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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

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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 (POs and IDOCs)

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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 SAPs 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

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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 (POs and IDOCs)

11/29/2013 2013 Meridian Global Services. All rights reserved. 6


Introduction to VAT determination in SAP

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

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Standard SAP: Output VAT determination

Basic characteristics for output tax determination


Based on Tax Departure Country
Tax
Based on Tax Destination Country Departure
Country

Classification of your customer Material


Tax
Destination
(liable, not liable, same fiscal entity, etc) Country
Customer
Classification of your material
(high, low, zero rated, service, etc) VAT ID

VAT registration number Master Data

(EU relevant)
Access Sequence
Logic engine
Condition Records

Tax treatment (VAT code)

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Standard SAP: Output VAT determination

Tax condition records

Access sequence (simplified)

Cross border transaction ?

or

Domestic transaction ?

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Standard SAP: Output VAT determination

Tax condition records

Departure Destination Customer tax Material tax Validity Tax Tax code
country country class. class. period %

+ + + + = Tax code + %

If one of the characteristics above is incorrect


the wrong tax rule and percentage will be determined

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Master data
VAT ID number of your customer

Foreign VAT ID
numbers of your
customer

Foreign VAT IDs

Domestic VAT ID

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Master data
Classification for VAT of your customer

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Master data
Classification for VAT of your material

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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 (POs and IDOCs)

11/29/2013 2013 Meridian Global Services. All rights reserved. 14


Case 1

Drop shipment from the UK and


an onward domestic sale within Belgium

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Case 1
UK BE

Intercompany Commercial
Invoice Invoice Sold-to/Payer
Company code Company code
190000
UK01 BE10
BE customer

Goods
Ship-to 190000
Plant UK01
BE customer

VAT treatment for the above commercial invoice for VAT:

Domestic sale Belgium 21% VAT

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Case 1
UK BE

Intercompany Commercial
Invoice Invoice Sold-to/Payer
Company code Company code
190000
UK01 BE10
BE customer

Goods
Ship-to 190000
Plant UK01
BE customer

Expected result in UAT:


Departure Destination CTC MTC VAT ID Tax Tax code description
country country code
BE BE 1 1 BE0000009797 B3 BE: 21% output VAT

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Case 1
UK BE

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?

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

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Case 1
UK BE

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?

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

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Case 1
UK BE

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

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Case 1 Requirements for Access sequence steps
Standard SAP

Is the departure country different from the destination country? NO 2: Domestic

Yes

Is the departure country and the destination country within the EU? NO 1: Export / Intra EU:
Extensive

Yes

Does your customer have a VAT ID number? NO 2: Domestic

Yes

Departure Destination Customer Material Tax Tax code


country country tax class. tax class. %
GB BE 1 1 0% Intra community supply

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Case 1
UK BE

Intercompany Commercial
Invoice Invoice Sold-to/Payer
Company code Company code
190000
UK01 BE10
BE customer

Goods
Ship-to 190000
Plant UK01
BE customer

Business case in SAP

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Case 1 - Invoice Header / VAT ID

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Case 1 - Condition Analysis

Export step selected (incorrect)


Departure country = GB

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Case 1 - Selected Tax Condition Record

Condition record selected


Incorrect tax percentage
Due to incorrect tax departure country
Incorrect tax code

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Case 1
UK BE

Intercompany Commercial
Invoice Invoice Sold-to/Payer
Company code Company code
190000
UK01 BE10
BE customer

Goods
Ship-to 190000
Plant UK01
BE customer

Expected result in UAT:


Departure Destination CTC MTC VAT ID Tax Tax code description
country country code
BE BE 1 1 BE0000009797 B3 BE: 21% output tax
Actual result in UAT:
Departure
country
Destination
country
CTC MTC VAT ID Tax
code
Tax code description X
GB BE 1 1 BE0000009797 GA GB: Intra community supply of goods

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Case 1
UK BE

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 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)

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

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Case 1
UK BE

Intercompany Commercial
Invoice Invoice Sold-to/Payer
Company code Company code
190000
UK01 BE10
BE customer

Goods
Ship-to 190000
Plant UK01
BE customer

Business case in SAP

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Case 1 - Condition Analysis

Departure country = BE
Domestic step is now selected

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Case 1 - Selected Tax Condition Record

Condition record selected


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

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Case 1
UK BE

Intercompany Commercial
Invoice Invoice Sold-to/Payer
Company code Company code
190000
UK01 BE10
BE customer

Goods
Ship-to 190000
Plant UK01
BE customer

Expected result in UAT:


Departure Destination CTC MTC VAT ID Tax Tax code description
country country code
BE BE 1 1 BE0000009797 B3 BE: 21% output tax


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

11/29/2013 2013 Meridian Global Services. All rights reserved. 31


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 (POs and IDOCs)

11/29/2013 2013 Meridian Global Services. All rights reserved. 32


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

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Case 2

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.

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Case 2

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

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......

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Case 2

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

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%

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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.

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Case 2

Solution Option 1: Manually tick the box EU triangular deal

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Case 2
Additional: Define a new access sequence step to include the EU Triangular deal indicator

Step 1: Export / Intra EU: Reduced


Departure Destination Validity Tax Tax code
country country period %

Step 2: Domestic
Departure Customer Material Validity Tax Tax code
country tax class. tax class. period %

Step 3: Export / Intra EU: Extensive


Departure Destination Customer Material Validity Tax Tax
country country tax class. tax class. period % code

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


Departure Destination Customer Material Triang. Tax Tax
country country tax class. tax class. indicator % code

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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

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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

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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-tos, new customers etc) will be
automatically included into the triangulation functionality

Disadvantages
Fairly complex logic to build into SAP

11/29/2013 2013 Meridian Global Services. All rights reserved. 42


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 (POs and IDOCs)

11/29/2013 2013 Meridian Global Services. All rights reserved. 43


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

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Case 3 Customer pick-ups (A)
Party A arranges and pays for the transport
BE NL

BE10
Party A Commercial
VAT Reg in BE invoice

Customer
Party B
Goods VAT Reg in NL

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.

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Case 3 Customer pick-ups (B)
Party B arranges and pays for the transport
BE NL

BE10
Party A Commercial
VAT Reg in BE invoice

Customer
Party B
Goods VAT Reg in NL

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.

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Case 3 Customer pick-ups (C)
Party A arranges and pays for Transport

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

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.

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Case 3 Customer pick-ups (D)
Party C arranges and pays for Transport

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 '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)

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Case 3 Customer pick-ups (D1)
Party C arranges and pays for Transport

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.

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Case 3 Customer pick-ups (D2)
Party C arranges and pays for Transport

UK BE NL

BE10 Customer
Party B Party C
VAT Reg in BE & UK VAT Reg in NL

Intercompany Commercial invoice


invoice

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.

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Case 3 Customer pick-ups

System implications for the previous flows

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Case 3 Customer pick-ups (A)
Party A arranges and pays for Transport
BE 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

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Case 3 Customer pick-ups (B)
Party B arranges and pays for Transport
BE NL

BE10
Party A Commercial
VAT Reg in BE invoice

Customer
Party B
Goods VAT Reg in NL

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

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Case 3 Customer pick-ups (C)
Party A arranges and pays for Transport

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

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Case 3 Customer pick-ups (D1)
Party C arranges and pays for Transport

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 intercompany invoice


Party 'A (interco. invoice) applies domestic UK VAT, as this becomes non-moved leg
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. CSRs will not be able to influence the VAT treatment for intercompany
invoices

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Case 3 Customer pick-ups (D1)
Party C arranges and pays for Transport

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.

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Case 3 Customer pick-ups (D2)
Party C arranges and pays for Transport

UK BE NL

BE10 Customer
Party B Party C
VAT Reg in BE & UK VAT Reg in NL

Intercompany Commercial invoice


invoice

UK01 Warehouse
Party A Customer
VAT Reg in UK Goods Party C

The intercompany invoice


Party 'A (interco. invoice) applies domestic UK VAT, as this becomes non-moved leg
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. CSRs will not be able influence the VAT treatment for intercompany
invoices

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Case 3 Customer pick-ups (D2)
Party C arranges and pays for Transport

UK BE NL

BE10 Customer
Party B Party C
VAT Reg in BE & UK VAT Reg in NL

Intercompany Commercial invoice


invoice

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.

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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 (POs and IDOCs)

11/29/2013 2013 Meridian Global Services. All rights reserved. 59


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

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

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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 (POs and IDOCs)

11/29/2013 2013 Meridian Global Services. All rights reserved. 61


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

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Case 4 Services
BE FR

Invoice
Company code Sold-to/Payer
BE10 Cust.Belgium

Service Machine at a French site of


Plant BE10
the Belgian customer

VAT treatment for the above Commercial invoice for VAT:

Domestic 21% VAT Belgium


(because the Belgian customer is established in Belgium)

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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

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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

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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

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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 (POs and IDOCs)

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Plants Abroad in SAP
Business requirements

Plants Abroad, One Company Code, Foreign VAT Registration

Company code
UK01

Plant UK01, UK01 is registered for VAT in


based in the UK country UK

Plant BEA1, UK01 is registered for VAT in


Based in Belgium country BE

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Plants Abroad in SAP
Business requirements
Intra company stock movement

Company code
UK01

Stock movement
Plant BEA1, Plant UK01,
Based in Belgium based in the UK

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Plants Abroad in SAP

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

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Plants Abroad in SAP

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

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Plants Abroad in SAP

Cross border Intra Company Stock Transfers

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Plants Abroad in SAP
Cross border Intra Company Stock Transfers
Plants Abroad invoice (WIA): Stock movement from foreign plant to domestic plant

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)

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Plants Abroad in SAP
Cross border Intra Company Stock Transfers
Plants Abroad invoice (WIA) pricing procedure

Standard price from material master

Credit posting 20% acquisition tax in GB

0% Intra community VAT in BE

100% rebate of the calculated VPRS


Debit posting 20% acquisition tax in GB

Calculation of the INTRASTAT value

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Plants Abroad in SAP
Cross border Intra Company Stock Transfers
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!

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Plants Abroad in SAP
Cross border Intra Company Stock Transfers
Plants Abroad invoice (WIA2): VAT postings

Standard price from material master

Credit posting 20% acquisition tax in GB

0% Intra community VAT in BE

100% rebate of the calculated VPRS


Debit posting 20% acquisition tax in GB

Calculation of the INTRASTAT value

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Plants Abroad in SAP
Cross border Intra Company Stock Transfers
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:

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Plants Abroad in SAP
Cross border Intra Company Stock Transfers
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

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Plants Abroad in SAP
Cross border Intra Company Stock Transfers
Plants Abroad invoice (WIA1 / WIA3): VAT postings

Standard price from material master

Credit posting 20% acquisition tax in GB

0% Intra community VAT in BE

100% rebate of the calculated VPRS


Debit posting 20% acquisition tax in GB

Calculation of the INTRASTAT value

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Plants Abroad in SAP
Cross border Intra Company Stock Transfers
Plants Abroad invoice (WIA3, WIA1) : Reference WIA3 to WIA1

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

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Plants Abroad in SAP
Cross border Intra Company Stock Transfers
Plants Abroad invoice (WIA3, WIA1) : Reference WIA3 to WIA1

Transaction V/06: Change condition type WIA3:

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Plants Abroad in SAP
Cross border Intra Company Stock Transfers
Plants Abroad invoice (WIA3, WIA1) : Intra-Community Acquisition VAT Postings

The condition type WIA1 and WIA3 represent the Acquisition tax.
In the example we would create below condition record for condition WIA1

The condition type WIA3 doesnt need to be created as it is referenced to WIA1

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Plants Abroad in SAP
Cross border Intra Company Stock Transfers
Plants Abroad invoice (WIA3, WIA1) : Intra-Community Acquisition VAT Postings

Tax code GL

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Plants Abroad in SAP

Interface Between Sales & Distribution and Finance

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Plants Abroad in SAP
Interface Between Sales & Distribution and Finance
The interface

SAP - SD SAP - FI

INVOICE Accounting
document

Interface

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Plants Abroad in SAP

Tax determination in SAP-SD

Company code
UK01

Stock movement
Plant BEA1, Plant UK01,
Based in Belgium based in the UK

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

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Plants Abroad in SAP

Tax determination in SAP-FI

Company code
UK01

Stock movement
Plant BEA1, Plant UK01,
Based in Belgium based in the UK

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)

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Plants Abroad in SAP

Tax determination in SAP-FI

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

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Plants Abroad in SAP
Interface Between Sales & Distribution and Finance
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 FI
Tax (departure) country = country of
Tax departure country = country of plant
company code

Country of plant = BE Country of company code = GB

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

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Plants Abroad in SAP
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)

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Plants Abroad in SAP

Sales From a Plant Abroad

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Plants Abroad in SAP
Sales From a Plant Abroad

UK BE

Commercial
invoice (F2)
Company code Customer established
UK01 and VAT registered in BE

Goods

Plant BEA1
(belongs to cc UK01)

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


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

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Plants Abroad in SAP
Sales From a Plant Abroad

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)

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Plants Abroad in SAP
Sales From a Plant Abroad
UK BE

Commercial
Invoice 1
Company code Company code Customer established
UK01 BE10 and VAT registered in BE

UK Established / VAT Plant BEA1


Commercial Invoice 2
registered (BE Foreign
Registration of
UK01)

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

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Plants Abroad in SAP
Sales From a Plant Abroad
UK BE

Commercial
Invoice 1
Company code Company code Customer
UK01 BE10 registered in BE

UK Established / VAT Plant BEA1


Commercial Invoice 2
registered (BE Foreign
Registration of
UK01)

Customer master data in SAP is company code independent


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

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Plants Abroad in SAP
Sales From a Plant Abroad

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

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Plants Abroad in SAP
Sales From a Plant Abroad

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

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Plants Abroad in SAP
Sales From a Plant Abroad

Solution: Option 3
Modification to SAPs 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

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Plants Abroad in SAP
Sales From a Plant Abroad
UK BE

Commercial
Invoice 1
Company code Company code Customer
UK01 BE10 registered in BE

UK Established / VAT Plant BEA1


Commercial Invoice 2
registered (BE Foreign
Registration of
UK01)

Business case in SAP

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Plants Abroad in SAP
Sales From a Plant Abroad: Commercial invoice 1 Header / VAT ID

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Plants Abroad in SAP
Sales From a Plant Abroad: Commercial invoice 1: Pricing analysis

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

Condition record selected


Characteristics are correct

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Plants Abroad in SAP
Sales From a Plant Abroad: Commercial invoice 2 Header / VAT ID

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Plants Abroad in SAP
Sales From a Plant Abroad: Commercial invoice 2: Pricing analysis

Dynamic change of CTC to V


Drives different VAT treatment

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Plants Abroad in SAP
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
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Plants Abroad in SAP

VAT Return Reports and EC Sales Lists

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Plants Abroad in SAP
Monthly VAT reporting and Plants Abroad
Using the reporting country in reporting

To facilitate the selection of multiple


countries for 1 Company Code , SAP
has extended the VAT report

Properties tax code XA

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Plants Abroad in SAP
Monthly VAT reporting and Plants Abroad
Example Monthly Reporting for UK01
All postings done in
UK01 are in GBP, so we
have to convert the
Company code UK01 amounts

Plant UK01 VAT report for the UK Tax authorities In GBP !

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

To facilitate the conversions to


country currencies, SAP has
extended the VAT report:

NOTE: Plants Abroad creates


possibilities to manage these
currencies correctly

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Plants Abroad in SAP
Monthly VAT reporting and Plants Abroad
Quarterly VAT reporting: EC sales list and Plants Abroad

To facilitate the reporting per


country in which the company is
VAT registered, SAP has
extended report RFASLM00
transaction S_ALR_87012400:

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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 (POs and IDOCs)

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VAT determination in Purchase orders

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

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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

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VAT determination in Purchase orders

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

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VAT determination in Purchase orders

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

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VAT determination in Purchase orders

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.
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VAT determination in Purchase orders

Option 3: No tax code is set in purchase order


Tax code is determined via:
manual during invoice receipt
automated via EDI IDOC processing

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VAT determination: EDI processing

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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

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VAT determination: EDI processing
BE FR

EDI - AP
Vendor is registered Invoice
Belgian Vendor
in BE, but also
209000
registered in FR
Company code FR10

Warehouse BE

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

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

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VAT determination: EDI processing

(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

Standard SAP VAT determination for EDI invoices (via OBCD)

Partner Partner Tax Tax rate Destination Tax code


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

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 3: Which percentage needs to be used:


- Standard rate? or
- reduced rate? or
- super reduced rate?
Question 4: Is it goods or services?

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VAT determination: EDI processing

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.

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VAT determination: EDI processing

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.

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Further information

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

Join VAT for SAP on

www.meridianglobalservices.com

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END

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