Integrating Vertex with SAP Ariba: An Overview

Episode 13 of Tax Today: Procurement

Vertex Inc. Procurement Podcast for Businesses

Episode 13 Summary

With the growth of your business, the more complex taxation can be. In episode 13 of Tax Today: Procurement, Geof Gajes, the Vertex product manager for SAP, covers how integrating Vertex with SAP Ariba can take the pain out of tax and vendor management.

SAP Ariba and Vertex have partnered together for many years to provide their customers with accurate tax determination, document management, easy reconciliation, and more. This end-to-end process has benefited thousands of customers, including tax and procurement experts across the globe.

MS. SCHWABENBAUER:  Hi, I’m Kristen Schwabenbauer.  Welcome to Tax Today, a Vertex podcast series.  On today’s episode we are gonna be exploring an overview of the Vertex integration with SAP Ariba.  And our guest is my friend Geof Gajes, the Vertex product manager for SAP.  Geof has a ton of experiences, so we’re really happy to have him.  He’s been working with SAP for Well over 20 years with a cross functional teams in developing and implementing Vertex’s O series global and direct tax solutions with SAP ECC, S/4 HANA, S/4 HANA cloud.  
So Geof, thank you much for joining us.  I’m so happy to have you with us. 
MR. GAJES:  Thanks, Kristin.  My pleasure.  
MS. SCHWABENBAUER:  Great.  So, let’s get started.  I think -- we don’t want to take for granted, you know, current clients that might be listening.  But we also have new clients -- new potential clients and people that just want to get educated as our audience.  So, can you take me through, like, we’ve had such a long really standing great relationship with SAP.  Can you speak to that a little bit for us?  
MR. GAJES:  Yes.  Thanks, Kristen.  We have been partners with SAP for over 30 something years.  When SAP first came to the United States, they realized that taxation within the United States is a little bit more complex than what they’re used to in VAT.  So, they reach out to Vertex.  And Vertex and SAP came up with a solution on how to handle, you know, all the jurisdiction level taxes within the United States, which was a new concept for SAP then.  
And the relationship has evolved.  You know, we started with integrating with R3, then ECC, and now S/4 Hanna.  And now we include all the different applications such as Ariba buyer applications, Concur invoice, and other cloud-related applications that might need the calculation from a tax engine. 
MS. SCHWABENBAUER:  That’s fantastic.  That really helps and is very informative, too.  And I think all those things if I’m correct, fall under your kind of umbrella from a product management standpoint.  So, you’re definitely an expert in this area.  
Now, let’s pivot.  So, there’s a lot of solutions, obviously, with SAP.  Let’s pivot and talk about Ariba.  And, you know, as you mentioned SAP owns Ariba.  And they had -- I want to say back in 2018, we’ve been working on this for a good couple of years, put out an actual tax API.  Talk to me about that and how Vertex worked with Ariba?
MR. GAJES:  Great.  Yes.  Initially, Ariba -- SAP Ariba buyer had what they called version one of their integration.  And that was a simplistic integration that uses the API technology where they only handle the taxes paid to the vendor.  The customers that were requiring such solution were then getting more complicated where when they got exposed to U.S. taxes they understood that there were some taxes that were now not just paid to the vendor, but if they were going to self-assess such actions, there was no solution at that time for version one.  
And version one was limited to state-level taxes as well.  So the discussion came up and the -- we had to tackle the requirement from a taxation perspective where, you know, not only that we handle the state-level taxes, but the lower jurisdictions, as well as taxes paid to the vendor.  And self-assessment as well as VAT type postings where maybe reverse charge is applicable. 
MS. SCHWABENBAUER:  Yeah.  You know, you brought up so many good points.  I almost don’t even know where to start.  I know we could talk about this stuff forever.  I think, you know, some of those things that you mentioned, I think, to -- for our audience, so that they understand is that -- and I think this is one of the things well really try to get at -- get out with this podcast and help our audience understand is just how complicated -- you know, indirect tax and procurement really is.  Especially when you’re talking on a global level.  You know, most companies that are large are significant enough, and they’d be processing hundreds of thousands of -- if not millions of invoices a year.  But then, you know, you’re looking at doing it all over the place.  
So that’s where, you know, Ariba did say, “Hey, guys, we need some help with this.”  You know, all of the ERPs, as well as, you know, the best procurement providers have native functionality.  But the big deal is, “Hey, you need to have first this tax API.”  Right, Geof.  And then, without a tax API we can’t write an integration.  So, you can’t integrate to O series.  So, and they came out with that, that really did help.  But I think that also brought, you know, what we say where everyone’s saying, “Hey.  We need more functionality.”  
And so, I know we worked tirelessly with Ariba product management and development and everything else to get out a more robust product that would really meet the needs. Does that make sense, Geof?
MR. GAJES:  Yes, it does.  And as you said, SAP Ariba on its own is a very good tool for procurement people.  Because it handles the contracts.  It handles the sourcing of vendors.  However, the deficiency was from a tax prospective.  That’s why the -- our friends at Ariba reach out to Vertex.  And they raised their concerns.  And this is where the evolution of their version one API evolved into version two.  However, what we’re talking about here is the SAP Ariba buyer integration with O series.  What we have to keep in mind is there is an end-to-end process when it comes to procurement.  
So, it is one thing to procure the materials that you might need from a specific vendor.  However, how the ERP or your consuming financial system applies to -- within this process is another thing that we might have to discuss in future podcast.  Because an example is a company that uses SAP Ariba buyer might have an SAP or an Oracle system for their GL postings.  
And, you know, from a tax integration perspective, Vertex integrates with those financial systems.  And it also integrates with the Ariba buyer application that the procurement folks might be using.  But as a solution, we have to look at the end-to-end process to complete the procurement process and the GL postings within a financial consuming system. 
MS. SCHWABENBAUER:  Yeah.  That makes a lot of sense.  So, the couple of things that you said there, it is an end-to-end process.  So, we can take a look at, you know, Vertex integrates to Ariba directly.  And Ariba can do so many things from a purchasing perspective.  I mean, it really -- it’s becoming like an ERP for purchasing, right.  And for procurement almost in and of itself.  Which is great, ‘cause it’s giving so much more functionality to purchasing professionals and that whole group and the whole industry that they didn’t have access to.  
But you’re right.  With the end-to-end solution, you can’t quite yet do everything out of Ariba, right.  You still need to reconcile.  You still need to get the data into your GOs.  You still need to, you know, make sure tax folks can make payments back to the jurisdictions and reconcile everything.  And you can’t pay invoices out of Ariba necessarily.  
So I think you do when you -- and I think this is one of the things that you’re really getting at was with -- you can do this implementation and this integration between Ariba and O series, right.  But you need to look at in a bigger picture with your financial technology ecosystem, if you will, as a company, to make sure that you have more of an end-to-end, you know, solution where it’s not just siloed.  ‘Cause you’re not just doing one thing.  Really tax touches everything.  So, you need to take that into consideration.  And you can’t do everything out of Ariba.  So how are you gonna get, you know the payments made?  How are you gonna reconcile a GL?  What are those factors?  am I in line with that, Geof?  Is that also what you’re saying?
MR. GAJES:  Yes.  Exactly.  However, for this podcast, we’re just gonna talk about the Ariba buyer application and its integration with O series on its own.  And in a future podcast, we might talk about how a -- the ERP or the financial consuming system, you know, place into the whole end-to-end process. 
MS. SCHWABENBAUER:  Right.  Right.  That makes sense.  So, could you take us through, then, what the process would be between Ariba and O series for the tax touchpoints if you will?
MR. GAJES:  Sure.  However, before we go there, I just want to highlight what version to Vertex Ariba integration is all about, right.  So, the version two now calculates a purchase requisition, invoice reconciliation, and final tax determination.  And Ariba will also now distinguish the difference between vendor charge taxes, what is buyer payable or self-assess taxes, including that reverse change taxes.  For multiple-level jurisdictions.  
Again, in the past, version one only handled state level in the U.S. but now it has the capability to do the different levels of jurisdictions such as state, county, CT district, and the lower levels that might be applicable.  
And then, the final tax determination for this integration will calculate self-assessed taxes or reverse changes once the final invoice is approved basically.  So, here is a high-level overview of the process.  So, from an Ariba system -- Ariba buyer system, a purchase requisitioner will create the purchase requisition.  This process will then call Vertex for an estimate tax on the transaction.  
Eventually, this purchase requisition will create a purchase order in the SAP Ariba buyer application.  Where that purchase order goes to the vendor.  The vendor now delivers the product.  And then they will create an invoice and will send it to the Ariba buyer portal for invoice reconciliation.  Within this process, the application will then call Vertex again and recalculate taxes.  
‘Cause what might happen at requisition time could be different at the invoice reconciliation time.  Meaning there could be a change of tax rates by the time you had the invoice reconciliation process happening.  So, a tax recalculation is required.  
From there, there is gonna be an approval process of the invoice.  Meaning, it goes through within SAP Ariba buyer application.  It goes through a workflow where either an invoice is rejected or accepted depending on the rules within the purchasing organization.  At that point, the approved invoice then will call Vertex again and that will be the final call to Vertex.  Does that make sense, Kristin?
MS. SCHWABENBAUER:  It does.  And I think that really gives a good overview of exactly what the touchpoints are during the invoice process, but also, you know, invoice approval process.  And, you know, that buyer process, if you will.  But also, you know, how it can benefit, especially for procurement professionals.  So, I appreciate you going through that in such detail.  I think that really -- it should really give our audience some good background at least as they may be looking into Ariba and a Vertex integration to O series.  So, I appreciate that. 
MR. GAJES:  No problem.  So, to summarize, then, I just want to summarize what we just talked about, you know, from that process perspectives.  So, the first process is the purchase requisition and the purchase order.  So, Vertex uses the information from Ariba buyer to provide an estimate of the taxes that will appear on the invoice essentially.  The tax supplied -- the information that is provided at requisition time, that will carry over to the purchase order.  
Then the invoice reconciliation happens where Vertex uses the information from Ariba again on a separate call.  You know, to calculate the taxes and what it should be.  Then Ariba compares the tax calculated to what the vendor charge.  And then if the two doesn’t match. Ariba allows the user to choose which tax is appropriate based on their policy.  
And then, the final determination is once the invoice is finalized, Ariba sends the final invoice tax amount to Vertex.  And then, Vertex calculates again just to make sure that there’s not gonna be a reconciliation process.  However, what the user enters will always win.  Meaning, if the vendor charged ten dollars and the policy for the company is to pay what the vendor charges, that is what matters in the long run.  
MS. SCHWABENBAUER:  Oh, that’s perfect.  So, the -- so then in that sense, too, you’re gonna get some benefits of, you know, I don’t want to say best practices, but really making sure that you’re hitting those KPIs, if you will.  We’ve talked about this in other podcast series where, you know, we want to get as many of these done and have it be as touchless as possible, but it seems like by adding the Vertex integration into this process you’re, you know, taking care of moving things along to get the payments out the door and get things purchased.  But then also making sure you’re covering yourselves from a tax standpoint.  
is that an accurate statement, Geof?
MR. GAJES:  That is correct, Kristen. 
MS. SCHWABENBAUER:  That’s great. 
MR. GAJES:  Yep.  So, in essence, you know, the actions of whoever approves that invoice may pay the vendor as charged or they may underpay. Or, you know, basically, they have to make a decision on what to pay the vendor.  However, between this process, there’s always a reconciliation or a check from Ariba to Vertex.  And the system or the new API would basically warn the user.  For example, if the invoice was for $9,500 and the vendor just charged 5,000, it will provide a warning, and the user has to decide on what to do.  
MS. SCHWABENBAUER:  So, it gives him guidance?
MR. GAJES:  Yep.  
MS. SCHWABENBAUER:  Yeah.  That’s great.  And so, you know, SAP Ariba and Vertex, using those two solutions together we’re helping to empower and enable, you know, the tax professionals to get what they need out of the invoicing process.  That payment process or -- and also the procurement professionals.  So that’s -- I think that’s fantastic.  And that’s definitely the goal at Vertex.  
So that will do it for today’s show.  I’d like to thank Geof Gajes for joining me today.  Geof, thank you for taking the time.  
MR. GAJES:  My pleasure, Kristin.  
MS. SCHWABENBAUER:  Great.  And thanks to our listeners.  Make sure you tune in for our next episode when we’re gonna be discussing consumer use tax audits, pain points, and how to address them.

About the Series

Still haven’t cracked the code on indirect tax and procurement? Let us help. On Tax Today, a Vertex podcast series, host Kristin Schwabenbauer holds enlightening discussions with tax, IT, and procurement specialists focused on shaping tax in the procure-to-pay process. Tune in every week for words of wisdom to help you transform tax.

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