Glossary

Issue

This KDD will focus on Global Indirect Tax and its three core components as stated below.  This decision for this KDD is to decide on the foundation for indirect tax and the approach for the 3 mentioned sub-components, that will be further developed in the Detailed Design Phase

Issue

This KDD will focus on Global Indirect Tax Determination, Reporting and Submission for Syensqo globally. The endorsed approach will have cost implications that need to be considered in the Conceptual Design phase.

Determination

• Indirect Tax determination, for example VAT and GST, is a detailed and often complex area with many rules/laws that vary country by country. Lack of adherence to regulations results in fines for the organization. 

Reporting

• Indirect taxes need to be reported

and submitted

• to local authorities in specific formats

, timeframes and often by registered organizations. As per

• which require upfront preparation of data sourced from the transactional accounting systems. As per current practice at Syensqo,

tax reporting and submissions

• preparations of forms, reports and declarations are primarily managed outside of SAP and often require manual, labor-intensive preparations. which may also rely on SAP standard reports as base selections for the tax declarations. Although the preparation is largely manual, reports and data are sourced directly from SAP.
• Many SAP standard reports commonly used for Tax Reporting purposes in SAP ECC have run out of SAP support and have been replaced with reports in the Document and Reporting Compliance (DRC) framework for Statutory Reporting available in S/4 HANA. Relevant reports are further detailed in the background section of this document.

Preparation & Submission

• Indirect taxes need to be reported to local authorities in specific formats, timeframes and often by registered organizations. 
• At Syensqo, submissions are currently either outsourced to registered and authorized agents (wherever this is legally required) or performed manually which is a time-consuming process with compliance risks

due to limited controls in the submission process

• .
• In a growing number of countries, electronic submissions of financial data for tax & statutory reporting purposes to governments and fiscal authorities are becoming legal requirements (e.g. UK, Germany, Austria). 
• In S/4 HANA, the dedicated tool for managing electronic submissions for tax and statutory reporting is SAP DRC which comes at additional licensing costs

. 

Recommendation

To ensure continuity of regulatory compliance in S/4 HANA for tax and statutory compliance reporting and submissions and to provide the users with a powerful, intuitive and state-of-the-art tax reporting framework, a move towards SAP DRC seems inevitable so 'Option A - Deployment of automated tool for Tax Reporting and Tax Submission and retention of current practice for Tax Determination' is the recommended direction. Sticking to an obsolete and outdated tax reporting framework which has already reached or is nearing the end of their lives from a SAP support and product development perspective in a new S/4 HANA implementation is heavily contradicting the idea of building a future-proof solution in S/4 HANA. For tax reporting and submissions, the current manual practice poses compliance risks and leads to inefficiencies and lack of controls in the reporting and submission process. As such, it is recommended to automate these activities in the to-be solution with a tool that supports tax reporting out of the system with embedded submission functionalities. The actual selection of the ideal tool for Syensqo for tax reporting and submission will be performed at a later stage considering various aspects such as costs, integration capabilities and ease-of-use.

The deployment of a global tax determination and compliance solution through a third party application such as Vertex is not recommended in the initial phases of the project due to its complexity and the high costs involved in the initial build and the ongoing maintenance to ensure accuracy of the tax determinations and reporting results. 

Assumptions

• The licensing requirements for SAP DRC in S/4 HANA for Statutory Reporting are not clearly documented. Infrastructure team was consulted and advice given is to assume that the scope of functionalities provided by SAP DRC for Statutory Reporting compliance will be a chargeable service in the to-be solution with unclear costs at this point as it will be subject to negotiations with SAP.
• Scope management will consider the project wide deployment approach, and detailed scope will be addressed in the Detailed Design phase.
• The e-invoicing capabilities of SAP DRC will be covered in another KDD.
• Aaaaaalex - can you please move the e-invoicing to this section ?  
• ..

• . Other non-SAP reporting and submissions tools from third party providers such as Deloitte or PWC are currently being explored by the indirect tax departments at Syensqo as well.

Recommendation

Option A - Retention of current practices for Tax Determination of SAP plus Vertex for USA and Canada, and introduce a new application for automation of Tax Reporting, Preparation and Submissions

1. Indirect Tax Determination to continue with as-is solutions in SAP and Vertex (for USA and Canada only).
   1. Based on the assessment of the project team, the VAT determination of all required complex business flows (i.e; tolling flows, importations, consignment stocks) can be addressed correctly in the core SAP system (current and S4/ HANA) with the needed degree of configuration and there is no need to adhere to a Vertex determination tool; 
   2. After a period of 6 months post go-live a review process shall be performed on the efficacy of the implemented solutions and processes for EMEA. Should the outcome of the review reveal any product or process gaps in the to-be solution that could be addressed in a more efficient manner in Vertex, an implementation of Vertex for EMEA should be reconsidered.
2. Introduce a new automated application for Reporting.
   1. New application will be utilized, however the application choice in not part of the decision in this KDD. The SAP application is SAP DRC.
   2. Tool selection will continue throughout Conceptual Design.
3. Introduce a new automated application for Preparation and Submission.
   1. Scope of which countries will follow the automated submission process will be determined in Detailed Design, taking into account regulatory requirements and cost \ benefit.

Ensuring continuity of regulatory compliance and a higher degree of automation for efficiency gains in the to-be solution for tax reporting and submissions, is the recommendation. 

Continuing with an obsolete and outdated tax reporting framework which has already reached or is nearing the end of life from a SAP support and product development perspective in a new S/4 HANA implementation is not aligned with future proofing the to-be solution.

For tax reporting, preparation and submissions, the current manual practice poses compliance risks and leads to inefficiencies and lack of controls in the reporting and submission process. As such, it is recommended to automate these activities in the to-be solution with a tool that supports tax reporting out of the system with embedded submission options.  

The actual selection of the ideal tool for Syensqo for tax reporting, preparation and submission will be performed at a later stage considering various aspects such as costs, integration capabilities and ease-of-use.

The deployment of a global tax determination and compliance solution through a third party application such as Vertex is not recommended due to its complexity and the high costs involved in the initial build and the ongoing maintenance to ensure accuracy of the tax determinations and reporting results.

Background & Context

Determination

Currently, indirect tax determination is fundamentally performed in the primary SAP ECC systems. The exception is in North America, where Vertex (a 3rd party system) is utilized. 

As highlighted by Finance and Tax business stakeholders, there are some existing accuracy challenges for determination of indirect taxes in the EMEA region.  The extension of Vertex for North America to EMEA to assist in resolving the existing issues and to produce accurate tax reporting was therefore considered.  A small case review was conducted by the project team on 6 scenarios that are creating challenges in the current ECC systems. The outcome was that with the correct end-to-end process designs, a better process and process discipline for maintaining tax-relevant condition records in the system and with the respective configurations in place, SAP S/4HANA will be able to effectively manage the problematic business scenarios and produce accurate and reliable tax outcomes.  Although Vertex was considered, the recommendation is there not to pursue it as part of the ERP Rebuild project but instead design processes, governance rules and potentially automation tools to tackle the existing pain points using SAP standard. After a period of 6 months post go-live a review process shall be performed on the efficacy of the implemented solutions and processes. Should the outcome of the review reveal any product or process gaps in the to-be solution that could be addressed in a more efficient manner in Vertex, an implementation of Vertex for EMEA should be reconsidered.

Expand the below section for further details on the case review of the 6 scenarios that were raised as part of the KDD review process:

Reporting

Syensqo is currently using various tax applications for reporting purposes. While some of these applications allow for seamless integration with SAP as the source system for regulatory filings and reporting, (e.g. Vertex), the business is still relying on supporting reports from the underlying SAP transactional accounting system especially in countries where no automated or only semi-automated solutions are in place for tax reporting. The introduction of a more holistic tax reporting framework in the to-be solution would assist not only with regulatory compliance but also provides the business with a more automated reporting and submission solution.  

In the past, Tax reporting capabilities in SAP ECC were primarily focusing on indirect taxes (e.g. VAT, WHT) and numerous reports were developed by SAP over the years to comply with regulatory needs in supported countries. Those reports were regularly updated by SAP as and when tax jurisdictions changed in the respective countries. With the move to S/4 HANA, SAP has changed its reporting strategy towards a more consolidated and centralised tax reporting framework in SAP DRC (previously named SAP Advanced Compliance Reporting) and has therefore announced that support and compliance assurance for many of the widely-used tax reports in ECC will come to an end. 

The following list shows a non-exhaustive selection of commonly used SAP standard reports for tax reporting in ECC systems for which SAP support and further product developments to keep the reports up-to-date with latest changes in regulatory requirements has either ceased or is about to reach this stage in the near future - for a full list of no longer supported standard SAP reports for regulatory and statutory reporting and submissions, please refer to SAP note 2480067:

SAP DRC

Most of the  outdated reports have been replaced with a corresponding equivalent report in the SAP DRC framework for Statutory Reporting in S/4 HANA. New reports introduced by SAP to meet regulatory requirements effective after approx. 2020 are also all implemented using SAP DRC. 

The full scope of currently supported reports and compliance tasks in SAP DRC in S/4 HANA can be viewed online on the official 'Supported Compliance Tasks by Country/Region' webpage on this topic. Please note that the list of in-scope tasks for SAP DRC in S/4 HANA is subject to frequent updates and changes. 

Below a sample extract of supported key functionalities in countries where Syensqo is operating larger organizations without external tax applications to support statutory submissions to authorities:

Preparation and Submission

In a growing number of countries its becoming a legal requirement to integrate the accounting system with government portals for direct submissions of statutory filings to the authorities (e.g. 'Make Tax Digital' initiative in the UK for indirect tax submissions).

Although other Preparation, Reporting and Submission tools will be assessed as well over the next few months, below an example of end-to-end process design capabilities out of SAP DRC as the future roadmap tool from SAP for preparation and submission of statutory and tax reports.

SAP DRC

SAP DRC in S/4 HANA is SAP's response to the growing need for electronic data exchanges between organizations of the private as well as the public sector. It is addressing and facilitating the transition from paper-based to data-based management of trade- and compliance-relevant documents in an organization.

SAP DRC for Statutory Reporting in S/4 HANA is not only the new home to SAP standard reports for Tax Reporting and other mandatory regulatory compliance tasks (e.g. submission of electronic Financial Statements) but also offers additional functionalities to manage and support periodic compliance tasks out of a single place in a controlled manner in S/4 HANA - the below process flow illustrates the solution components, how they interact with each other and the usual flow of activities to complete the end-to-end process of preparation and submission in S/4 HANA.

Preparation & Submission

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1.) Report Definition:

• Additional auxiliary reports can be built on top of the SAP standard reports available in the pre-defined SAP standard content delivery to support manual filings through targeted data extractions. 

2.) Reporting Activity:

• Reporting activities provide the business users with the option to manually adjust the automatically extracted figures before the actual submissions to the authorities are scheduled (e.g manual inclusion/exclusion of specific transactions). Any manual adjustments are fully auditable through built-in audit trail mechanisms and commenting functionalities. 

3.) Reporting Category:

• Reports can be grouped together based on various criteria (e.g. country, type of tax, organizational units, etc.) where this is required for statutory submissions.

4.) Reporting Entity:

• The required statutory reports can be produced at different reporting levels via the use of organizational units. The reporting levels currently supported in Statutory reporting are company code, business place, profit center, segment, jurisdiction code and section code.

5.) Reporting Task:

• The execution of statutory reports can either be done on an ad-hoc basis or via scheduled periodic activities. Workflows for review and approval of statutory reports can be defined before the outputs are generated. Outputs can be produced in various formats, such as, XML, PDF, TXT, JSON, ALV, or XBRL. You can also choose to view the information in a preview or tabular format, and use the information to file your tax returns manually through the authorized government portals.

SAP DRC Summary

SAP DRC is a centralised solution for statutory reporting, preparation, submission and monitoring of statutory compliance tasks with a growing number of SAP standard reports where regulatory compliance and support is assured by SAP. Additionally, it is also a powerful and flexible reporting workbench to create business-specific auxiliary reports to support statutory filings. Furthermore, it also provides a process-driven framework for managing statutory submissions end-to-end with abilities for controlled interventions by business users throughout the submission process.

Assumptions

• The SAP tool for automation of Tax Reporting and Submissions is SAP Document and Compliance Reporting (DRC). There are significant integration benefits of utlising an SAP application, however the decision on the application to be implemented will be made at a later date and is not part of the decision within this KDD. 
• Scope, in relation to which entities/countries will utilise the reporting and/or preparation & submission processes will be addressed in the Detailed Design phase. This will also take into consideration the overall S/4HANA deployment approach.
• The e-invoicing capabilities of SAP DRC will be covered in another KDD (please refer to KDD 'e-invoicing for Regulatory Authorities' for further details).
• As highlighted by Finance and Tax business stakeholders, there are some existing accuracy challenges for Syensqo with regards to tax determinations, especially in the procure-to-pay processes. It is assumed that these issues will be resolved within the current ECC system.  If not resolved in the ECC system, then they will be resolved via the integrated design for S/4HANA.  Being an as-is issue, the exact details should be gained from the Syensqo business stakeholders if required.

Constraints

• The licensing requirements for SAP DRC in S/4 HANA for Statutory Reporting are not clearly documented. Infrastructure team was consulted and advice given is to assume that the scope of functionalities provided by SAP DRC for Statutory Reporting compliance will be a chargeable service in the to-be solution with unclear costs at this point as it will be subject to negotiations with SAP. 

Impacts

• Licensing and Costs: Additional licenses will be required. Licensing costs will be applicable to both SAP DRC and/or external applications for Tax Reporting and Submissions.
• Training and Change Management: Extensive training will be required as the deployment of an automated tool brings about changes to the current ways of working (which is mainly manual). 
• Automation: It is expected that reporting and submissions can be largely automated and streamlined. 
• Data Cleansing and Migration: No impact.
• Basis: Business functions may need to be turned on in SAP to activate the native SAP solution DRC for Statutory Reporting in S/4 HANA if the decision is to opt for SAP DRC as the to-be solution for Tax Reporting and Submissions. Other services such as Adobe Document Services may need to be enabled as well to support generation of PDF documents out of the application.

Business Rules

Options considered

Option A: Retention of current practices for Tax Determination, and introduce a new application for automation of Tax Reporting, Preparation and Submissions

1. Indirect Tax Determination to continue with as-is solutions in SAP and Vertex (for USA and Canada).
2. Introduce a new automated application for Reporting.
   1. New application will be utilized, however the application choice in not part of the decision in this KDD. The SAP application is SAP DRC.
   2. Tool selection will continue throughout Conceptual Design.
3. Introduce a new automated application for Preparation and Submission.
   1. Scope of which countries will follow the automated submission process will be determined in Detailed Design, taking into account regulatory requirements and cost \ benefit.

Tax Determination will continue in SAP as per current practice.

The challenges faced today in the current SAP systems with regards to inaccurate tax determinations for some countries for procure-to-pay processes can be addressed through a better design and governance process of the respective tax determination parameters in the system. 

Based on the assessment of the project team, there are significant improvements/added features to the SAP core system/SAP 4HANA (with the required degree of configurations) to ensure the accurate VAT determination for complex business flows such as importations, consignment stocks and tolling flows and there is no need to adhere to a Vertex determination tool. 

Reporting, Preparation and Submission will use an application to assist with automation.

Business users will get full access to the full suite of reports and compliance tasks currently supported and quality-assured by the provider of the reporting and submission tool with automatic updates to all reports should country legislations change. It is expected that entire end-to-end business processes can be defined for statutory submissions in the tools to be evaluated, ideally with built-in process and audit controls such as submission workflows and detailed logging functionalities. Furthermore, it is expected that reporting deadlines can be proactively monitored in the new tool via submission schedules with automatic submissions and alert functions before submissions fall due to avoid late filings and potentially also fines for non-compliant submissions.

The tool to be used in the to-be solution is yet to be decided, but as also stated in the 'Assumptions' section, the standard SAP tool for automation of Tax Reporting and Submissions is SAP DRC which meets most of the above mentioned expectations. There are significant integration benefits of utilizing a native SAP application, however the decision on the application to be implemented will be made at a later date and is not part of the decision made within this KDD. 

The actual scope of entities/countries which will utilize the reporting and/or preparation & submission tools and processes will be defined in the Detailed Design phase. This will also take into consideration the overall S/4 HANA deployment approach.

Option B: Retention of current practices for Tax Determination with manual Tax Reporting, Preparation and Submissions (As-is)

1. Indirect Tax Determination to continue with as-is solutions in SAP and Vertex (for USA and Canada).
2. Reporting to continue as-is with mainly manual activities.
3. Preparation and Submission to continue as-is with mainly manual activities.

With this option, Tax Determination continues in SAP as per current practice.

Reporting, Preparation and Submission will not introduce a new application to assist with automation. Instead, the classic reporting framework for Tax Reporting available in older SAP ECC versions (consisting of primarily ABAP reports, spread out over multiple areas and country versions) is retained and continued to be used to support tax reporting and submissions in S/4 HANA.

This option is considered because most of the SAP standard reports which have run out of SAP support as per SAP Note 2480067 (see also above section 'Background and Context' for further details) are still available in the latest S/4 HANA versions albeit no longer maintained as per legal requirements or supported by SAP in case of product bugs or other queries requiring SAP's attention. Report outputs in list, tabular or electronic format can still be generated but regulatory compliance of those outputs is no longer assured by SAP. 

The use of the classic ECC reporting framework remains free of charge in S/4 HANA and is covered by the general license for S/4 HANA enterprise management. 

Option C: Engage Third-Party Provider to integrate into S/4 HANA for Tax Determination, Reporting, Preparation and Submissions

1. Indirect Tax Determination to change to determination and calculation method via external third party application.
2. Introduce automated Reporting via external third party application.
3. Introduce automated Preparation and Submission via external third party application.

This option foresees the engagement of a third party provider for a holistic tax determination and compliance solution managed outside of S/4 HANA in the respective external applications.

Third Party applications are strong on covering numerous taxable scenarios, however the negative is that continuous alignment of S/4 HANA with the third party application is required to guarantee accurate determination and reporting results. This alignment is not always one to one with the S4HANA business process, and/or requires mapping/adjustments and domain expertise to ensure alignment. In addition, future changes/updates to the third party tool may require updates to SAP to ensure alignment. 

Additional administration, management and infrastructure requirements need to be considered from a time, effort and cost perspective.

Evaluation

The below table provides a summary of the pros and cons of each option explained in the above section.  

Business Rules

• None identified in conceptual design phase - this section may be revisited again during detailed design as underlying business processes leveraging tax reporting functionalities are investigated in more detail.

Options considered

Option A: Deployment of SAP DRC for Statutory Reporting in S/4 HANA and retention of current practices for Tax Determination

In this option, the Statutory Reporting features from SAP DRC in S/4 HANA shall be deployed and utilized to support statutory reporting activities in S/4 HANA. As SAP is outphasing the on-premise version of the SAP DRC services at the end of 2024, it is proposed in this option to deploy the cloud-based edition of SAP DRC in S/4 HANA.

With this option, business users will get full access to the full suite of reports and compliance tasks currently supported and quality-assured by SAP with automatic updates to all reports should country legislations change. Entire end-to-end business processes can be defined for statutory submissions in the tool with built-in process and audit controls such as submission workflows and detailed logging functionalities. Reporting deadlines can be proactively monitored via submission schedules with automatic submissions and alert functions before submissions fall due to avoid late filings and potentially also fines for non-compliant submissions.

The SAP DRC tool shall primarily be used in countries where currently no external applications are used to support tax reporting and regulatory submissions, especially if legally submissions via electronic channels are mandated or encouraged by the respective governments. Over time, external applications currently used at Syensqo for this purpose may also become redundant and can be outphased as the respective compliance task may be fully supported out of SAP DRC which makes this option fully aligned with one of the key pillars of the project charter which is to aim for solutions that are standardized across the group and ideally based out of a single-source-of-truth system.

Option B: Use classic ECC reporting framework for Statutory Reporting in S/4 HANA and retention of current practices for Tax Determination 

With this option, SAP DRC for Statutory Reporting will not be rolled out as part of the initial deployment of the S/4 HANA transformation program. Instead the classic reporting framework for Statutory Reporting available in older SAP ECC versions (consisting of primarily ABAP reports, spread out over multiple areas and country versions) is retained and continued to be used to support regulatory reporting and submissions in S/4 HANA.

This option is considered because most of the SAP standard reports which have run out of SAP support as per note 2480067 (see also above section 'Background and Context' for further details) are still available in the latest S/4 HANA versions albeit no longer maintained as per legal requirements or supported by SAP in case of product bugs or other queries requiring SAP's attention.

Report outputs in list, tabular or electronic format can still be generated but regulatory compliance of those outputs is no longer assured by SAP. 

The use of the classic ECC reporting framework remains free of charge in S/4 HANA and is covered by the general license for S/4 HANA enterprise management.Option B: Use classic ECC reporting framework for Statutory Reporting in S/4 HANA and retention of current practices for Tax Determination 

Option C: Engage Third Party Provider to integrate into S/4 HANA and complete Tax Determination, Compliance and Reporting

This option foresees the engagement of a third party provider for a holistic tax determination and compliance solution managed outside of S/4 HANA in the respective external applications.

Evaluation

The below table provides a summary of the pros and cons of each option explained in the above section for both key design decisions, cost and compliance considerations and how each option scores with view to the below five key pillars of the overarching project principles:

• Standardisation: SAP Standard and best practices with harmonized and standardized business processes out of a single system are the preferred solution in S/4 HANA.
• Simplification: The solution design should be intuitive and easy to follow for end-users leading to higher adoption of the proposed to-be solutions.
• Future-Proof: The to-be solution needs to be future-proof and should strive to be in line with target designs from SAP in S/4 HANA.
• Process Discipline: The to-be solution should help the business to achieve better process discipline steering users away from off-the-system calculations and documentations.
• Change Management: Change impact must remain manageable in the to-be solution.

See also

Change log

Workflow history