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Configuring SAP for European VAT – Implementation tips and tricks from the experts
Birmingham
26 November 2013
Speakers Your Speakers
Roger Lindelauf
Director ERP VAT Consulting
Meridian Global Services
Ryan Ostilly
Commercial Director – Tax Technology
Meridian Global Services
A short background:
• SAP designed tax determination logic over 25 years ago
(EU relevant)
Access Sequence
Logic engine
Condition Records
or
Domestic transaction ?
Departure Destination Customer tax Material tax Validity Tax Tax code
country country class. class. period %
+ + + + = Tax code + %
Foreign VAT ID
numbers of your
customer
Domestic VAT ID
Intercompany Commercial
Invoice Invoice Sold-to/Payer
Company code Company code
190000
UK01 BE10
‘BE customer’
Goods
Ship-to 190000
Plant UK01
BE customer
Intercompany Commercial
Invoice Invoice Sold-to/Payer
Company code Company code
190000
UK01 BE10
‘BE customer’
Goods
Ship-to 190000
Plant UK01
BE customer
Intercompany Commercial
Invoice Invoice Sold-to/Payer
Company code Company code
190000
UK01 BE10
‘BE customer’
Goods
Ship-to 190000
Plant UK01
BE customer
Question: How will standard SAP treat the commercial invoice for VAT?
Intercompany Commercial
Invoice Invoice Sold-to/Payer
Company code Company code
190000
UK01 BE10
‘BE customer’
Goods
Ship-to 190000
Plant UK01
BE customer
Answer: How will standard SAP treat the commercial invoice for VAT?
Intercompany Commercial
Invoice Invoice Sold-to/Payer
Company code Company code
190000
UK01 BE10
‘BE customer’
Goods
Ship-to 190000
Plant UK01
BE customer
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
Yes
Is the departure country and the destination country within the EU? NO 1: Export / Intra EU:
Extensive
Yes
Yes
Intercompany Commercial
Invoice Invoice Sold-to/Payer
Company code Company code
190000
UK01 BE10
‘BE customer’
Goods
Ship-to 190000
Plant UK01
BE customer
Intercompany Commercial
Invoice Invoice Sold-to/Payer
Company code Company code
190000
UK01 BE10
‘BE customer’
Goods
Ship-to 190000
Plant UK01
BE customer
Intercompany Commercial
Invoice Invoice Sold-to/Payer
Company code Company code
190000
UK01 BE10
‘BE customer’
Goods
Ship-to 190000
Plant UK01
BE customer
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
Intercompany Commercial
Invoice Invoice Sold-to/Payer
Company code Company code
190000
UK01 BE10
‘BE customer’
Goods
Ship-to 190000
Plant UK01
BE customer
Intercompany Commercial
Invoice Invoice Sold-to/Payer
Company code Company code
190000
UK01 BE10
‘BE customer’
Goods
Ship-to 190000
Plant UK01
BE customer
Actual result in UAT after system modifications:
Departure Destination CTC MTC VAT ID Tax Tax code description
country country code
BE BE 1 1 BE0000009797 B3 BE: 21% output tax
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
UK BE NL
BE10
Intercompany Party “B” Commercial
invoice VAT Reg in BE invoice
UK01 Customer
Party “A” Party “C”
VAT Reg in UK Goods VAT Reg in NL
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….
UK BE NL
BE10
Party “B”
Intercompany VAT Reg in BE Commercial
invoice and invoice
VAT Reg in NL
Customer
UK01 Party “C”
Party “A” Established in NL
VAT Reg in UK Goods VAT Reg in NL
UK BE NL
BE10
Party “B”
Intercompany VAT Reg in BE Commercial
invoice and invoice
VAT Reg in NL
Customer
UK01 Party “C”
Party “A” NOT Established in NL
VAT Reg in UK Goods Only VAT Reg in NL
Step 2: Domestic
Departure Customer Material Validity Tax Tax code
country tax class. tax class. period %
be VAT experts in determining the correct rules for each transaction; and
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
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
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
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
BE10
Party “A” Commercial
VAT Reg in BE invoice
Customer
Party “B”
Goods VAT Reg in NL
BE10
Party “A” Commercial
VAT Reg in BE invoice
Customer
Party “B”
Goods VAT Reg in NL
UK BE NL
BE10
Intercompany Party “B” Commercial
invoice VAT Reg in BE invoice
UK01 Customer
Party “A” Party “C”
VAT Reg in UK Goods VAT Reg in NL
UK BE NL
BE10
Intercompany Party “B” Commercial
invoice VAT Reg in BE invoice
UK01 Customer
Party “A” Party “C”
VAT Reg in UK Goods VAT Reg in NL
UK BE NL
BE10
Party “B” Commercial
VAT Reg in BE & UK invoice
Intercompany
invoice
UK01 Customer
Party “A” Party “C”
VAT Reg in UK Goods VAT Reg in NL
Party 'A’ (interco. invoice) applies domestic UK VAT, as this becomes “non-moved leg”
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.
UK BE NL
BE10 Customer
Party “B” Party “C”
VAT Reg in BE & UK VAT Reg in NL
UK01 Warehouse
Party “A” Customer
VAT Reg in UK Goods Party “C”
Party 'A’ (interco. invoice) applies domestic UK VAT, as this becomes “non-moved leg”
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.
BE10
Party “A” Commercial
VAT Reg in BE invoice
Customer
Party “B”
Goods VAT Reg in NL
Standard SAP can correctly determine an Intra Community Supply of goods within this
business flow
BE10
Party “A” Commercial
VAT Reg in BE invoice
Customer
Party “B”
Goods VAT Reg in NL
UK BE NL
BE10
Intercompany Party “B” Commercial
invoice VAT Reg in BE invoice
UK01 Customer
Party “A” Party “C”
VAT Reg in UK Goods VAT Reg in NL
See the Case 2 (Triangular deal scenarios) for the various solution options
UK BE NL
BE10
Party “B”
VAT Reg in BE & UK Commercial
invoice
Intercompany
invoice
UK01 Customer
Party “A” Party “C”
VAT Reg in UK Goods VAT Reg in NL
UK BE NL
BE10
Party “B”
VAT Reg in BE & UK Commercial
invoice
Intercompany
invoice
UK01 Customer
Party “A” Party “C”
VAT Reg in UK Goods VAT Reg in NL
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.
UK BE NL
BE10 Customer
Party “B” Party “C”
VAT Reg in BE & UK VAT Reg in NL
UK01 Warehouse
Party “A” Customer
VAT Reg in UK Goods Party “C”
UK BE NL
BE10 Customer
Party “B” Party “C”
VAT Reg in BE & UK VAT Reg in NL
UK01 Warehouse
Party “A” Customer
VAT Reg in UK Goods Party “C”
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.
Imagine 10,000 records like this, spread over 15 access sequence steps:
Dep Dest Plant Sales Div Distr Triang. Sold-to Ship-to Inco CTC MTC Tax Tax
cntry cntry org chan indic. term % code
BE NO 1 1 0 A1
BE NO NO01 1 1 25 B2
BE NO BE10 BE10 1 1 21 A7
TIP: Limit
BE NO the NO01
numberBE10
of extra10characteristics in access sequences. Only expand
1 if absolutely
1 25 B3
necessary
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
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
Invoice
Company code Sold-to/Payer
BE10 ‘Cust.Belgium’
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
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
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
Company code
UK01
Company code
UK01
Stock movement
Plant BEA1, Plant UK01,
Based in Belgium based in the UK
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
Company code
UK01
Stock movement
Plant BEA1, Plant UK01,
Based in Belgium based in the UK
Belgium UK
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)
No posting in A/R should be made for a dummy invoice, only a G/L posting!
The condition type WIA2 represents the VAT postings for the intra-Community sale.
In the example, it would determine the condition record below:
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
The condition type WIA1 and WIA3 represent the Acquisition tax.
In the example we would create below condition record for condition WIA1
Tax code GL
SAP - SD SAP - FI
INVOICE Accounting
document
Interface
Company code
UK01
Stock movement
Plant BEA1, Plant UK01,
Based in Belgium based in the UK
Company code
UK01
Stock movement
Plant BEA1, Plant UK01,
Based in Belgium based in the UK
Company code
UK01
Stock movement
Plant BEA1, Plant UK01,
Based in Belgium based in the UK
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
SD FI
Tax (departure) country = country of
Tax departure country = country of plant
company code
Tax procedure for country BE = TAXB Tax procedure for country GB = TAXGB
For the purpose of tax condition records: For the purpose of postings in the G/L:
Tax code XA needs to be created in TAXB Tax code XA needs to be created in TAXGB
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)
UK BE
Commercial
invoice (F2)
Company code Customer established
UK01 and VAT registered in BE
Goods
Plant BEA1
(belongs to cc UK01)
Commercial
Invoice 1
Company code Company code Customer established
UK01 BE10 and VAT registered in BE
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 Company code Customer
UK01 BE10 registered in BE
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
Commercial
Invoice 1
Company code Company code Customer
UK01 BE10 registered in BE
Plant BEA1 VAT report for the Belgium Tax authorities In EUR !
Plant PLA1 VAT report for the Polish Tax authorities In PLN !
Using the daily average
rate of the European
Central Bank
Plant SEA1 VAT report for the Swedish Tax authorities In SEK !
Using the monthly
average rate of the
European Central Bank
Plants Abroad in SAP
Monthly VAT reporting and Plants Abroad
Managing different reporting currencies
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.
11/29/2013 © 2013 Meridian Global Services. All rights reserved. 116
VAT determination in Purchase orders
The tax code for incoming electronic/EDI invoices can be determined via:
table T076M (transaction OBCD)
the purchase order
Based on above parameters, the tax code for the AP invoice posting is determined IF no tax code is
stated on the purchase order
EDI - AP
Vendor is registered Invoice
Belgian Vendor
in BE, but also
209000
registered in FR
Company code FR10
Warehouse BE
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
(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
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
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.
Roger Lindelauf
e-mail: roger.lindelauf@meridianglobalservices.com
phone: +44.208.601.4600
Ryan Ostilly
e-mail: ryan.ostilly@meridianglobalservices.com
phone: +44.208.601.4600
www.meridianglobalservices.com
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