Glossary

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

Tax determination 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 current practice at Syensqo, tax reporting and submissions are primarily managed outside of SAP and often require manual preparations which may also rely on SAP standard reports as base selections for the tax declarations.

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.

Submission:

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 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 the to-be solution for tax reporting and submissions and to provide the users with a powerful, intuitive and state-of-the-art tax reporting framework, a move towards a more automated tool ensuring compliance and efficiency gains 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 Sticking to an obsolete and outdated tax reporting framework which has already reached or is nearing the end of their lives from a SAP support and product development perspective in a new S/4 HANA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. 

Background & Context

Determination

Indirect tax determination is fundamentally performed in the primary SAP ECC systems, with manual activities to reach the end state ready for submission. The exception is in North America, where Vertex (a 3rd party system) is utilized.  There are some existing accuracy challenges for Sysenqo, especially in the procure-to-pay processes which the business stakeholders are confident that it can be addressed and improved via continuous and more proactive monitoring and maintenance of the required determination parameters in the system.

Reporting and Submissions

Syensqo is currently using various tax applications for compliance, reporting and filing 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 and submissions.

 In a growing number of countries around the world it is nowadays also 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). As such, a robust tax reporting framework needs to be established in the to-be solution which ensures not only regulatory compliance as the leading principle but also provides the business users with a flexible and easy-to-use reporting and submission solution to address legal and audit requirements in the area of tax and statutory reporting.

SAP DRC in S/4 HANA is a powerful tool designed by SAP to cater for the ever growing need for electronic data exchanges between organizations of the private as well as the public sector. In an attempt to increase efficiency, transparency and regulatory compliance, more and more governments across the world mandate e-invoicing as well as electronic submissions of financial data for statutory reporting purposes for businesses operating in the respective countries. SAP DRC in S/4 HANA is addressing and facilitating this transition from paper-based to data-based management of trade- and compliance-relevant documents in an organization.

In the context of this KDD, SAP DRC in S/4 HANA is being looked at as SAP's roadmap tool for statutory reporting purposes in S/4 HANA which facilitates the monitoring, preparation and submission of numerous statutory reports to government and fiscal authorities.

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:

Most of the deprecated reports have been replaced with a corresponding equivalent report in the SAP DRC framework for Statutory Reporting in S/4 HANA. While the plain execution of the reports may be free of charge in some cases, more advanced features of the tool such as monitoring of submission deadlines, scheduled executions and automatic submissions in electronic formats to the respective government authorities require additional licensing. 

The full scope of currently supported reports and compliance tasks in SAP DRC in S/4 HANA can be viewed online on the official SAP website via the link provided below - please note that the list of in-scope tasks for SAP DRC in S/4 HANA is subject to frequent updates and changes as SAP DRC is the declared roadmap design for Statutory Reporting in S/4 HANA with frequent additions to its capabilities and supported compliance tasks:

• Supported Compliance Tasks by Country/Region

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:

Aaaalex - is this section largely about creation of additioanl reports ? AB: Not only that, it's about the capabilities in SAP DRC to define end-to-end business processes from data selection, review all the way through to electronic submission for tax/stat reporting. You can even define workflows for better prcess control.

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 Statutory Reporting in S/4 HANA.

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.

Summing up, SAP DRC in S/4 HANA for Statutory Reporting is a one-stop shop solution in S/4 HANA for preparing, monitoring and submitting statutory reports and 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 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.

Constraints

Capture any constraints or limitations inherent to the recommended option. This could be aspects which, if changed or removed in future, could cause the decision to be revisited or invalidated. For example, a constraint might be that a new product has significant gaps in important functionality, which caused an older alternative to be recommended. If those gaps are closed in future, this might cause the decision to be invalidated.

• Should Syensqo as a group at some point consider to move towards a global tax compliance software (e.g. Vertex, Thomson Reuters) for managing indirect taxes, the usage of SAP DRC for Statutory Reporting in S/4 HANA may become obsolete as regulatory reporting and filings is then usually performed out of the integrated external applications.

Impacts

Describe the impact of the decision on other aspects such as other processes, infrastructure, other SAP modules or systems, data cleansing and migration, developments, automations, interfaces, in-flight projects, etc.

• Licensing and Costs: Additional licenses will be required to leverage on the full scope of functionalities SAP DRC for Statutory Reporting in S/4 HANA.
• Training and Change Management: Extensive training will be required as SAP DRC is a new functionality which brings about changes to the current ways of working. On top of that, it is a Fiori-based application with a completely different look and feel compared to the old Tax Reporting framework which mainly consisted of ABAP reports.
• Automation: Statutory Submissions can be scheduled as regular batch jobs to ensure timely submissions to the authorities. Monitoring and alert functionalities are also available to avoid overdue submissions.
• Data Cleansing and Migration: No impact.
• Basis: Business functions may need to be turned to active SAP DRC for Statutory Reporting in S/4 HANA. Other services such as Adobe Document Services must be enabled as well to support generation of pdf documents out of the application.
• Security: Various front-end and back-end role settings need to be considered during the role building exercise. Further details can be obtained the SAP online help portal.

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 automated tool for Tax Reporting and Tax Submissions 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

Insert links and references to other documents which are relevant when trying to understand this decision and its implications. Other decisions are often impacted, so it's good to list them here with links. Attachments are also possible but dangerous as they are static documents and not updated by their authors.

Change log

Workflow history