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Tax Ledger in SAP – Is it time to rethink about the need for Tax ledger

Ravi Ravipati

Congress has passed the largest piece of tax reform legislation in more
than three decades few weeks ago. There is tremendous amount of
activity taking place in every company to evaluate the impacts and how
to maximize the benefits from provisions like reduction of Corp tax rate
down to 21%, Exemption of dividends received by certain US entities,
Bonus depreciation for certain assets, changes to transaction tax on
deferred earning and many more. This “tax planning and optimization”
strategy needs a mechanism to work out multiple “simulation and what if
scenarios” for every possible business scenario so that right decisions can
be taken to maximize the shareholder value. The question that struck me
is how invaluable a separate tax ledger could be in situations like this.
Imagine having a separate Tax ledger that has the actual data,
dimensionality, ownership structure, drivers etc where you could work
out every conceivable scenario to evaluate the tax benefits.

In SAP Finance implementations, a common question I got asked by


Customers is “Do we need to create a separate ledger for Tax”? Often in
requirement workshops, Tax stakeholders have demanded a separate
ledger. However in majority of the implementations we ended up not
creating a separate ledger in SAP for Tax because of the following
reasons.
1. Many Direct and Indirect Tax requirements can be met using other
functionalities of SAP like Tax depreciation areas, Tax codes, Tax
accounts etc).
2. Additional ledger adds processes in terms set up, closing,
reconciling, reporting, and the perceived benefits did not justify the
extra effort and Controllers were never excited about another
ledger purely for tax purpose.
3. In cases where Tax had to track few expenses more in detail for
deductibility or reporting purpose, there are other ways to capture
them like Internal Orders, tax accounts etc
4. Additional costs of on account of database/maintenance was
another deterrent

With S/4HANA capabilities of having planning/actuals in the same


system, sharing same data model and with added capabilities of real time
consolidations for both plan and actuals , the traditional thinking of not
having a tax ledger might not hold water anymore. I see many use cases
and benefits for creating a separate tax ledger in post S/4 world because
of the following business imperatives and product capabilities.

1. All actual financial data from SAP Leading/Non leading


ledgers can be replicated real time to tax ledger and via that to the
planning module of BPC
2. Data dimensions like COA, Org structure are readily available in
planning suite of SAP for usage in tax planning and reporting
3. Current ownership structures and rules are also available in SAP
Planning suite (BPC) that allows you to play with different
restructuring scenarios to evaluate potential tax benefits
4. You can keep your Accounting ledgers separate from Tax and have
the flexibility to control access, plan, account and report for Tax
purposes.
5. With SAP S/4 open architecture you can extend planning scenarios
to source data sitting outside enterprise like industry data, trends,
tax rules etc.

I am eager to hear from SAP architects and finance/Tax stakeholders


what they think about this PoV.

Vamsi Tadepalli Finance Transformation Professional

I think the need for a separate tax ledger is primarily driven by how significant the
differences are between the accounting principles and tax principles applicable to a
business. A simple example of a difference that could lead to a separate tax ledger
could be the difference in the fiscal year definitions between financial accounting
and tax accounting. If there are enough differences that warrant a separate ledger,
the new capabilities offered by S4H complement such a design. I believe the
simulations for tax incidence per various ownership structures could any way be
driven out of the planning suites with or without a separate tax ledger. So to me,
the S4H capabilities are a secondary consideration for making a decision of a
separate tax ledger. Thanks for initiating an interesting conversation, Ravi.
Appreciate the same.