Welcome to the Financial Excellence Stream - … short background: • SAP designed tax determination logic over 25 years ago • Back then, VAT was a relatively simple tax: – VAT

Welcome to the Financial Excellence Stream

Sponsored by:

Configuring SAP for European VAT – Implementation tips and tricks from the experts

Birmingham 26 November 2013

11/29/2013 3

Roger Lindelauf Director ERP VAT Consulting

Meridian Global Services

Ryan Ostilly

Commercial Director – Tax Technology

Meridian Global Services

Your Speakers

© 2013 Meridian Global Services. All rights reserved.

Speakers

Agenda

Part 1 : 10h45 – 11h30

How to automate typical, complex VAT flows in SAP

Introduction to tax determination in SAP

Case 1: Drop shipments

Case 2: Triangulation

Case 3: Customer pickups (EXW deliveries)

Tip: Avoid complexity in condition records

Case 4: Services

Part 2 : 11h35 – 12h20

Plants Abroad – a step by step implementation guide

Automating VAT determination on AP invoices (PO’s and IDOCs)

11/29/2013 4 © 2013 Meridian Global Services. All rights reserved.

Workshop Objectives

What we will present:

Day-to-day, simple business flows, that occur in your organisation

Executed in a standard SAP system

Revealing some of SAP’s shortcomings in VAT determination

Presenting possible solutions to overcome these

What we aim to achieve:

Discover where and why standard SAP will not correctly determine VAT

Apply this knowledge to your business and assess impact

Discover ‘best practice’ solutions to overcome these challenges


Agenda

Part 1 : 10h45 – 11h30







Case 4: Services

Part 2 : 11h35 – 12h20




A short background: • SAP designed tax determination logic over 25 years ago

• Back then, VAT was a relatively simple tax:

– VAT treatment on most EU cross-border trade of goods treated as ‘exports’

– Little concept of cross-border VAT registrations

– No Intra EU exemptions, simplifications, triangulation, Intrastats , EC Sales lists, etc.

– No requirement for ‘Plants Abroad’ for intra-company, cross-border stock movements

• But the world has since changed:

– EU VAT rules and disclosure requirements have changed significantly and regularly

– Businesses have become more international

– Migration to common ERP platforms and standards

– Supply-chain and corporate restructuring is common practice

– Greater focus on indirect tax compliance

• Tax logic in SAP has not changed fundamentally in 25 years

Introduction to VAT determination in SAP


Standard SAP: Output VAT determination

Tax

Destination

Country

Basic characteristics for output tax determination

Based on ‘Tax Departure Country’

Based on ‘Tax Destination Country’

Classification of your customer (liable, not liable, same fiscal entity, etc)

Classification of your material (high, low, zero rated, service, etc)

VAT registration number (EU relevant)

Customer

Material

Tax

Departure

Country

Tax treatment (VAT code)

VAT ID

Access Sequence

Condition Records Logic engine

Master Data


Access sequence (simplified)

or

Cross border transaction ?

Domestic transaction ?

Tax condition records



Departure

country

Destination

country

Customer tax

class.

Material tax

class.

Validity

period

Tax

%

Tax code

+ + + + = Tax code + %

If one of the characteristics above is incorrect the wrong tax rule and percentage will be determined

Tax condition records



Master data

VAT ID number of your customer

Domestic VAT ID

Foreign VAT ID numbers of your customer


Foreign VAT ID’s

Master data

Classification for VAT of your customer


Master data

Classification for VAT of your material


Agenda

Part 1 : 10h45 – 11h30







Case 4: Services

Part 2 : 11h35 – 12h20




Case 1 Drop shipment from the UK and

an onward domestic sale within Belgium


Case 1

VAT treatment for the above commercial invoice for VAT:

Domestic sale Belgium 21% VAT

Sold-to/Payer 190000

‘BE customer’

BE

Company code BE10

Commercial Invoice

Goods

Intercompany Invoice

Company code UK01

Plant UK01

UK

Ship-to 190000 BE customer


Case 1

Departure country

Destination country

CTC MTC VAT ID Tax code

Tax code description

BE BE 1 1 BE0000009797 B3 BE: 21% output VAT

Expected result in UAT:


‘BE customer’

BE

Company code BE10

Commercial Invoice

Goods


Company code UK01

Plant UK01

UK



Case 1

Question: How will standard SAP treat the commercial invoice for VAT?

a) 21% domestic VAT BE

b) 20% domestic VAT UK

c) Exempt (0%) due to an Intra-Community supply of goods from UK to BE


‘BE customer’

BE

Company code BE10

Commercial Invoice

Goods


Company code UK01

Plant UK01

UK



Case 1

Answer: How will standard SAP treat the commercial invoice for VAT?

a) 21% domestic VAT BE

b) 20% domestic VAT UK

c) Exempt (0%) due to an Intra-Community supply of goods from UK to BE


‘BE customer’

BE

Company code BE10

Commercial Invoice

Goods


Company code UK01

Plant UK01

UK



Case 1

How did standard SAP arrive at 0% Intra Community supply from UK to BE?

1) The destination country is determined as BE (from the ‘ship-to’)

2) The legal partner for VAT is customer 190000

3) SAP determines the country of the delivering plant as the tax departure country (UK)

4) SAP determines 2 different EU countries, with respective VAT IDs and wants to treat this

as an Intra-Community supply of goods


‘BE customer’

BE

Company code BE10

Commercial Invoice

Goods


Company code UK01

Plant UK01

UK



Requirements for Access sequence steps Standard SAP

1: Export / Intra EU:

Extensive

Is the departure country different from the destination country?

Is the departure country and the destination country within the EU?

Does your customer have a VAT ID number?

NO

Yes

Yes

Yes

NO

2: Domestic NO

2: Domestic

Departure

country

Destination

country

Customer

tax class.

Material

tax class.

Tax

%

Tax code

GB BE 1 1 0% Intra community supply


Case 1

Case 1


‘BE customer’

BE

Company code BE10

Commercial Invoice

Goods


Company code UK01

Plant UK01

UK


Business case in SAP


Case 1 - Invoice Header / VAT ID


Case 1 - Condition Analysis


Export step selected (incorrect) Departure country = “GB”

Case 1 - Selected Tax Condition Record


Condition record selected Incorrect tax percentage Due to incorrect tax departure country Incorrect tax code

Case 1


Departure country

Destination country



GB BE 1 1 BE0000009797 GA GB: Intra community supply of goods

Actual result in UAT:

Departure country

Destination country



BE BE 1 1 BE0000009797 B3 BE: 21% output tax


‘BE customer’

BE

Company code BE10

Commercial Invoice

Goods


Company code UK01

Plant UK01

UK


X


Case 1

How to ensure that the correct tax departure country is determined?

(a) dummy condition records / additional fields in access sequence; or

(b) customise SAP to force the departure country = country of Company Code; or

(c) implement a flexible (table based) modification to derive the correct tax departure

country based on various characteristics (best practice)


‘BE customer’

BE

Company code BE10

Commercial Invoice

Goods


Company code UK01

Plant UK01

UK


Note: Make sure, that if the tax departure country is re determined, also the CTC

and MTC is re determined, as these are based on the tax departure country


Case 1


‘BE customer’

BE

Company code BE10

Commercial Invoice

Goods


Company code UK01

Plant UK01

UK




Case 1 - Condition Analysis


Departure country = “BE” Domestic step is now selected

Case 1 - Selected Tax Condition Record


Condition record selected Based on correct departure country Correct tax code selected Correct VAT rate applied

Case 1


Departure country

Destination country




Actual result in UAT after system modifications:

Departure country

Destination country





‘BE customer’

BE

Company code BE10

Commercial Invoice

Goods


Company code UK01

Plant UK01

UK



Agenda

Part 1 : 10h45 – 11h30







Case 4: Services

Part 2 : 11h35 – 12h20




Case 2 – Triangulation

Specifics around Triangulation and (external) party suppliers

Country specific rules : is triangulation allowed in all cases?

If the entity (either affiliate or external party) that delivers the goods is not configured on

your SAP system, the ‘departure country’ in not known during the sales order process /

billing process

Solution

Option 1: train sales order staff to manually determine ‘Triangulation’

Option 2: teach SAP to recognise triangulation deals and the corresponding country

specific rules


Case 2

Party 'B’ applies triangulation, and exempts the transaction from VAT

Standard SAP requires manual intervention to achieve this

The user must ‘tick a box’ in the sales order to indicate a triangular deal

Consider the following complications….

UK01 Party “A”

VAT Reg in UK

Customer Party “C”

VAT Reg in NL

NL UK

BE10 Party “B”

VAT Reg in BE

BE

Goods

Intercompany invoice

Commercial invoice


Case 2

Party 'B’ cannot apply triangulation, as it is VAT registered in NL (country ‘C’)

Party 'B’ must report an acquisition in NL

As Party 'B’ is not established in NL, it needs to apply the extended reverse-charge

Consider a further complication…......

UK01 Party “A”

VAT Reg in UK


Established in NL VAT Reg in NL

NL UK

BE10 Party “B”

VAT Reg in BE and

VAT Reg in NL

Goods


BE

Commercial invoice


Case 2

Party 'B’ cannot apply triangulation, as it is VAT registered in NL (country ‘C’)

Party 'B’ must report an acquisition in NL

As Party 'C’ is not established in NL, Party 'B’ cannot apply the extended reverse charge.

Party 'B’ must therefore apply domestic NL VAT at 21%

UK01 Party “A”

VAT Reg in UK


NOT Established in NL Only VAT Reg in NL

NL UK

BE10 Party “B”

VAT Reg in BE and

VAT Reg in NL

BE

Goods


Commercial invoice


Case 2

Solution option 1: Manual intervention

Sales order staff or customer services representatives (CSR) are responsible

for setting up sales orders in SAP.

In order to apply the correct VAT rules in standard SAP, train the CSR to

recognise possible ‘Triangular deals’ and train them to apply all various country

specific rules.

If they still can remember and apply correctly all relevant rules, train the CSR

to manually check the box ‘EU triangular deal’ within the sales order.


Case 2

Solution Option 1: Manually tick the box ‘EU triangular deal’


Case 2

Departure

country

Destination

country

Validity

period

Tax

%

Tax code

Departure

country

Customer

tax class.

Material

tax class.

Validity

period

Tax

%

Tax code

Step 1: Export / Intra EU: Reduced

Step 2: Domestic

Departure

country

Destination

country

Customer

tax class.

Material

tax class.

Validity

period

Tax

%

Tax

code

Step 3: Export / Intra EU: Extensive

Departure

country

Destination

country

Customer

tax class.

Material

tax class.

Triang. indicator

Tax

%

Tax

code

New step: Export / Intra EU: Extensive + Triangulation indicator

Additional: Define a new access sequence step to include the ‘EU Triangular deal’ indicator


Case 2

Solution option 1: Manual intervention

The sales order staff in your company are expected to:

be VAT experts in determining the correct rules for each transaction; and

never get it wrong!

Solution option 1 works, but is a high risk solution and therefore

not considered to be a ‘Best Practice’ solution


Case 2

Solution option 2: Modify the system - Supply of goods either by affiliated company,

customized on SAP or by a third party supplier/affiliate not on SAP

Implement a combination of tables and logic

In cases where the delivering party is configured as an entity on SAP:

implement logic to detect possible triangular flows

implement tables, that specify the country specific simplification rules

(triangulation as well as Extended reverse charge)

implement logic to, based on the above, set the triangulation indicator in the sales

order in an automated way.

In cases where the delivering party is an external supplier:

implement a special partner role to represent the external supplier.

add this new partner role to each sales order that is being delivered by this

external supplier

add the new partner role into the above logic to correctly determine whether or

not the transaction could be a possible triangular flow


Case 2

Solution option 2: Modify the system - Supply of goods either by affiliated company,

customized on SAP or by a third party supplier/affiliate not on SAP

Implement a combination of tables and logic (cont..)

Advantages

Only tables, containing country specific rules, need to be updated. This will only be

the case whenever a country decides to change its legislation

All changes in your business processes (new entities, new logistical routes etc) or

changes in your customer data base (changed ship-to’s, new customers etc) will be

automatically included into the triangulation functionality

Disadvantages

Fairly complex logic to build into SAP


Agenda

Part 1 : 10h45 – 11h30







Case 4: Services

Part 2 : 11h35 – 12h20




Case 3 – Customer pick-ups

Specifics around Customer pick-ups, where goods leave the country

To exempt the transaction from VAT because of either an Intra community

supply or an export, you must obtain proof that the goods left the country.

Check which party is performing the customer pick-up. VAT determination for

party ‘B’ or party ‘C’ customer pick-ups is different.

Solution

Option 1: train sales order staff to manually determine the correct VAT

treatment for customer pick-ups

Option 2: teach SAP to recognise customer pick-up transactions


Case 3 – Customer pick-ups (A)

Party ‘A’ arranges and pays for the transport

Party ‘A’ can prove that the goods left BE and may thus exempt this transaction as an

Intra Community supply of goods

Consider the following complications….

Customer Party “B”

VAT Reg in NL

NL

BE10 Party “A”

VAT Reg in BE

BE

Goods

Commercial invoice

Party ‘A’ arranges and pays for the transport


Case 3 – Customer pick-ups (B)

Party ‘B’ arranges and pays for the transport

Party ‘A’ must receive proof from Party ‘B’ that the goods left BE before Party ‘A’ can

exempt this transaction as an indirect dispatch

If no proof is obtained, Party ‘A’ will need to treat this as a domestic transaction in BE

Consider the following (additional) complications….


VAT Reg in NL

NL

BE10 Party “A”

VAT Reg in BE

BE

Goods

Commercial invoice

Party ‘B’ arranges and pays for the transport


Case 3 – Customer pick-ups (C)

Consider 3 parties in the supply chain:

Party 'B’ applies the triangulation simplification and exempts this transaction from VAT

For details around Triangulation, see Case 2

Consider the following (additional) complications….

UK01 Party “A”

VAT Reg in UK


VAT Reg in NL

NL UK

BE10 Party “B”

VAT Reg in BE

BE

Goods


Commercial invoice

Party ‘A’ arranges and pays for Transport


Case 3 – Customer pick-ups (D)

Party 'C’ arranges and pays for the transport

Party 'A’ (interco. invoice) applies domestic UK VAT, as this becomes “non-moved leg”

Party 'B’ will need to be VAT registered in the UK and can either:

exempt the transaction from VAT as an indirect dispatch (with proof of dispatch, see D1); or

apply domestic UK VAT (see D2)

UK01 Party “A”

VAT Reg in UK


VAT Reg in NL

NL UK

BE10 Party “B”

VAT Reg in BE

BE

Goods


Commercial invoice

Party ‘C’ arranges and pays for Transport


Case 3 – Customer pick-ups (D1)


Party 'B’ needs to be registered in the UK and can exempt the transaction from VAT as

an indirect dispatch as it obtained proof from ‘Party 'C’’ that the goods left the country.

UK01 Party “A”

VAT Reg in UK


VAT Reg in NL

NL UK

BE10 Party “B”

VAT Reg in BE & UK

BE

Goods


Commercial invoice





Party 'B’ needs to be registered in the UK and needs to perform a domestic transaction if

it did not obtain the proof from Party 'C’ that the goods left the UK.

Party 'C’ would then need to be registered for VAT in the UK and needs to perform a

movement of own goods from UK to NL.

UK01 Party “A”

VAT Reg in UK

Warehouse Customer Party “C”

NL UK

BE10 Party “B”

VAT Reg in BE & UK

BE

Goods


Commercial invoice



VAT Reg in NL


Case 3 – Customer pick-ups

System implications for the previous flows


Case 3 – Customer pick-ups (A)

Standard SAP can correctly determine an Intra Community Supply of goods within this

business flow


VAT Reg in NL

NL

BE10 Party “A”

VAT Reg in BE

BE

Goods

Commercial invoice



Case 3 – Customer pick-ups (B)

Standard SAP will always determine an Intra Community flow.

If Party 'A’ cannot obtain proof that the goods have left the country, SAP needs to be

instructed to determine a domestic, BE transaction:

Option 1: Train the CSR to change the destination country in the sales order

Option 2: Teach SAP how to recognize these flows and then automatically change

the destination country by using system-driven logic


VAT Reg in NL

NL

BE10 Party “A”

VAT Reg in BE

BE

Goods

Commercial invoice

Party ‘B’ arranges and pays for Transport


Case 3 – Customer pick-ups (C)

See the Case 2 (Triangular deal scenarios) for the various solution options

UK01 Party “A”

VAT Reg in UK


VAT Reg in NL

NL UK

BE10 Party “B”

VAT Reg in BE

BE

Goods


Commercial invoice




UK01 Party “A”

VAT Reg in UK


VAT Reg in NL

NL UK

BE10 Party “B”

VAT Reg in BE & UK

BE

Goods


Commercial invoice


The intercompany invoice


The destination country for the intercompany invoice needs to be changed to GB

This needs to be system-driven logic, as intercompany invoices are normally created in an

overnight batch process. CSR’s will not be able to influence the VAT treatment for intercompany

invoices



UK01 Party “A”

VAT Reg in UK


VAT Reg in NL

NL UK

BE10 Party “B”

VAT Reg in BE & UK

BE

Goods


Commercial invoice


The commercial invoice: Party 'B’ obtains proof of transport (indirect dispatch)

Party 'B’ must perform an exempt Intra Community supply of goods, using its UK VAT

registration number!

The departure country for the commercial invoice needs to be changed to GB

Either train the CSR to change the tax departure country in the sales order or implement system

logic to determine a different tax departure country for this flow.



UK01 Party “A”

VAT Reg in UK


NL UK

BE10 Party “B”

VAT Reg in BE & UK

BE

Goods


Commercial invoice



VAT Reg in NL

The intercompany invoice


The destination country for the intercompany invoice needs to be changed to GB

This needs to be system-driven logic, as intercompany invoices are normally created in an

overnight batch processes. CSR’s will not be able influence the VAT treatment for intercompany

invoices



UK01 Party “A”

VAT Reg in UK


NL UK

BE10 Party “B”

VAT Reg in BE & UK

BE

Goods



The commercial invoice: Party 'B’ does not obtain proof of transport

Party 'B’ must perform a domestic transaction in the UK , using its UK VAT registration

number!

The departure AND destination country for the commercial invoice needs to be changed to GB

Either train the CSR to change both countries in the sales order or implement system logic to

determine the correct countries for this flow.

Commercial invoice


VAT Reg in NL


Agenda

Part 1 : 10h45 – 11h30







Case 4: Services

Part 2 : 11h35 – 12h20




Case 4 – Commercial invoice

Adding access sequence steps and additional characteristics into condition records: - Adds undesired complexity into tax condition records - Multiplies number of tax condition records - Maintenance and control becomes inefficient and expensive - Increases risk of incorrect tax treatment on invoices

Dep cntry

Dest cntry

Plant Sales org

Div

Distr chan

Triang. indic.

Sold-to Ship-to Inco term

CTC MTC Tax%

Tax code

BE NO 1 1 0 A1

BE NO NO01 1 1 25 B2

BE NO BE10 BE10 1 1 21 A7

BE NO NO01 BE10 10 1 1 25 B3

BE NO BE10 BE10 10 01 1 1 21 A7

BE NO UK01 UK01 10 01 190000 190000 1 1 0 X5

BE NO BE10 BE10 10 01 190000 190000 1 1 0 Z8

BE NO UK01 BE10 10 01 190000 290771 1 1 0 Z8

BE NO UK01 BE10 10 01 190000 290771 EXW 1 1 21 1C

Imagine 10,000 records like this, spread over 15 access sequence steps:

TIP: Limit the number of extra characteristics in access sequences. Only expand if absolutely necessary


Agenda

Part 1 : 10h45 – 11h30


⁞ Introduction to tax determination in SAP

⁞ Case 1: Drop shipments

⁞ Case 2: Triangulation

⁞ Case 3: Customer pickups (EXW deliveries)

⁞ Tip: Avoid complexity in condition records

⁞ Case 4: Services

Part 2 : 11h35 – 12h20




Case 4 – Services

Specifics around Services

Place of supply rules 2010 for (default) services: The ‘tax destination country’ needs to be

“the country of establishment” of your customer

Standard SAP: The tax destination country is the country of your Ship-to

Not all services are default services, and the place of supply varies

Possible solution

Create specific material tax classifications for various services

Modify the system to determine the correct ‘tax destination country’ in case of services

based upon those material tax classifications

Create specific tax codes for services ‘Inside EU’ and ‘Outside EU’

Create specific tax condition records to determine the correct tax codes


FR

Sold-to/Payer ‘Cust.Belgium’

BE

Company code BE10

Plant BE10 Service Machine at a French site of

the Belgian customer

Case 4 – Services

VAT treatment for the above Commercial invoice for VAT:

‘Domestic 21% VAT Belgium’

(because the Belgian customer is established in Belgium)

Invoice


Case 5 – Services

Solution: Option 1

Manually change the tax destination country in the sales order

Advantage

No system modification necessary

Disadvantage

Risk and inefficiency: non-tax experts manually manipulating tax treatment


Case 4 – Services

Solution: Option 2

Implement the SAP notes as SAP issued on the new place of supply rules

The SAP notes describe 2 possible solutions:

a) modification based upon item category.

b) modification based upon material tax classifications

Advantage

SAP predefined sample coding for the place of supply rules

Disadvantage

Option (a) “item category” – does not use VAT relevant characteristics. SAP

introduces yet another way to determine VAT which adds unnecessary complexity

Option (b) “material tax classification” is a hard coded system modification


Case 4 – Services

Solution: Option 3

Implement a more flexible, table-based solution, based on the MTC

Determines the correct destination country based upon the new place of supply

rules

Advantage The solution can be flexible and can deal with all different kinds of services

Disadvantage Goods and services still need to be split over multiple invoices


Agenda

Part 1 : 10h45 – 11h30







Case 4: Services

Part 2 : 11h35 – 12h20




UK01 is registered for VAT in country UK

UK01 is registered for VAT in country BE

Plants Abroad, One Company Code, Foreign VAT Registration

Plants Abroad in SAP

Company code UK01

Plant BEA1, Based in Belgium

Plant UK01, based in the UK

Business requirements


Stock movement

Intra company stock movement

Business requirements


Company code UK01




Why and what does it do?

To be used if you have warehouses or

distribution centres in an EU country, other

then the country of establishment of your

company code

Enables VAT and ECSL reporting for your

foreign VAT registrations

Automates all VAT and Intrastat postings for

Intra-company, cross border transfers of stock



After activation of Plants Abroad, you notice the following major

changes in SAP:

A new field is added to the tax code properties, representing the ‘reporting

country’. This reporting country is used within the selection criteria of the VAT

return report and EC Sales list

The programs for running the VAT return report and the EC Sales list are

adapted with the reporting country

The VAT return report is enhanced to report in the correct country specific

currency




Cross border – Intra Company Stock Transfers


Stock movement

Plants Abroad invoice (WIA): Stock movement from foreign plant to domestic plant



Company code UK01



UK Belgium

UK01 needs to report VAT and INTRASTAT since this is a cross-border goods flow

To support above flow and above requirements, a ‘dummy’ invoice has to be created.

(Plants Abroad invoice: WIA)


Standard price from material master

0% Intra community VAT in BE

100% rebate of the calculated VPRS

Calculation of the INTRASTAT value

Credit posting 20% acquisition tax in GB

Debit posting 20% acquisition tax in GB

Plants Abroad invoice (WIA) pricing procedure




NOTE: The total sum should always be zero.

No posting in A/R should be made for a dummy invoice, only a G/L posting!

Plants Abroad invoice (WIA) pricing procedure










Plants Abroad invoice (WIA2): VAT postings




The condition type WIA2 represents the VAT postings for the intra-Community sale.

In the example, it would determine the condition record below:

Plants Abroad invoice (WIA2): VAT postings




From the previous tax condition record, tax code

‘XA’ is determined for the output tax from Belgium

Within tax code ‘XA’, reporting country BE

has been set for VAT reporting

Plants Abroad invoice (WIA2) : VAT Postings










Plants Abroad invoice (WIA1 / WIA3): VAT postings




Issue:

Within MM / FI we are able to post

acquisition VAT with 1 tax code.

This is also possible within SD if the

condition WIA3 is referenced to

WIA3

Plants Abroad invoice (WIA3, WIA1) : Reference WIA3 to WIA1




Plants Abroad invoice (WIA3, WIA1) : Reference WIA3 to WIA1



Transaction V/06: Change condition type WIA3:


The condition type WIA1 and WIA3 represent the Acquisition tax.

In the example we would create below condition record for condition WIA1

Plants Abroad invoice (WIA3, WIA1) : Intra-Community Acquisition VAT Postings



The condition type WIA3 doesn’t need to be created as it is referenced to WIA1


Tax code GL

Plants Abroad invoice (WIA3, WIA1) : Intra-Community Acquisition VAT Postings





Interface Between Sales & Distribution and Finance




SAP - SD SAP - FI

INVOICE Accounting document

The interface

Interface


Tax determination in SAP-SD


Stock movement

Company code UK01



The delivering plant in the SD module is plant BEA1

The country of this plant is BE

SAP uses this delivering plant to determine the tax departure country

The tax procedure assigned to BE is TAXB

Condition WIA2 (0% Intra community supply from BE to GB) will determine tax code XA. Tax code XA needs to be configured in tax procedure TAXB


Tax determination in SAP-FI


Stock movement

Company code UK01



The billing document is transferred via an interface from SAP-SD to SAP-FI

In SAP-FI, the accounting document is generated for the billing document

SAP-FI has no plant information, it only recognizes the company code in which the posting is created

The tax departure country therefore is determined from the company code, not from the plant (like in SD)

The country of the UK01 company code is GB (In SAP-SD this was BE)

The tax procedure assigned to GB is TAXGB (In SAP-SD this was TAXB)


Tax determination in SAP-FI


Stock movement

Company code UK01



The tax code ‘XA’, determined in SAP-SD now needs to be determined from another tax procedure!

Within SAP-SD, the tax procedure was TAXB, within SAP-FI the tax procedure is TAXGB

Tax code ‘XA’ thus needs to be created in both tax procedures TAXGB as well as TAXB

This leads to double maintenance of tax codes while using Plants Abroad


VAT code determination in SD differs from FI, so double maintenance of tax codes.

Example for tax code XA (WIA2 condition, 0% intra community supply from BE)



SD

Tax departure country = country of plant

Country of plant = BE

Tax procedure for country BE = TAXB

For the purpose of tax condition records:

Tax code XA needs to be created in TAXB

Tax (departure) country = country of

company code

Country of company code = GB

Tax procedure for country GB = TAXGB

For the purpose of postings in the G/L:

Tax code XA needs to be created in TAXGB

FI


Cause of the issue of double maintenance of tax codes and the solution for avoiding double maintenance


CAUSE

The use of country specific tax procedures (every country uses a separate tax procedure)

Solution

Assign to every (EU) country the same tax procedure (a common tax procedure used by all (EU) countries, like tax procedure TAXEU)



Sales From a Plant Abroad


UK BE

Commercial

invoice (F2)

Goods

Since UK01 is registered for VAT in Belgium, the commercial invoice

needs to be created with 0% “extended reverse-charge” VAT in Belgium

Company code UK01

Customer established and VAT registered in BE

Plant BEA1 (belongs to cc UK01)




Specifics around Extended reverse Charge rules

If you are a “non-established entity” i.e:=> you are established in country ‘A’, but VAT

registered in member state ‘B’, and/or ‘C’ etc..)

You may be obliged to apply the ‘Extended Reverse Charge’ – depending on the

specific country

This means, that instead of applying local VAT on your taxable supplies, you would not

charge VAT

Your customer (depending on his status) would have to ‘self-assess’ the VAT via the

reverse-charge

You would have a legal requirement to mention this on your sales invoice (billing

document)




Expected result:

Commercial invoice 1: Domestic BE VAT 21 %

Commercial invoice 2: Extended reverse Charge BE 0%

This result can only be reached if the customer tax classification for company code

BE10 differs from the customer tax classification of company code UK01

Commercial Invoice 1

Company code UK01

BE UK

Company code BE10

UK Established / VAT registered

Plant BEA1 (BE Foreign

Registration of UK01)




Customer established and VAT registered in BE


Customer master data in SAP is company code independent

and only allows 1 customer tax classification per tax departure country:


Company code UK01

Customer registered in BE

BE UK

Company code BE10








Solution: Option 1

Manually change the CTC (customer tax classification) in the sales order

Advantage

No system modification necessary

Disadvantage

Risk and inefficiency: non-tax experts manually manipulating tax treatment




Solution: Option 2

Customer number/sales organisation included in access sequence

Advantage

No system modification necessary, only customisation of access sequence steps

Disadvantage

Complexity and risk: condition records become too complex, not best practice




Solution: Option 3

Modification to SAP’s VAT determination logic

Implement the Extended reverse charge rules into the VAT determination

logic, considering the country specific rules

The country specific rules are controlled via tables (flexibility in case rules

change)

Advantage

Completely automated solution for extended reverse-charge rules

Easy to maintain (Only the country specific rules needs to be maintained)

Disadvantage

Complexity modification in high risk user exit





Company code UK01

Customer registered in BE

BE UK

Company code BE10










Sales From a Plant Abroad: Commercial invoice 1 – Header / VAT ID



Sales From a Plant Abroad: Commercial invoice 1: Pricing analysis



Sales From a Plant Abroad: Commercial invoice 1: tax condition record


Condition record selected Characteristics are correct


Sales From a Plant Abroad: Commercial invoice 2 – Header / VAT ID



Sales From a Plant Abroad: Commercial invoice 2: Pricing analysis


Dynamic change of CTC to “V” Drives different VAT treatment


Sales From a Plant Abroad: Commercial invoice 1: tax condition record


Condition record selected Tax departure country is correct Special CTC of “V” drives tax decision for Extended

Reverse Charge Correct tax code BF determined


VAT Return Reports and EC Sales Lists


To facilitate the selection of multiple

countries for 1 Company Code , SAP

has extended the VAT report

Properties tax code XA

Using the reporting country in reporting


Monthly VAT reporting and Plants Abroad


Company code UK01

Plant UK01

Plant BEA1

Plant PLA1

Plant SEA1

VAT report for the UK Tax authorities

VAT report for the Polish Tax authorities

VAT report for the Belgium Tax authorities

VAT report for the Swedish Tax authorities

In GBP !

In PLN !

In SEK !

Using the daily average

rate of the European

Central Bank

Using the monthly

average rate of the

European Central Bank

All postings done in

UK01 are in GBP, so we

have to convert the

amounts

In EUR !

Example Monthly Reporting for UK01



To facilitate the conversions to

country currencies, SAP has

extended the VAT report:

NOTE: Plants Abroad creates

possibilities to manage these

currencies correctly

Managing different reporting currencies




To facilitate the reporting per

country in which the company is

VAT registered, SAP has

extended report RFASLM00

transaction S_ALR_87012400:

Quarterly VAT reporting: EC sales list and Plants Abroad




Agenda

Part 1 : 10h45 – 11h30







Case 4: Services

Part 2 : 11h35 – 12h20




Tax code determination in purchase orders

• Option 1: Tax code is set in purchase order

• Option 2: Tax code is determined via condition record technique in PO

• Option 3: No tax code in purchase order

VAT determination in Purchase orders


Option 1: Tax code is set in purchase order

• Manual VAT determination by purchase staff

• No automation necessary in SAP



Option 2: Tax code is determined via condition record technique in PO

• No manual VAT determination by purchase staff

• Automation in SAP, using condition record technique, similar to Sales transactions



Issues:

a) Destination country in purchase orders

destination country in the PO “import data” is used within the tax condition records

within the “import data” screens of a PO line item, the country of destination is

determined based on the country of the receiving plant.

The receiving plant is not necessarily the destination country.

b) Departure country in purchase orders

the departure country as used within the tax condition records is retrieved from the

dispatch country within the import tab.

if the purchase order contains a partner role ‘GS’ (Goods supplier), the country of the

goods supplier is determined as departure country.

if there is no Goods supplier, the country of the vendor is used as departure country



Issues:

c) Import Indicator

SAP uses a so called import indicator within the condition record technique.

This indicator represents either:

– ‘0’ No import (domestic)

– ‘1’ Import from outside EU

– ‘2’ Import within EU

As the destination country and the departure country are doubtful, the import indicator

cannot be used

d) Missing EU rules

Within the condition record technique, no logic is available for:

– domestic reverse charge, EU triangular deals, s

– special regions within the EU

– Etc.



Option 3: No tax code is set in purchase order

Tax code is determined via:

manual during invoice receipt

automated via EDI – IDOC processing



VAT determination: EDI processing


The tax code for incoming electronic/EDI invoices can be determined via: table T076M (transaction OBCD)

the purchase order

Table T076M contains the partner type

the vendor number

the (vendor) tax code as stated in the electronic/EDI invoice,

the (vendor) tax percentage as stated in the electronic/EDI invoice,

the destination country

Based on above parameters, the tax code for the AP invoice posting is determined IF no tax code is stated on the purchase order



Question 1: Which VAT registration number will this vendor use?

FR

Company code FR10

BE

Belgian Vendor 209000

EDI - AP Invoice

Warehouse BE

Vendor is registered in BE, but also registered in FR

Answer: Could be the BE VAT registration number or the FR VAT registration number?

(a) VAT treatment where BE VAT ID is used: Intra-EU acquisition: +/- 19.6% , self assessed

(b) VAT treatment where FR VAT ID is used: Extended reverse-charge: +/- 19.6%, self-assessed

(a) requires separate disclosure in boxes 03, 08, 20 and 17 of FR VAT return

(b) requires separate disclosure in boxes 3B, 08, 20 of FR VAT return



Partner type

Partner number

Tax type

Tax rate Destination country

Tax code

LI 209000 VAT 0.000 (%) FR QUESTION 2: Intra community acquisition? OR Extended reverse charge?

Standard SAP VAT determination for EDI invoices (via OBCD)

In both cases, a reverse-charge posting needs to be created (debit/credit posting) – but it will need to be a different tax code as this requires different disclosure in the VAT returns

Question 4: Is it goods or services?

(a) VAT treatment where BE VAT ID is used: Intra-EU acquisition: +/- 19.6% , self assessed

(b) VAT treatment where FR VAT ID is used: Extended reverse-charge: +/- 19.6%, self-assessed

Question 3: Which percentage needs to be used: - Standard rate? or - reduced rate? or - super reduced rate?



ISSUES

• Missing EU rules

Extended reverse charge

EU triangular deals

Special regions within the EU

Etc.

No material tax classification available

No plant tax classification available

No departure country available

Incorrect determination of destination country

Etc.



Solution

• Build an extended ‘OBCD’ functionality which contains:

Logic to determine the various EU VAT rules

Determination of material tax classifications

Determination of the correct departure country

Determination of the correct destination country

etc.




Further information

Roger Lindelauf e-mail: [email protected]

phone: +44.208.601.4600

Ryan Ostilly e-mail: [email protected]

phone: +44.208.601.4600

Join VAT for SAP on

www.meridianglobalservices.com

http://www.linkedin.com/groups?mostPopular=&gid=3031854

Disclaimer

The information contained within this presentation is and shall remain the property of Meridian Global Services and its subsidiary and associate companies. This presentation is

supplied in strict confidence and must not be re-produced in whole or in part, used in tendering or for other purposes or given or communicated to any third party without

the prior written consent of Meridian

END

Documents

Welcome to the Financial Excellence Stream - … short background: • SAP designed tax determination logic over 25 years ago • Back then, VAT was a relatively simple tax: – VAT