Leveraging Tax in the SAP Ecosystem

Hamilton Chock, PwC's US SAP Alliance Leader, introduces a multi-part series titled 'Digital Future Unlocked' featuring insights on how to support digital transformation in the tax domain using SAP's S4 system. This episode focuses on tax's pivotal role in digital transformation, highlighting key discussions from a recent event, C COM in Las Vegas. It introduces PwC Tax Partners Laura Olson and Michael DiTrapano. They share their expertise on navigating new tax laws, specifically Pillar Two, and its implications for digital transformation. Olson and DiTrapano discuss the importance of early involvement of tax professionals in S4 transformations and the benefits of integrating tax processes into this digital shift. The conversation covers the complexity of tax’s role across different business processes and the necessity of leveraging technology to ensure regulatory compliance and efficient tax operations. The episode emphasizes PwC's role in bridging the gap between tax requirements and IT capabilities, underlining the transformative potential of S4 for tax functions.

Transcript

PwC - Ep-4 – Leveraging Tax in the SAP Ecosystem

[00:00:00] EPM tool of SAP can actually help you with those intangible calculations. So you can actually put, that's just using example. You can actually put a puzzle together within the SAP ecosystem, which will automate from a tax perspective, but the source data that they're using, the rest of the enterprise is using as well, like operation supply chain.

So now everybody's using a single source of the truth.

Hamilton Chock: Hey, thank you everyone for tuning in. This is Hamilton Chalk and I serve as PWCs US SAP alliance leader. Today we have an exciting topic to share with you. And it's one of a multi part series called digital future unlocked, both with PwC and SAP. So I'm going to be leading you through. Today's discussion and before I do so, and introduce our special guests.

I'm just going to kind of recap where we are today. 2024 has been such a fast [00:01:00] start for many of you who are tuning in, you probably are aware that we began January with C COM in Las Vegas, where a number of new initiatives and priorities were shared by SAP likewise PwC team was present and engage with many of you out there really around a couple of topics that we thought could create a differentiated approach to support what our clients are looking for in terms of support to, to support their digital, broader digital transformation with S4.

So topics included OPEX versus CapEx. Rise for how we support rise going forward with SAP tax, as well as CR& R. So when you think about how we secure the cloud our cyber risk and regulatory solutions. But today we're going to focus on one of the key areas like I mentioned, tax.

And so everyone's been talking about, Hey, what role can tax play in a broader digital transformation? Many of you probably heard about pillar two. So we're going to be talking about [00:02:00] that today as well. As I step in today's series, I'm going to introduce two of my, guests from, PDBCs. Tax organization, and they're going to share some of their leading insights based on their conversations with many of our clients today.

And so hopefully many of you can benefit from this, both as, if you're an SAP or if you're a client listening as well, I think each of these, guests here I'm going to provide a lot of insights that I think can help all of us. So I'm going to first begin with some introductions and I'm going to bring aboard, Laura Olson, who is a tax partner within PwC.

And also then, Michael DiCioppina, who is also a partner within our PwC, tax practice. So I'll first begin with Laura and Laura, if you would like to quickly introduce yourself and your role.

Laura Olsen: Sure. Thank you for having us today.just informed, I'm Laura Olson. I'm a partner within our tax reporting and strategy practice. Yes, I am a tax professional at heart, but a unique type of tax partner. I focus [00:03:00] a hundred percent on supporting clients. To make sure their voice is heard and integrated throughout a finance transformation within the SAP ecosystem, but also what does that mean for their downstream processes, et cetera.

So over 19 years of supporting tax departments, we want to make sure that their upstream data is integrated, the data that they consume is transformed and integrated throughout the program. So they can continue to make sure that they incorporate the corporation is regulatory compliant.

Hamilton Chock: Fantastic. I'm glad to have you aboard. Michael, quick introduction.

Michael Ditrapano: Sure. Thanks, Hamilton. Great to be here. So I'm Michael DiTrapano. I'm a partner in PwC's tax reporting and strategy practice. I've been with PwC almost 19 years now, based out of Boston and like Laura, you know, spend significant amount of time helping tax functions really Extract [00:04:00] value out of S4 transformations.

I'm also spending time supporting the SAP Alliance for tax, within PwC. And you know, really we've been focused on building out assets, accelerators and use cases for tax and making sure that, at a minimum tax, you know, gets what they need out of SAP, but, extract as much value as we can out of the system.

So great, great to be here.

Hamilton Chock: Yeah, I'm glad to have you. So I'm going to, probably both with a couple of questions and, have you just sort of provide your perspective on each. So I'll start with you, Laura. So as I opened up pillar two, right, big topic for, a lot of our clients. And that of course has a variety of with regard to new tax law changes and so forth.

So what is it? And what does that mean for us? And I'll hand it over to you, Laura. First,

Laura Olsen: Well, first of all, we should talk about why in within transformations, the CFOs and the CIOs are actually being starting to be interested in tax [00:05:00] prior years. Again, as you've heard, Mike and I have been doing this for 19 plus years. Let's put it between the two of us. We have close to 40 years of experience doing this, which.

God, I'm going to stop aging myself. But anyway, working through this and myself and my additional role of being the co lead for global tax ERP and our national tax lead, looking at all the new tax law changes, these new tax law changes and the government strategies and the regulations, which are. causing tax departments to do more with less, they actually have to get automated as well.

So to your point, even CIOs and CEOs have heard about Pillar 2. They don't know exactly what it is, but it's this new big scary thing, would you say? Because it's not a tax law that's being tweaked. Like we heard about tax reform several years back. It was, Tax laws that were like tweaked and adjusted, but pillar two is brand new from scratch.

So people are scrambling. How do we get this done? There's [00:06:00] different calculations in every different region. Not all the tax laws have been solidified across the world, but also there's 268 data points right now. Let's say right now, cause it's not being completely solidified about 30 to 40 percent will come out of the SAP ecosystem, but then the rest has to come from boundary systems that work with SAP.

So how do we bring all that data together? And that's just data aggregation. Then how do we do the calculation? And within SAP, there are tools that can help with the baseline calculation. Like I think, Mike, you mentioned, started mentioning your introduction, the top up tax, those minimum tax calculation, but then they got the individual calc.

So what is that big end to end Enterprise look like from a tax ecosystem, starting with the SAP landscape. So the CEOs and CIOs, and that's just one example where they're starting to get, I wouldn't say concerned, but they're actually getting interested in the world of tax, because again, government agencies are actually [00:07:00] becoming digitized.

I actually have one client that has. Reached out and said, how do I respond to this? IDR, those who are on listening to us that don't know what an IDR is a request from the IRS. And it's an actual SAP IDR telling them what tax codes, not tax codes, the T codes to pull and what information from those T codes they have to pull to support their tax filings.

So the world is becoming digitized. Government agencies are becoming digitized. So we can't forget about tax because all the data that tax consumes comes from the upstream functional areas within the SAP ecosystem and the boundary system that we need to consider when we go through these transformations.

Hamilton Chock: fantastic. So a ton of tax consideration. So when you think about and Michael, maybe this is more of a question for you when you think about how we embark on a digital, transformation with us for, you know, where does tax, where can a client start to unleash the value of tax [00:08:00] beginning the project? Where do we begin?

Michael Ditrapano: it's a, it's a great question. And, candidly, we're having these types of discussions with clients every day, and we're talking to clients who are really on different stages of an S4 transformation when we think about it. Ideal state is for tax to get involved very early in the discussions in the planning around an S4 transformation.

The earlier that tax can start to engage and understand what are our key requirements, what are our key decisions, what are going to be the big rocks that we need to focus on, and then get educated around. What's new in S4 and what value can we drive out of the system? This. Approach getting in [00:09:00] early, I think sets the stage for a more transformative approach to tax and maximizing the benefits that we can get out of the system.

I think a lot of times what we see is by the time an RFP comes out, maybe tax isn't aware of the broader transformation that's happening. And there are components of, processes and systems that maybe aren't covered.

Hamilton Chock: Yeah. So let's talk about that, Michael. So are there specific processes in place? Where tax would intersect in a broader as for transformation.

Michael Ditrapano: Yeah, absolutely. I mean, I think, when we think about tax, broadly speaking, We're talking about direct tax, indirect tax, and transfer pricing. A lot of what we do in tax is reliant on pre tax data. So when we think about our own taxonomy, we have discrete tax processes that span [00:10:00] record to report, order to cash, procure to pay.

And so part of what tax needs to think about is for really all my sub processes, Where's the overlap with existing work streams and then what can I be, what can be done in the system or in ancillary systems that can really maximize our processes, whether we're thinking about a withholding tax process and enabling something like extended withholding, plus Document and reporting compliance when you're talking about indirect tax when you're talking about transfer pricing and how you can use things like parallel valuation to really set the stage for, you know, how you're going to be doing operational transfer pricing.

So all of these areas, are areas that we'd want to consider. I guess the one other point here is even if tax is late to the game, there's, there still is opportunity. So even if You're in the middle of an S4 transformation. There's a lot of value that [00:11:00] tax can, can get out of the broader program. I think what we want to, really focus clients on is understanding your requirements, understanding, you know, what could be a fit in the system, understanding the broader landscape around, what areas are going to be transforming.

And then working with the core implementation team to make sure those requirements are being met.

Hamilton Chock: Yep. And maybe Laura back over to you, you know, when you think about, tax heavily relies on a lot of financial data. Can you maybe expand upon what that means, when a client is thinking about any type of, tax opportunity as it relates to their digital transformation program?

Laura Olsen: Yeah, and it kind of double clicks into what Michael was just saying. We depend on data and when you see a program, let's say architecture or how it's going to be set up, as Michael said, you have R2R, AP, Order to cash, supply chain, all the different components, but then you'll see tax just under [00:12:00] R to R, which is a finance, which you would say, Hey, that's where it fits in the puzzle.

It's a reporting. It's a financial reporting team, etc. But they look at, then we could be potentially pigeonhole to that we're vertical, but we're actually a horizontal because yes, we'll be reporting to that R to R lead. But we need to have an intersection with almost, I would say, almost 99 percent of the different various functional leads.

So if, for example, if you take the one pillar two, the new shiny regulation that's out, right, that everybody's trying to tackle. There is data that comes out of R2R, like, constituent entities that we have to make sure is built within the SAP system. But then there's, they may be having, they have an HR work stream.

We need HR data for that those calculations as well. But then we also need consolidation and tax return information I mean there's an abundance amount and that's just one example We get into transfer pricing if we look at the transfer pricing example [00:13:00] I have pricing condition considerations that I need to think of I have Profit center cost center consideration.

Well, let's just get to the skeleton when we're talking about enterprise structure Transfer pricing has limited risk distributors If just to define that that means like you'll buy something on behalf of me, but then I need a manage I'm going to charge you five percent management fee, but that's a Legal entity structure with an allocation process.

It has to happen potentially across the world with multiple transactions and hops within the supply chain. So if you think about what I just said, that's enterprise structure, PNLs, profit center, cost centers, supply chain, intercompany invoicing. There could be indirect tax on some of those intercompany calculation.

That's just a puzzle and a half throughout the entire. Enterprise structure of the core s four. But as Michael was mentioning, there's various tools within the S. A. P. E. P. M. suite that can also help us. Now you have things like [00:14:00] royalties, cost sharing, all those different intangible service calcs, which P. A.

P. M. E. P. M. tool of S. A. P. Can actually help you with those intangible calculations. So you can actually put that's just using example. You can actually put a puzzle together within the S. A. P. Ecosystem, which will automate it. From a tax perspective, but the source data that they're using, the rest of the enterprise is using as well, like operation supply chain.

So now everybody's using a single source of the truth versus tax, pulling it out, manipulating it, and now nobody's end numbers kind of reconcile and match. So it's, it's complicated, but taxes, this is why tax is very important.

Hamilton Chock: yeah, what you just described, I mean, that I think answered the question that came to mind, which is, you know, when I think about a lot of clients trying to perform these types of functions in house and may not have the right expertise. So my question was, why work with, a global provider?

You know, tax provider like [00:15:00] PwC, right? And I think you just called out a couple of points. Anything you'd like to expand, upon that based on what we see with our client experiences as they look at tax?

Laura Olsen: Well, I'll just start. And then Michael, if you want to add in, The fact that yes, they are the tax department, they know their business, they know the laws, they know the regulations, but how do they look at it, let's say back into the ERP system. That's why me and Michael, our team is very helpful and impactful to a company because we are tax professionals.

And we have technology, which means we're a hybrid of both worlds. We speak both language for bilingual, would you say so we could do the translation for them and help them at meant basically communicate to the I. T. department what they need, because, for example, if they say I need to calculate my royalty.

And I their I. T. Department will not know exactly what that means. You have to actually map the royalty calculation back to the master [00:16:00] data back to the trading partners. What is that calculation look like to automate it in P. A. P. M. So that translation. So a lot of our companies like we don't need your help.

We know our business. We know what transfer pricing is just using that as an example, but they don't know the system. And the other key thing is again. The first thing Implementation, again, aging myself, the implementation I did was R3 to ECC5 years ago from the world of ECC5 and ECC6, our big achievement was getting a trial balance for to do our provision.

They don't know what they don't know today of the abundance of functionality that S4 actually has for tax. Like Michael mentioned, a few things like. DRC for VAT withholding compliance, BRF Plus with extension ledgers for withholding tax, the PAPM tool for transfer pricing and other functionality.

These are things, they don't know what they don't know about SAP, so we can also educate them at the same time as [00:17:00] being that liaison, help translate what is transfer pricing or my foreign tax credit calculation need from an upstream data perspective. Mike, I'm sure you have a lot to say on this.

Hamilton Chock: Yeah, Michael, I know we're coming up maybe on the end of the time here. So I want to make sure that we can take advantage of your final comments. So I guess take us to the end. If you think about, an S4 digital transformation and some of the comments that were shared here today, what are the top three things you want everybody to leave with from this conversation?

Michael Ditrapano: a good question and there, there's a lot to think about. I think the old adage of needs a seat at the table really isn't enough when you think about all the value and all the automation and process improvement that we can derive from tax through tax from an [00:18:00] S4 transformation. So really what we want to be thinking about is developing our strategy around what are the key value drivers?

What are the key big rocks? That we want to tackle in an S4 transformation. And, it really is a group effort with our, our tax teams, our consulting teams, and then the implementation team focusing on the key areas that we want to tackle. The key areas of value and then how do we ensure that we get at a baseline the data that we need master data chart of accounts detail, legal entity detail to support our baseline core compliance and regulatory filings.

And then where are the areas of opportunity, where are the areas of automation, whether that's through SAP, DRC, like Laura mentioned, or automating transfer pricing using [00:19:00] PAPM or SAC. All of these areas are areas of value that we want to focus on, but really it goes back to having a strategy, understanding all the value that we can get out of the system.

Hamilton Chock: Fantastic. Well, I certainly appreciate both of you taking the time to join me this morning. This is super informative not only for me, and I hope those that are viewing this session as well and clearly, you can see the collective years of experience that both of you share. So, for all of you who are tuning in, this is again, 1 of a multi part series.

Of how to leverage tax. And for more information, please feel free to check out our website, pwc. com. Thank you everybody for joining.