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872449 - Tax determination in Sales and Distribution

Symptom

You are not sure how the tax conditions are determined in Sales and Distribution (SD).

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Other Terms

VAT, tax, customizing, MWAS, output tax, STCEG

Reason and Prerequisites

Complex requirements for the SAP system require explanations of the tax determination
in Sales and Distribution.

Solution

The SAP system automatically determines the taxes as part of SD pricing.

The settings for the tax determination in SD must correspond to Financial Accounting
(module FI).

1. You need the following information in the tax determination to determine the
correct tax rate depending on the business process:
a) Country of departure

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The tax departure country is determined based on the country of the delivering plant
(T001W-LAND1). If no plant is determined or if you want to overwrite the automatically
determined country, you can also manually enter the tax departure country in the sales
document header of the billing view (VBAK-LANDTX). However, this discrepant country
of departure is required for special processes in the EU only. The manual entry takes
priority.

b) Destination country

The tax destination country is initially determined based on the country of the ship-to
party (KUWEV-LAND1). This automatically determined destination country can also be
changed in the sales and distribution document header in the billing view (VBAK-
STCEG_L). However, this discrepant destination country is required for special
processes in the EU. The manual entry takes priority.

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c) VAT registration number for business within the EU

The VAT registration number is stored in the customer master in the general data and in
this case the control data. The VAT no. for the customer country is entered here, but
you can store the VAT no. for other EU countries behind the "Others" radio button if the
customer is also registered for tax in other EU countries.

If no Customizing for the determination of the VAT no. was stored, the VAT no. is
determined according to the following rules:

1. If the payer has a VAT no. in the customer master and payer <> sold-to party, the
VAT no. and the tax classification is taken from the payer (the ship-to party then
becomes irrelevant).
If point 1 does not apply, the following is checked:
2. If the ship-to party has a VAT no. or the sold-to party does NOT have a VAT
no., the VAT no. and tax classification are taken from the ship-to party.
If point 2. does not apply either, the following applies:
3. Otherwise, the VAT No. and tax classification will always be determined from
the sold-to party.
As of Release 40A, you have the option to always determine the VAT no. and tax

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classification from either the sold-to party or the payer. Customizing is carried out
in the V_TVKO_TAX view and depends on the sales organization.
Important: The VAT no. is always determined from the tax destination country.
You can set a different behavior for the sold-to party and the payer by
implementing SAP Note 91109. Alternatively, you can use SAP Note 371764.
If the VAT no. is determined from the sold-to party, the tax destination country is
only taken into account if in Customizing for "Determining the VAT registration
number" (TVKO-XSTCEG) the value "C" is determined (see also SAP Note
434562).
If the customer is a one-time customer, you enter the VAT no. manually in the
partner address data when the sales document is created. You can enter the
VAT no. in the address data only for one-time customers and if the function is
that of the ship-to party (see SAP Note 976077)
The determination of the VAT no. is based primarily on the customer master
data.

d) Customer tax classification

The customer tax classification determines, for example, if the customer is subject to full
tax, subject to half tax or exempt from tax. Based on this classification the different tax
condition records can be determined. The tax classification is determined from the
customer master for the relevant partner function for which the VAT no. is also

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determined. In the customer master, a tax classification can be stored for each country,
tax category, and tax condition. The available countries in the customer master in the
billing document section of the sales area data are displayed from the plant assignment
(plant country) for the distribution channel and division (transaction OVX6). You can
change the automatically determined tax classification of the customer in the Sales and
Distribution document header of the billing area as "Different Tax Class"

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e) Tax classification of the material

The tax classification of the material determines, for example, if the material is subject
to full tax, subject to half tax or exempt from tax. Based on this classification the
different tax condition records can be determined. The tax classification is determined
from the material master and you can change it manually in the Sales and Distribution
document at item level. The available countries in the material master in the area Sales
and Distribution: Sales Organization display from the assignment of the plant (country of
the plant) to the distribution channel and division (transaction OVX6). A tax classification
can be stored for each tax category, tax condition, and country.

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f) Date of services rendered

Tax condition records are determined for the date of services rendered and NOT for the
pricing date. This date is determined in the Sales and Distribution documents
dependent on the process.

At first, the system checks the sales documents for a requested delivery date. If one
exists, the system checks whether the requested delivery date falls after the creation
date of the document. If this is the case, the system uses the requested delivery date for
the SD tax determination. If this is not the case, the creation date for the document is
taken as the basis for the date of services rendered. However, you can also change this
automatically determined date of services rendered manually at the header level and
the item level of the sales document. Important: The real date of services rendered for
the later billing document is not necessarily known in the sales document. It is therefore
possible that the date of services rendered in the sales document and accordingly the
determined tax differ from the later billing document.

In the billing document, the date of services rendered is transferred from this goods
issue date in the case of delivery-related billing if a goods issue date exists. If no goods
issue date exists, the billing date is used.

In the case of order-related billing, the system uses the billing date as the date of
services rendered. If the billing is carried out for a billing plan date, the system uses the
to-date of the settlement deadline as date of services rendered in the case of a
periodical billing plan. In the case of a milestone billing plan, the system transfers the
billing date of the relevant milestone billing date to the billing document as the date of
services rendered.

If you use transaction VF01 to manually enter the date of services rendered into the
default data, the manual entry takes priority.

If you use the external billing interface for billing, you can specify the date of services
rendered in the import parameter 'DELIVERY_DATE'. This also takes priority.

2. Basic settings in Customizing

The following settings must first be made in SD.

a) Condition type
For each tax category (for example, value added tax) you must use
transaction V/06 to define a condition type.

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The tax condition with condition class "D" must always be determined automatically by
the R/3 system. Avoid a manual change (T685A-KMANU = 'D') because this may lead
to inconsistencies with the existing tax codes in Financial Accounting.

Moreover, you must set the tax condition type as group condition to ensure a potentially
necessary rounding difference comparison (see SAP Note 403254).

b) Access sequence
For this tax condition type, you must specify access sequences and define
condition tables.
The standard system includes the access sequence MWST with the
condition tables A078, A002, and A011.

The pricing conditions 7 and 8 are assigned to the accesses. Condition 8 checks the
export. This means, export business exists if the country of departure and the
destination country are different. If these countries are members of the EU, the system
additionally checks if a VAT registration number (VAT no.) exists. In this case, the
export access is relevant only if a VAT no. exists. If no VAT no. is found in the previous
partner determination, export access is NOT relevant. Instead, the access to domestic
tax should be successful. Pricing condition 7 checks for domestic business. If the
country of departure and destination country are EU member states and the VAT no. is
not available, this condition is met. If the countries are not EU member states, the
system now checks if country of departure and destination country are the same. In this
case, the condition is also met and the condition access to domestic tax is therefore
relevant.

For more information about pricing conditions 7 and 8, see SAP Note 158890. To
ensure that only one condition record is determined for the taxes, you should assign the
exclusive indicator (T682I-KZEXL) to the accesses.

c) Pricing procedure

You must include the tax condition type in those pricing procedures in which the
relevant taxes are to be taken into account.

Pay attention to the sequence of the conditions in the pricing procedure. We

recommend positioning the tax condition after the non-statistical conditions. Exception:
Statistical conditions with a special function, for example, rebate conditions, conditions
for intercompany billing, and cash discount condition before tax are positioned before
the tax conditions. Compare this with the delivered standard pricing procedure RVAA01.

The tax condition is assigned to the account key that was specified by Financial
Accounting.
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Pricing condition 10 is assigned to the tax condition in the schema. It checks for a
supplying plant. It is necessary to determine the plant, because this specifies the tax
departure country. Alternatively, the tax departure country can be entered manually in
the Sales and Distribution document header in the billing view.

Use basis formula 16 to ensure that the net item value is used as the tax condition type
basis. If possible, you should NOT refer the tax condition to a different step of the
pricing procedure with a FROM-TO step. This could cause an incorrect determination of
the tax condition basis. Tax basis and tax condition value must have the same sign.

Additional information: For information on how to determine the condition basis using
from-to steps, refer to SAP Note 834174.

Furthermore, the FROM-TO step influences the distribution of the tax code of the tax
condition to the active conditions that are posted to financial accounting. For more
information, see SAP Note 112609.

d) General tax Customizing

Make the settings that are necessary for your business processes in Customizing under
the following IMG path: Sales and Distribution -> Basic Functions -> Taxes.

For each country that you do business with, you must create the valid tax categories or
tax condition types using transaction OVK1. You must define the regional codes (city
code and county code) if you use the SAP system in the USA or Canada, for example.
For each tax category or tax condition type, you must define the tax relevancy as tax
classification for customers (transaction OVK3) and materials (transaction OVK4).

3. Special features of the master data maintenance

For the tax conditions you must create condition records in which the particular tax rate
and the relevant tax indicator are defined. When you enter the tax rate and tax indicator,
the system checks if the tax indicator is also defined in the table T007A in Financial
Accounting and if the tax rate corresponds to the tax indicator in Financial Accounting.
However, this check is possible only if in Financial Accounting, there is only one unique
tax rate for the entered tax indicator.

Only in the condition master data for the condition class "D", that is the tax conditions,
can you enter the tax indicator.

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Additional information: Financial Accounting delivers what is known as a tax

determination procedure. This is assigned to the relevant country and contains all
possible tax types of the country. This tax determination procedure is necessary if, for
example, a posting document is created directly in Financial Accounting. The tax
percentages are specified in transaction FTXP for this tax determination procedure, the
tax indicator, and the account key.

In Financial Accounting, you can find Customizing for value-added tax under the path
Financial Accounting -> Financial Accounting Global Settings -> Tax on
Sales/Purchases.

4. Determination of tax conditions in Sales and Distribution documents

If you create a Sales and Distribution document, the tax condition record is determined
at the date of services rendered of the document. The tax condition is NOT determined
based on the pricing date. Due to legal requirements, it is necessary to determine the
tax rate at the date of services rendered.

For billing, you should use a pricing type that redetermines the tax conditions, for
example, pricing type "G" (for information about possible pricing types, refer to SAP
Note 24832). This ensures that the tax condition is redetermined at the time of billing
with the date of services rendered that is now known. Only in case of the returns
process it is required to keep the tax condition with the date of services rendered of the
previous logistic process. Therefore, pricing type "D" that does not redetermine the tax
rate is used.

5. Tax-relevant checks in the SD-FI interface. During the billing document

transfer to Accounting, Financial Accounting may check tax data, among other
things, before the accounting document is created. If the requirements of
Financial Accounting are not met, the system may issue the following error
messages specifically for the tax data:
a) FF 805: "Tax statement item missing for tax code &".

If the billing document is posted to Financial Accounting, a process that is known as

"planting" of the tax code is carried out in SD. Until that point, the tax code was
determined from the condition master data only for the tax condition. However, to create
the accounting document, this tax code is now also necessary for all conditions that are
relevant for posting and to which the tax condition refers to. For information about how

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to transfer this tax code to other conditions of the billing document, refer to SAP Note
112609.

If the system issues this error message, the pricing procedure used must be checked
against the information in SAP Note 112609.

b) FF 800: Different tax countries are not permitted in one document

The system issues this error message if different tax codes with different reporting
countries (T007A-LSTML) are used in the billing document and this billing document
also creates a customer line item.

Different reporting countries are necessary for the function "Plants Abroad" (WIA).
However, billing document for plants abroad does not create a customer line item.
Therefore, the system issues no error message.

Maintaining a reporting country in the FI system using transaction FTXP is only possible
if the function "Plants Abroad" (T000F-XWIAA) is activated in Customizing.

In addition, for Customizing settings for the "Plants Abroad" processes, refer to
consulting note 506588.

c) FF 759: Cannot post document: tax base in local currency is zero

This error may on the one hand occur, if the tax condition is NOT set as a group
condition. This setting must be made in SD using transaction V/06 and in FI under
Financial Accounting -> Financial Accounting Global Settings -> Tax on
Sales/Purchases -> Basic Settings -> Check Calculation Procedure -> Define Condition
Types. For the tax conditions, you therefore need a rounding difference comparison to
avoid rounding differences between the tax calculation at item level and the calculation
at document level.

Another reason for this error message may be that you create what is known as a
"mixed" billing document with items on the debit side and the credit side. This may be
the case if you bill credit memos and debit memos together or if you process an invoice
correction. As the tax lines in Financial Accounting are summarized across the debit or
credit indicator, under certain circumstances there may be a difference after the
summarization and the above-mentioned error occurs. In this case, you may use
transaction OBBH to create an FI substitution for stage '2' (document item). This
substitution can, for example, fill the text field BSEG-SGTXT for debit-side accounting
lines (BSEG-SHKZG = 'S') with different text than for credit-side lines (BSEG-SHKZG =
'H') in SD billing documents (reference activity 'VBRK'). This prevents the

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summarization of lines across the debit or credit indicator and there should not be
differences in the tax lines for this particular case.

a) FF 747: The tax amount must not be greater than the tax base.

As only tax condition percentages are supported, the tax amount (condition value) may
never be greater than the tax base.

The system issues this error message if you try to set a quantity dependent tax
condition. This is not supported in the standard system. For information on this situation,
refer to consulting SAP Note 184985.

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