Global regulations for Value-Added Tax (VAT) vary from location to location, and for businesses to be able to deal with those different requirements can be extremely difficult from time to time. E-invoicing is not a new technology and has existed for over a decade now in locations like Latin America. Most recently areas in Europe and Asia are also using e-invoicing to standardize their taxation calculations, interposing themselves in transactions through the legal process so that they make it even more difficult for companies attempting to avoid paying taxes.
The different models of e-invoicing make trying to standardize the procedure nearly impossible. Tax legislature may change because of institutional changes, or on a whim from the government. Some countries require the government to validate invoices before companies can collect on them. In other systems, digital files that companies use in transactions must be reported for a business to qualify for charging VAT. E-invoicing compliance can fall apart exceptionally quickly, and if a company does it can face severe problems in specific areas of their business such as an inability to develop innovative solutions, a failure to simplify their information systems, and issues with upgrading from SAP to S4/HANA because of their failure to anticipate problems.
Failing to Develop Innovative Solutions
The problem that exists in managing multiple taxation systems is that the businesses need to deploy their systems in such a way that the infrastructural subsystems are dependent on the data from one another. A firm that dedicates all its time to ensure that the different moving parts of its tax system are working doesn’t have the time nor the resources to innovate and find better ways of dealing with e-invoicing.
In many situations, the growth of a company can lead to inroads into new markets. Each new location that a company adds to its roster means additional strain on the tax system as each country in the world has its own taxation system, and each taxation system may or may not deal with e-invoicing, or may deal with it uniquely. Additionally, in existing markets, mandates can change from month to month, leaving companies scrambling to meet the requirements of new legislation before they become active.
In some cases, failing to perform proper e-invoicing could leave a company unable to claim its payments. Real-time invoicing was intended to be a way for the government to ensure that companies that owe taxes to the state pay them in full, but the overbearing visage of the government in private transactions sometimes requires e-invoices to be cleared by the local authority before any the billing company can receive payment. Real-time e-invoicing allows these state bodies to detect and freeze an invoice immediately, so businesses must be prepared to submit proper invoices on the first try.
Inability to Simplify Business Computing Architecture
In any business, IT architecture hinges on the idea of simplification. Having redundant systems operating in tandem sounds like a great idea in theory, but in actuality, it could lead to any number of problems as strange, unprecedented interactions occur between linked systems. Companies going the SAP into SAP S4/HANA route need to be able to simplify their operations, but complicated tax software built into their IT architecture could lead to issues.
Tax compliance, especially in areas where governments implement e-invoicing, needs to be followed lest the business falls afoul of its suppliers or damage its client relations. Most companies that operate over international borders have delegated the responsibility of tax compliance to local subsidiaries, but real-time invoicing creates severe complications for these businesses. Real-time e-invoicing systems work best when they have a direct link to the issuing company, and passing the invoice through a subsidiary increases the time it will take to correct errors.
Adding new systems to deal with every change in tax compliance law might be what businesses intend to do, but this increases complexity through sprawl. Companies should seek to consolidate their taxation processing into a single module to make it easier to track transactions and change invoices. Ideally, tax processing systems would perform the same verification checks as the e-invoicing system the company submits the digital data to.
HANA Upgrade Problems Due to Poor Planning
Businesses upgrade to S4/HANA because of the promise of faster transactions, more transparency, and more efficient management of business data. Without having the insight to prepare the system beforehand, however, businesses mind find themselves struggling with their S4/HANA upgrade rather than reaping the benefits. Using disconnected and disparate taxation processing systems defeats the entire purpose of a HANA install. Companies need to embrace what HANA offers in its entirety instead of trying to make it part of the piecemeal solutions they have been using to date.
SAP S4/HANA encourages users to move away from the splintered methodology of modular systems and consolidate all data into one centralized repository. Such a system can be utilized to provide e-invoicing that is compliant with different international policies, with little effort from the business needed. It increases the agility of a company when dealing with tax compliance changes, and makes it less of a mad scramble to sort out e-invoicing concerns, helping the business deal with multiple different taxation schemes without having to devote an excessive amount of time and resources to it.
Managing Risk through Centralized Processing
Centralized systems have the benefit of having all their data located in one repository, and this bulk data can be used to perform all queries or statements, using the right filters. The advantage of a system like this comes from offering businesses an easy way to deal with their e-invoicing across all spheres of operation. Consolidation and simplification of tax systems is the only way for a business to hope to remain competitive in the global environment. The single-source promise of S4/HANA is only viable if the company is willing to change how it sees its taxation system, and if it’s willing to adopt new policies that are better suited to the business’ operations in the twenty-first century.