Advanced Compliance Reporting (ACR): Key Pointers for Successful Implementation
Advanced Compliance Reporting (ACR) is a new reporting tool, which is available with S/4HANA On Premise and Cloud Editions. It is a single frame architecture and one of the value adds in S/4HANA which allows the customers to create, generate and submit compliance reports to the Governments and Tax Authorities on time and in required formats. The tool helps to ensure that the reports are compliant with complex and ever changing legal requirements. This has become even more pertinent with COVID 19 where the legal changes are being introduced too fast and must be implemented in a very short period. ACR as a tool provides the required file formats and end to end integration with Tax Authorities in specific countries like India, UK, Netherlands etc and the list is only increasing.
Why ACR needs to be implemented in S/4HANA?
In my view, lot of customers do ask the rationale for implementing ACR. There are lot of reasons, why ACR needs to be implemented for customers who are on S/4HANA.
Traditional reports are going out of Product Support – With S/4HANA, lot of traditional tax and legal reports are going out of Product Support. This is one of the primary reasons, why a customer should implement ACR Reports. The list of legal reports, which are going out of Product Support are defined in OSS Note # 2835816 and 2480067
Integration with Government and Tax Authorities – In many countries, it is a legal requirement to submit the Tax and Legal reports electronically through an interface. In S/4HANA Environment, ACR is the go to tool to address the requirements. Examples of such countries are:
UK MTD for VAT Returns – OSS Note # 2682182
VAT Reporting for Russia – OSS Note # 2632090
Netherlands VAT Report & EC Sales Report – OSS Note # 2701375
Common Tax Reporting – There are lot of SAP Customers, who have global instances and offices spread across the globe. Implementing a tool like ACR ensures, that the way tax reporting is done is harmonized in a common framework and minimizes external dependencies
New Legal Changes in Complex Countries, especially in LATAM and Asia – The legal reporting framework in Many countries like Brazil and India is very complex. SAP has introduced a tool sometime back called as Tax Declaration Framework (TDF) as a sidecar implementation for ERP Customers for Tax Reporting in Brazil. The tool provides key reporting capabilities includes Audit Preparation, Predictive analsysis of fiscal information. The same TDF framework can now created reports out of ACR Framework, there by reducing the architecture complexity and capital cost. The TDF Capabilities for Brazil are now supported since S/4HANA 1809 FPS 2 and updwards for On Premise version and from S/4HANA 1902 Cloud Edition. In addition to Brazil, complex countries in terms of taxation like China for Audit Reports, India for GSTR 1 and 2 and other reports are now supported and being constantly updated, which reduces lot of application development and maintenance costs for the customers
While there are lot of value enablers for implementation of ACR overall for the customers, there are certain specific areas, which need to be kept in mind, especially if ACR is being implemented for S/4HANA On Premise. The below summary provides an overview of the various topics to be considered for ACR Implementation in addition to all the technical set up and configuration. The starting point for implementation of ACR (S/4HANA 1609 and upwards On Premise Edition) are OSS Notes 2435114, 2460073, 2374069 and 2465179
Key Considerations for ACR Implementation:
Mapping existing VAT Reports submitted in prior periods to ACR Configuration – This is one of the most difficult and time exhaustive task for ACR Implementation. In my implementation experience, the transactional data is not set up correctly and the tax users create compliant reports in excel based on transactional data in the system. This is a harsh reality. A early and very critical step would be to use a mapping document for old submitted reports with the configuration steps. A simple example : In one of my projects, Philippines had the same Tax Code A0 with 0% for sales to Govt Customers, Trade Customers and to Military. However, in the tax reports it was required that sales should be shown in the below format:
Sales to Govt
Sales to Trade Customers
Sales to Military
In such a case, we create new tax codes, so that the tax reports can also show the data correctly in the ACR Reports. This is just one very simple example of how changes in the process are required for the implementation of ACR and subsequent correct reporting out of the box. Other such changes, that were completed during implementation of ACR Reports in various countries in my implementation were:
- Process changes in various areas like Asset Sale and Purchase
- Creation of recurring documents with fixed tax codes
- Updation of right GL Accounts for Tax Postings
- Substitution rules to populate tax relevant data in document postings like Business Place and Section Codes
- Updation of Tax No and VAT No in Master data like Vendor and Customer Master
- Validation Rules in various countries to avoid incorrect postings
- Reassignment of Duties like AP Clerk generating reports used by Tax department along with updation of security roles to reflect correct work assignments
These are just some of the process changes which were required to make sure, that we could get the correct tax reports directly out of the system using ACR as a tool and eliminate dependence on excels and third party providers for drawing tax reports
Products Gaps in ACR – One of the biggest problems faced during ACR implementation was various product gaps in ACR. Our project team had a very close collaboration with SAP Development team. This included us providing feedback on various gaps in the reports so that they could be corrected and updated in the product. During the implementation time, some of the key product gaps encountered were:
- Missing data fields in the report output, which are legally required
- Some of the Apps like Managed Tax Line Items was not enabled in the system for some of the countries
- Performance issue for the reports, when the data records are huge
User Enablement and Training – The ACR Implementation for my customer was huge, with almost 21 countries across all continents in a span of around eight months. The customer also had shared service centers (SSC) in Singapore, Argentina and Prague, where the initial reports for ACR were run by Finance Associates with final submission by the Market Unit’s Tax Managers. Covering almost 70+ end users, the key success to successful implementation of ACR was the early enablement of key and power users from the design stage itself. The enablement for the reports for such a geographically spread team across the globe.
The fact that ACR had a common user experience across countries, even though the report output was country specific was a big plus to be able to train and enable the end consumers of the reports in a very short time.
Issues from the Tax Authorities and Government – One of the major impedents in the implementation of ACR was the available Test System of various countries for testing. Eg, in UK, the HMRS does not validate the content of the reports. It just validates that the report is in the right format. So the VAT and EC Sales list reports for UK could be validated only in the Production System if the data was right or not. Additionally, in LATAM Countries, the changes introduced are quite frequent and not updated in the Test system, which creates testing of new changes a nightmare for IT and Business Colleagues.
Skill requirements for ACR Implementation – One of the key success factors for implementation of ACR is to have the right skills in the implementation group. The key skills required for ACR Implementation are: FIORI, ABAP with SCP Integration, Security, Functional Consultants with a very rich tax experience.
In a nutshell, ACR is a very rich tool for Tax and Legal reporting which can be rolled out quickly. However, the key things pointed are absolutely critical for successful adoption and roll out.