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.