and timeliness, automation helps:

• Contain compliance costs
• Eliminate unexpected cash-flow issues
• Avoid penalties and fees
• Reduce overall risks
• Remain current on changing tax laws
• Prevent the disruption of normal business operations

Deploying such a system is no simple task. To simplify this process and ensure the various databases communicate with each other, businesses should focus on creating a technology ecosystem from a single vendor rather than using a series of patched-together solutions.

With SAP S/4HANA as the single source, tax teams can complete data consolidations automatically, allowing them to see any errors or receive a warning for further verification. The best SAP S/4HANA solutions update regularly to enable compliance with the latest legislation. By tagging and mapping all transactions with tax codes within SAP S/4HANA, teams can eliminate duplication and maximize consistency to ensure uniform tax treatment each year.

Maintaining data in disparate systems makes it more complicated to synthesize, consolidate, analyze, and determine its accuracy. When tax teams have all the data in SAP S/4HANA, they can track all tax returns within the organization and generate reliable reports. Using SAP S/4HANA for all your indirect tax data helps ensure the entire tax compliance lifecycle is streamlined, optimized, and standardized for all users. In addition to facilitating the returns compliance process, SAP S/4HANA provides a single source of truth for audit support.

Edge solutions, like ONESOURCE Determination with Determination Anywhere, allow businesses to calculate taxes accurately at the point-of-sale (POS) terminal without the tax calculation issues commonly encountered when leveraging hard-coded tax rate files.

A stronger integration solution

Even with integrated reporting systems, there can still be some disconnect between enterprise resource planning (ERP) and tax management systems. That’s why embedded technology is the best solution of all.

When a tax management solution is embedded into the ERP, users do not have to switch programs to uncover data or pull up two or more systems to match documents, journal entries, and numbers. Tax professionals can stay in the ERP system, such as SAP, and work from a single system, which makes for a more optimized experience.

ONESOURCE embedded in SAP

Thomson Reuters ONESOURCE Tax Provision software provides this embeddedness with SAP Document and Reporting Compliance for SAP S/4HANA, so users get all the convenience of automation without having to switch between systems. Thomson Reuters and SAP have a long-standing history of collaboration and innovation, including a partnership to develop premium apps that help companies navigate the complexities of indirect tax.

This ONESOURCE tax provisioning software facilitates a standardized and repeatable process for preparing and filing domestic statutory reports within SAP Document and Reporting Compliance and aims to offer a consistent user experience in all countries that use SAP. As a leader in e-filing support, it automates the preparation process across all U.S. regions, covering over 850 state, county, and city signature-ready official return forms. The Thomson Reuters tax research team constantly monitors regulatory changes and updates content and forms, assuring full compliance with the latest regulations in each location.

Better integration offers substantial business benefits

Integrating ONESOURCE Tax Provision software offers improved efficiency, accuracy, and transparency, as users can manage the end-to-end return process from form generation to submission within SAP Document and Reporting Compliance directly on the system of record, SAP S/4HANA.

This tax provision software is a pre-built, embedded solution within SAP, ensuring that data used for compiling regulatory filings originates directly from SAP, driving efficiency and reducing costs and risks associated with tax filing inaccuracies such as audits, penalties, and legal issues.

With a focus on interoperability and connectivity, Thomson Reuters has built our application programming interfaces (APIs) on robust engineering principles. They ensure integration with SAP solutions, leverage components available on the SAP Business Technology Platform (BTP), and enable you to optimize your tax compliance processes. “Continued collaboration between SAP and Thomson Reuters helps us to address the complex tax compliance needs of our customers operating in the United States,” says Elvira Wallis, SVP and Global Head of SAP Globalization.

“By providing companies with the ability to prepare tax returns in SAP Document and Reporting Compliance, powered by ONESOURCE Sales & Use Tax Compliance, customers can benefit from a harmonized user experience, a more efficient tax return preparation process, and enhanced data transparency. This can make it easier to trace transactions back to the source within SAP S/4HANA, ultimately helping to solve key business compliance challenges,” Wallis said.

Giving businesses the capability they need in the familiar SAP environment

Increasingly, businesses require integrated and compatible products and services within their technology stack, with solutions that work seamlessly across various platforms and devices. Thomson Reuters is committed to fostering an open ecosystem, providing organizations with the tools and platforms to connect with their preferred solutions. This latest integration with SAP is another step toward that goal, as it gives users ONESOURCE’s capability right in the SAP platform.

This integration simplifies tax compliance and ensures consistency across different countries, providing businesses with a unified user experience and a single way of working. This consistency is crucial for multinational companies that need to manage tax compliance across various jurisdictions efficiently. By offering one standardized approach, businesses can reduce errors, improve efficiency, and maintain compliance.

“By deepening our ONESOURCE integrations with SAP S/4HANA, we are delivering superior tax compliance solutions directly to customers where they are working — within their ERP system,” says Ray Grove, Head of Corporate Tax and Trade at Thomson Reuters. “For businesses using SAP technologies, we are bringing them the ability to utilize ONESOURCE Sales & Use Tax Compliance to file domestic statutory reports.”

“This automates the preparation process, can free up their time, and helps ensure confident compliance with the latest U.S. regulations. Our work with SAP underscores our commitment to equipping customers with best-in-class tax compliance technology through our long-standing partnership,” says Grove.