What is a hybrid solution?  

A hybrid solution is where customers utilise multiple tax determination solutions in different regions to handle specific requirements of those regions. For example, In the US the main requirement is to manage content /rates in multiple jurisdictions (with thousands of different tax rates per jurisdiction). In Brazil, local complexities require a specific solution to be used. The EU and countries with similar VAT or GST regimes have different requirements that need specific solutions. As a result, businesses may decide to implement different tax determination solutions depending upon the best fit for each jurisdiction.   

How do companies using SAP currently handle global indirect tax determination? 

Many multinationals will use specific solutions in the US and Brazil whilst in Europe they may handle EU complexities via heavy customisation of their SAP ERP system. This customising can often include using bespoke / complex access sequences and condition records to correctly determine the tax code relevant to each transaction. In mature environments this can lead to hundreds of thousands, if not millions of condition records that need to be created and maintained. As the business grows and develops, this number increases, meaning that it becomes more difficult for IT / Finance / Tax teams to understand and maintain the system. 

Why would you use a hybrid approach as opposed to a global solution? 

The main reasons businesses choose the hybrid model is to manage costs and resources. When implementing an external tax engine as a single global solution, the costs can fluctuate significantly and the more you use it, the more you pay for it.  The cost models for these global solutions can be based on parameters such as billing at a transactional or country level, or based on the value of invoices going through the solution. Companies can reduce costs significantly by only using external tax engines in countries such as the US (which have thousands of rates / jurisdictions) and implementing a more suitable solution in over 100 countries that don’t require the use of a global tax engine.

 Another consideration is the cost of resources required to implement and maintain a global solution. The external interface that tax engines require can be very costly to install and requires additional IT resources to maintain. There is also significant implementation time needed in relation to cleaning up and replicating master data between the SAP ERP and the external tax engine. 

 A further consideration is to implement solutions built specifically to handle the complexities of different jurisdictions from a technical and functional perspective. The traditional external tax engines are primarily built to handle the complexities of US sales tax, and many do not easily adapt to the complexity of local European complexities (particularly intra-EU exemptions and simplifications). 

 There is also the issue of data security. As mentioned above the external tax engines move data from companies ERP systems via external interfaces to external data centres. This can cause major concern for IT departments.  

What is the Meridian suggestion to solve this problem. 

Many companies, because of the reasons stated above, initially start implementing a global solution, but then use Meridian’s solution as they see this as an easier option to implement and maintain for Europe and over 100 other countries. The benefits these clients have seen are as follows: 

  • Implemented faster and more cost effectively as no external interface
  • Annual running cost of the external tax engine can be significantly reduced by removing over 100 countries revenues and transactions
  • Scalability and flexibility – one licence per SAP instance with fixed prices
  • Meridian are the SAP tax experts - solutions built specifically for SAP
  • Built specifically for EU complexities and have more off-the-shelf functionality
  • No data security issues as implemented within the companies own SAP landscape
  • Uses standard SAP master data and no data replication is needed i.e. commodity codes 
  • Limited training as the Meridian uses standard AP and AR SAP screens.
  • Maintenance and support via a Jira helpdesk   

Contact us to discuss how a Hybrid Tax Engine could work for you