The following partner insight was authored by Erik van der Hoeven, VP of Product Management for Indirect Tax Determination Solutions at Sovos.
Missing tax revenue has become a major problem for governments worldwide. In Europe alone, €60 billion in VAT goes uncollected each year, while the U.S. tax gap has reached $688 billion. In response, tax authorities are scrapping traditional periodic reporting in favor of real-time data access.
For businesses running SAP, this shift exposes critical gaps in their systems. Most companies discover tax compliance problems at the worst possible moment — nearly half wait until the end stages of their S/4HANA migration to address tax requirements. On the other hand, companies that account for tax compliance early on in their roadmap experience not only fewer issues but a smoother transition to SAP S/4HANA overall.
The new era of Continuous Transaction Controls (CTCs) fundamentally changes how businesses share tax data. Instead of companies pushing periodic reports, governments now pull transaction data directly from business systems. This means every piece of data, from customer and supplier VAT IDs to individual transaction details, must be validated instantly. A single validation error can halt business operations and trigger immediate penalties.
Rethinking Tax Management
Tax rules vary wildly between countries. Get them wrong, and the costs are severe. One company paid €121 million for misreporting VAT in Italy. In India, GST violations cost another business $160 million. Meanwhile, one-fourth of businesses surveyed said they were worried about criminal prosecution due to noncompliance.
Brazil, Mexico, and other early adopters of real-time reporting show where tax authorities worldwide are heading — complete digital oversight of business transactions. Amid these changes, SAP users must evaluate whether their existing ERP systems are equipped to rise to tomorrow’s challenges.
SAP’s latest push toward Clean Core changes how companies handle tax compliance. The old ways of customizing core systems don’t work with S/4HANA, and companies need specialized tools that work with SAP’s new standards. Sovos saw this shift coming and built a platform that keeps up with tax rules across more than 160 countries, no matter how often they change.
SAP’s basic tax functions hit their limits when complexity rises. Companies shipping goods internationally, coordinating drop shipments, or managing VAT across borders need more robust tools. Sovos’ platform addresses these thorny problems, adding real-time tracking that spots issues long before auditors come knocking.
Mergers often leave companies stuck with several ERP systems. Rather than cobbling together temporary fixes, Sovos unifies tax determination across platforms.
From Cost Center to Strategic Advantage
Companies that invest in proper tax determination tools can gain a competitive edge in navigating global markets.
Companies that get it right expand into new markets faster and move goods across borders with fewer disruptions. Additionally, the automated approach cuts operational costs by reducing manual work, prevents expensive penalties through early error detection, and frees up resources for strategic initiatives.
Solutions like those offered by Sovos turn tax data into actionable insights for business decisions, from supply chain optimization to market entry strategies. But success requires bringing tax teams into technology decisions from day one.
These professionals understand compliance nuances that IT teams might miss during system configurations. Their early involvement helps companies build systems that meet current regulatory requirements and adapt quickly to new tax mandates.
SAP users can’t afford to wait — tomorrow’s requirements are already visible in today’s leading markets. Tax authorities in Latin America and Asia have transformed how businesses report taxes. In Europe, many countries are planning similar e-invoicing systems.
As companies worldwide embark on digital transformation initiatives, it’s imperative to implement tax compliance systems that adapt alongside evolving rules and compliance demands.
Erik van der Hoeven is VP of Product Management for Indirect Tax Determination Solutions at SOVOS.