Customizing R/3 FI for VAT Processing by Roy Brookes, Senior FI/CO Consultant You customize R/3 in three steps.

(Figure 1 is an overview of the configuration process.) The stages are: • Change basic settings • Calculation procedures • Posting

FI Global Settings Tax on Sales/Purchases LEVEL_5 Basic Settings
Check calculation procedure

TCode

Check calculation procedure Check calculation procedure Assign country to calculation procedure Check and change settings for tax processing Fiscal Regional Codes Fiscal Regional Codes Calculation Define taxes on sales/purchases codes Specify base amount Posting Define tax accounts Define account for exchange rate difference posting Allocate tax codes for non-taxable transactions
Figure 1 Configuration steps

Check calculation procedure - condition types OBQ1 Check calculation procedure - access sequences OBQ2 Check calculation procedure procedures OBQ3 OBBG OBCN Define fiscal regional codes for Italy/Spain Define fiscal regional codes for other countries OBAD OBAE FTXP OB69 OB40 OBYY OBCL

Basic Settings, Calculation, and Posting SAP uses condition types (e.g., MWAS sales tax and MWVS input tax) as the basis of a calculation procedure, which enables integration between the SD, MM, and FI modules. Here are the steps:

Create an Access Sequence (MWST Tax Indicator) and underneath it an access code (10 (Table 3) Tax Code). Process NAV Text Tax type Not deductible Posting indicator.standard rate 19. but the Spanish authorities are more relaxed and this is not always required. Create a calculation procedure for each country or jurisdiction for which you need one (for example. Other countries also use fiscal regional codes but without the stringent requirements of Italy (Hamburg (Germany) = 02). this is also necessary for Spain. TAXF = sales tax for France and TAXIT = sales tax for Italy). Process VST Text Tax type Not deductible Posting indicator Output tax 1 Output tax (not used here) 2 Separate line item Non-deductible input tax 2 Input tax (checked in this case) 2 Separate line item Input tax 2 Input tax (not used here) 2 Separate line item For Italy it is necessary to define fiscal regional codes for local reporting (PR 034 = Parma).6% TAXF . These are what the user sees. Procedure TAXF Sales Tax – France: Step 100 110 120 140 150 160 Control 0 0 0 0 0 0 Condition type BASB MWAS MWVS MWVN NLXA NLXV Description Base Amount Sales Tax Input Tax Non-deductible Input Tax Acquisition Tax Credit Acquisition Tax Debit From 100 100 100 100 150 To Next you assign a country to a calculation procedure (AT Austria = TAXAT). You check and change settings for tax processing as follows: Process MWS Text Tax type Not deductible Posting indicator. You are now ready to define tax codes. which defines the calculation steps (TAXF). which will be used in transactions. In theory. Behind this you put a control procedure. Here is the configuration of a tax code: Country key Tax code Procedure FR France D1 Deferred input tax .

Whether or not the tax base is net must be specified by checking the box (yes) or not (no) – e. Several tax codes of like type may share a G/L account.g.g.: UK Germany Checked Unchecked Accounts have to be defined for exchange rate difference postings -. You can maintain these account assignments through transaction code OB40 (maintenance of Table T030K) but this is where they are initially set -." Tip! You can use transaction code FTXP to jump directly to the tax code definition and then use the Environment menu to navigate through the calculation procedure. Target tax code V1 (This is used in connection with deferred tax accounting – see the description of Cash Accounting above – This tax code will transfer input tax to code V1 when the related invoices are paid).g.g.e. automatic postings.: Chart of accounts Process Debit 6011076 SCOA Standard Chart of Accounts KDT Tax exchange rate differences Credit 6011075 Finally. entering a rate of 0 allows you to access the tax accounts field.: . outside the scope of VAT (e. It is also necessary to assign a G/L account to the tax code.type 100 0 BASB 110 100 MWAS 120 100 MWVS 140 100 MWVN 150 100 NLXA 160 150 NLXV Tax type Base Amount Sales Tax Input Tax Non-deductible Input Tax Acquisition Tax Credit Acquisition Tax Debit Behind the VAT code you define its properties: Tax code D1 Deferred input tax .Tax type V Input tax AccKy MWS VST NVV ESA ESE Tax percentage rate 19.600 Level From level Cond.g. You need to put a G/L account behind the tax code even though no posting will be created because the zero-rated codes are defined as output or input tax. tax codes have to be allocated for non-taxable transactions.: Chart of accts Tax code Process VST SCOA Standard Chart of Accounts D1 G/L acct 2120300 Tip! When entering accounts in VAT codes with no tax rate. not as "no tax.. etc.standard rate 19.6% Tax type V Input tax Check (this box is checked if you want SAP to check the calculation as a percentage of the tax base amount) EC code (this box is used to define European Acquisition Tax codes and together with the processes ESA and ESE causes them to create the double posting referred to above). general ledger journal entries between accounts which require a valid tax code) – e.e.

This is the end of the normal customizing in the IMG but there are other customizing functions related to VAT. The most commonly used codes in Italy were looked at before settling on V1 for domestic vendors and E1 for foreign vendors. You can overwrite what is proposed if you want or need to. We gave the chief accountant authorization for this transaction code in conjunction only with his own company code.g. This table links the company codes to the ABAP used to run the document journal RFBELJ10 and to the ABAP used to generate the advance tax return RFUMSV00 (and previously RFUMSV20). It is essential to maintain it or the advance tax return will not run. It is not absolutely necessary to have a default tax code but it has the advantage that the system will propose it when you process an invoice through invoice verification and it saves one step if you simply accept it. A transport request. . and information on tax percentage rates is generated using the function Transport>Export. Here they are defined as being the codes to use for nontaxable transactions. but SAP can only default in one at a time so there is not much point in doing that. and then we created a transaction code to run it.6C) and against the ABAP which runs the document journal (RFBELJ10). It is not completely idiot-proof but it cuts down the likelihood of error. RFUMSV20 for Italy and Spain prior to Release 4. Changes to tax codes are not entered into a transport request automatically. you can try what we did on one of my projects. If this causes an authorization issue (because SM31 allows access to all tables). The table has to be maintained when a new fiscal year is opened and the counters behind it (accessed via the details icon) have to be reset to zero. which contains the tables to be transported. Otherwise the report will not run and the error report does not tell you much except to point you towards Table TRVOR. It is possible to select several codes in transaction code OMR2. It is usual to give authorization for this to a senior accountant so that the SAP implementation team are not called back every year to do it. Tip! It is possible to use transaction code OBCL to jump directly to where these tax codes are defined. The document journal has to be run before the advance tax return and the journal totals and posting date are stored in the details behind Table TRVOR and accumulated for the year-end return. VAT Return configuration When configuring VAT processing it is also necessary to maintain Table TRVOR (with transaction code SM31) and enter the company code and fiscal year against the ABAP which runs the advance tax return (e. but with a zero percentage rate (NB: These are codes with no rate not zero-rate codes). The codes are created in the normal way first. This must be done manually in a separate step as described below. FI Customising – Transaction Code OMR2.Input VN and Output AN. Default tax code for processing incoming invoices. We applied to SAP for an access key for a developer to build a maintenance dialogue just for table TRVOR (it does not exist in standard SAP).. Bingo! Transporting VAT codes Transporting tax codes requires manual post-processing.

etc. The tax percentage rates reach the target system using the function Transport>Import as follows: 1. . but it is the only way to get it 100 percent right (and what else would we settle for?) European VAT Codes in Italy VAT codes. When you read the SAP documentation it becomes very confusing. Program RFTAXIMP generates a batch input session with the name TXnnnnnnnnnn. which determines which tax codes can be used to post items to this G/L account. E1. Processing this batch input session creates the tax percentage rates for the imported tax codes in the corresponding country. If your system landscape is very complex with clients all over the place. In this field you enter a symbol. then you may have to change the order number manually. Under properties you need to put the EC Code 1 to indicate that this is a European code. Without this indicator the codes show as positive and negative input tax not as input and output. it may be useful to enter a tax code. The country entered is proposed and the first order number found which contains tax codes still to be imported is proposed for this country. but what it amounts to is that these input tax codes have to be defined as both input and output by this route. the system will check whether the tax code they have entered in the line item is allowed for this account. Start program RFTAXIMP. are not transported with the above objects. This transport request is imported into the target system using the import program R3TRANS. Example: If you enter "+". all need to be modified in country code IT. (You can also use transaction code FTXP and go Tax code>Import and pull up a list of transports). At the very least. The system will default the specified tax code when users post items to this account. 2. This way the tax codes but not the tax percentage rates are in the target system.The following are transported: • The tax code • Texts for the tax code • Properties of the tax code Tax accounts. where nnnnnnnnnn = order number. 4. Then the double tax entry (debit and credit for the same amount into two different tax accounts) reports correctly when you run the VAT report RFUMSV20. The symbols ">" and "<" are reserved for tax accounts only. Personally. I like to obtain access to each of the target clients and go in and check and correct as necessary. because the transport system is not perfect and things often drop off or get lost. which can also maintained within this transaction. 5. you can only post items with an output tax code to this account. 3. this can be very time-consuming and boring. SAP will shout at you that this is an indicator for output tax although the acquisition tax codes are defined under properties as input tax codes. When users make postings to this account. E2. General Ledger Account Master Records Financial accounting>General ledger>Master records>Company code>Change Care must be taken when assigning tax categories in G/L account master records (screen field SKB1-MWSKZ). If there are several orders for the same country. Note: If you always post items with the same tax rate to this account. an eyeball check in the target clients is necessary.

The usual method of enforcement in a day-to-day sense is the VAT inspection. Usually. 50 percent is non-deductible because it represents the tax on the portion paid on behalf of another person). specific rules define some input tax as nondeductible because it relates to activities that are subject to special fiscal rules. also in Italy. In rare cases. Disagreements can be taken to special courts. They took over the boardroom and demanded to see the books and records for a particular year. and some other activities which would suffer unduly if they had to pay the tax (such as house-building in the UK) are zerorated for VAT purposes.They are then not able to change it. Non-deductible Input tax – In most countries. such as exporting. a financial director was fired and replaced by an American from the parent company. cupboards. he had decided to make life uncomfortable for his successor. On the day the new guy arrived. Zero-Rating – Activities which are encouraged. who wear uniforms and carry firearms. In Italy. Technical Terminology Output Tax – VAT on a taxable entity's sales. laptops under their arms. I have personal experience of the Guardia Fiscale arriving unannounced to carry out a routine VAT inspection on the books and records of an Italian company. This means that the taxable entity declares the activity as taxable transactions but applies tax at zero per cent. Knowing the system. After six weeks -. a standard audit of the registered taxable entity’s books and records that often results in a close-out meeting to discuss any discrepancies. they proceeded to seal the building and go through it very thoroughly. . such as business entertaining (in the United Kingdom if you eat with someone in the course of business and you pay for both meals. You could use this option for the "Domestic trip costs . Acting on a tip-off about wrongdoing. enforcement is carried out by the “fiscal police” (Guardia Fiscale). They have extensive powers of entry and search and can seal files. but prevented the American director and his team from working -. Authorities Have Extensive Power to Enforce VAT Enforcement is carried out by authorities in the various countries of the EU. The police arrived in a number of cars with blue lights flashing. It may deduct input tax as described above and so may end up a net reclaimer of tax. and drawers – even whole buildings if they suspect fraud. Input Tax – VAT on a taxable entity's purchases or expenses.lumpsum taxation" account in Germany. an additional assessment or similar settlement is agreed upon. The next day a second team arrived in exactly the same manner and demanded to see the books and records of a different year. tax officers will call in the criminal police or maintain a close watch on the taxable entity without alerting the company’s officers that they intend to do so. In another case. for example.during which they found nothing.it transpired that their anonymous informant was the disgruntled former finance director. They settled down for the week. so did the Guardia Fiscale. but not in any uniform fashion. which normally may be offset against output tax. This is risky unless you are absolutely sure of what you are doing. and automatics on their hips.

European Acquisition Tax – This is a variation on VAT. Tax Base – This is the amount from which the VAT is calculated. he is now an expert in the field of VAT and European taxes in relation to SAP and has designed and implemented VAT schemes at European and country level during the European rollouts of SAP R/3 in a number of multinational companies.” Roy Brookes is a senior consultant in SAP FI-CO and a qualified accountant and business consultant.de. When VAT is returned to the fiscal authorities. Cadbury-Schweppes-Orangina-Pampryl in France and Lilly Italia. the net effect being NIL but the statistical tax base is updated and the fiscal authorities can see the effects of cross-border transactions. The purchasing company has to account for VAT on its purchase but it can not reclaim input VAT which it has not paid. Greene Tweed. Ferro. including Reichhold Chemicals. When a company sells goods to a customer in another EU country. so the purchasing company declares both input and output tax on the same transaction so as to include VAT payable and create deductible VAT at the same time. prompt payment discounts. National governments decide which activities fall into this category within certain limits. VAT is always a percentage of this amount. You may reach him by email at Roy. Bad Debt Relief – If a customer fails to pay a debt that includes VAT and this VAT has been declared and paid over to the fiscal authorities. it is usually possible to reclaim the VAT from the government subject to certain rules. Net Basis – Cash discounts.Brookes@t-online. Cash Accounting – In some countries it is possible to defer payment of tax to the government until the taxable entity has collected it from the customer. The G/L account(s) making up the VAT account are usually included among current liabilities or split between current assets and current liabilities. Strictly speaking only sales completely outside the EU are considered “Exports” and cross-border trading is regarded as “Intra-Community Commerce. Having worked with VAT during many years in accounting. Taxable entities that opt for this type of treatment cannot deduct input tax until they have paid it to their supplier. This is the point when a supply of goods or services takes place or is deemed to take place – delivery or the issuing of an invoice. Lever-Fabergé. The liability to VAT arises whether or not the transaction is completed or paid for. By declaring both input and output tax in its VAT return it both receives and pays tax. it treats the sale as an export and zero-rates it. the tax base is normally also declared. . finance and business consulting. VAT account – This may consist of a single General Ledger account or several grouped accounts but they have to be properly defined as tax accounts and allow the VAT inspectors to trace all taxable transactions and determine whether the tax liability has been correctly derived from the books and accounted for.Exemption – This means that an activity is outside the scope of VAT. and other such deductions may be net or gross of VAT. Tax Point – point of supply. Most fees payable to government departments are exempt and other taxes are also usually exempt.

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