Tax & Legal as a success factor in the SAP S/4HANA transformation

More success in your S/4HANA transformation project through early involvement of tax and legal experts

Ensuring compliance during and after an S/4HANA transformation

The introduction of a new ERP system is accompanied by far-reaching changes to the process and system landscape of the company concerned. During and especially after such a transformation, comprehensive, global compliance with the applicable tax and legal regulations must be always ensured. This requires, for example:

• the implementation of tax-relevant decisions in end-to-end business and financial processes (PTP, OTC, RTR, etc.)
• comprehensive global compliance with VAT regulations (e.g. locally applicable tax determination, consideration of systemic controls)
• coverage of local income tax and tax accounting requirements (e.g. separation of non-deductible expenses and tax-exempt income)
• digitalised tax reporting processes and tax data storage (e.g. transfer pricing, CbCR, deferred taxes and Pillar 2)
• the automated execution of tax controls and calculations (e.g. in tax accounting and transfer pricing)
• considering legal requirements with regard to the prevention of money laundering and fraud, supply chain due diligence obligations, export controls and embargo restrictions
• ensuring the protection of personal data, including compliance with statutory retention obligations and the principles of lawfulness and economy of data processing

In addition, the ongoing transformation can be used for this purpose, among others, to

• implement new regulatory and tax law requirements (global minimum tax/pillar 2, digital communication with the tax authorities)
• increase the ability to react to future changes in (tax) law requirements and
• shorten the path to a digital tax, compliance and legal department (Global Integrated Compliance).

Appropriate utilisation of value creation potential

The SAP S/4HANA transformation and other ERP transformations open up opportunities for companies to utilise considerable value creation potential (including through cost reductions and efficiency increases) and therefore contribute to an increase in the overall return on investment (ROI) of their transformation.

From a tax law perspective, it should be noted that:

• Firstly, the involvement of accounting and tax experts in an S/4HANA transformation ensures that it is correctly recognised for (tax) accounting purposes, that the considerable implementation costs are also considered for tax purposes and that, for example, potential for immediate depreciation of digital assets is utilised.
• This should ensure that the global allocation of SAP transformation costs is correct for tax purposes, avoiding double taxation and non-deductible offsetting or indirect taxes and non-creditable withholding taxes.
• In many countries, digital investments are supported by tax and other incentives such as tax credits and tax incentives for IP investments, which the companies concerned should be aware of.
• An ERP transformation results in process and system changes that can have tax implications if, for example, activities are moved between group companies or across borders. To recognise this and mitigate the corresponding risks, the process should be accompanied by integrated tax support.
• Once an S/4HANA transformation has been implemented, the established processes should ensure that tax inefficiencies (e.g. withholding tax, double taxation, non-deductible items/VAT) are avoided and potentials are realised (e.g. appropriate use of preferential customs arrangements).

Regarding legal and regulatory requirements, the following should be mentioned in particular:

• The early involvement of qualified legal experts ensures that contracts with the ERP provider and other third parties (e.g. implementation partners) contain appropriate legal provisions (e.g. on liability, warranty and termination) and that, for example, the licence models meet the actual requirements of the respective company.
• In terms of data protection law, the early involvement of data protection experts enables the data protection measures taken to be documented from the outset (e.g. a data protection impact assessment and documentation of compliance with the principles of "privacy by design" and "privacy by default") and data protection challenges - such as the international transfer of data or a US cloud location or the creation of blocking and deletion concepts specifically for S/4HANA - to be mastered. In addition, the involvement of external experts relieves the burden on internal resources, which experience has shown can hardly support a large ERP transformation project within the scope of their capacities.
• Processes for documenting and fulfilling legal obligations - e.g. compliance with embargo restrictions, customs documentation, measures to combat money laundering and fraud and compliance with obligations under the Supply Chain Due Diligence Act - can largely be implemented using S/4HANA. This offers the opportunity to reduce parallel processes in other systems and additional work and to achieve a better level of compliance documentation across the board. Involving the relevant experts at an early stage ensures that the process design already takes the respective regulatory requirements into account and that no subsequent adjustments to the ERP system are necessary.