Configuring sap-for-european-vat-–-implementation-tips-and-tricks-from-the-experts-ryan-ostily-and-roger-lindelauf-meridian-global-services

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Excellence Stream
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Configuring SAP for European VAT – Implementation tips and tricks from the experts
Birmingham
26 November 2013

11/29/2013 3
Roger Lindelauf
Director ERP VAT Consulting
Meridian Global Services
Ryan Ostilly
Commercial Director – Tax Technology
Meridian Global Services
Your Speakers
© 2013 Meridian Global Services. All rights reserved.
Speakers

Agenda
Part 1 : 10h45 – 11h30
 How to automate typical, complex VAT flows in SAP
 Introduction to tax determination in SAP
 Case 1: Drop shipments
 Case 2: Triangulation
 Case 3: Customer pickups (EXW deliveries)
 Tip: Avoid complexity in condition records
 Case 4: Services
Part 2 : 11h35 – 12h20
 Plants Abroad – a step by step implementation guide
 Automating VAT determination on AP invoices (PO’s and IDOCs)
11/29/2013 4© 2013 Meridian Global Services. All rights reserved.

Workshop Objectives
What we will present:
 Day-to-day, simple business flows, that occur in your organisation
 Executed in a standard SAP system
 Revealing some of SAP’s shortcomings in VAT determination
 Presenting possible solutions to overcome these
What we aim to achieve:
 Discover where and why standard SAP will not correctly determine VAT
 Apply this knowledge to your business and assess impact
 Discover ‘best practice’ solutions to overcome these challenges

Agenda
Part 1 : 10h45 – 11h30
Part 2 : 11h35 – 12h20

A short background:
• SAP designed tax determination logic over 25 years ago
• Back then, VAT was a relatively simple tax:
– VAT treatment on most EU cross-border trade of goods treated as ‘exports’
– Little concept of cross-border VAT registrations
– No Intra EU exemptions, simplifications, triangulation, Intrastats , EC Sales lists, etc.
– No requirement for ‘Plants Abroad’ for intra-company, cross-border stock movements
• But the world has since changed:
– EU VAT rules and disclosure requirements have changed significantly and regularly
– Businesses have become more international
– Migration to common ERP platforms and standards
– Supply-chain and corporate restructuring is common practice
– Greater focus on indirect tax compliance
• Tax logic in SAP has not changed fundamentally in 25 years
Introduction to VAT determination in SAP

Standard SAP: Output VAT determination
Tax
Destination
Country
Basic characteristics for output tax determination
 Based on ‘Tax Departure Country’
 Based on ‘Tax Destination Country’
 Classification of your customer
(liable, not liable, same fiscal entity, etc)
 Classification of your material
(high, low, zero rated, service, etc)
 VAT registration number
(EU relevant)
Customer
Material
Tax
Departure
Country
Tax treatment (VAT code)
VAT ID
Access Sequence
Condition Records
Logic engine
Master Data

Access sequence (simplified)
or
Cross border transaction ?
Domestic transaction ?
Tax condition records

Departure
country
Destination
country
Customer tax
class.
Material tax
class.
Validity
period
Tax
%
Tax code
+ + + + = Tax code + %
If one of the characteristics above is incorrect
the wrong tax rule and percentage will be determined
Tax condition records

Master data
VAT ID number of your customer
Domestic VAT ID
Foreign VAT ID
numbers of your
customer
Foreign VAT ID’s

Master data
Classification for VAT of your customer

Master data
Classification for VAT of your material

Agenda
Part 1 : 10h45 – 11h30
Part 2 : 11h35 – 12h20

Case 1
Drop shipment from the UK and
an onward domestic sale within Belgium

Case 1
VAT treatment for the above commercial invoice for VAT:
Domestic sale Belgium 21% VAT
Sold-to/Payer
190000
‘BE customer’
BE
Company code
BE10
Commercial
Invoice
Goods
Intercompany
Invoice
Company code
UK01
Plant UK01
UK
Ship-to 190000
BE customer

Case 1
Departure
country
Destination
country
CTC MTC VAT ID Tax
code
Tax code description
BE BE 1 1 BE0000009797 B3 BE: 21% output VAT
Expected result in UAT:
Sold-to/Payer
190000
‘BE customer’
BE
Company code
BE10
Commercial
Invoice
Goods
Intercompany
Invoice
Company code
UK01
Plant UK01
UK
Ship-to 190000
BE customer

Case 1
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
Sold-to/Payer
190000
‘BE customer’
BE
Company code
BE10
Commercial
Invoice
Goods
Intercompany
Invoice
Company code
UK01
Plant UK01
UK
Ship-to 190000
BE customer

Case 1
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
Sold-to/Payer
190000
‘BE customer’
BE
Company code
BE10
Commercial
Invoice
Goods
Intercompany
Invoice
Company code
UK01
Plant UK01
UK
Ship-to 190000
BE customer

Case 1
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
Sold-to/Payer
190000
‘BE customer’
BE
Company code
BE10
Commercial
Invoice
Goods
Intercompany
Invoice
Company code
UK01
Plant UK01
UK
Ship-to 190000
BE customer

Requirements for Access sequence steps
Standard SAP
1: Export / Intra EU:
Extensive
Is the departure country different from the destination country?
Is the departure country and the destination country within the EU?
Does your customer have a VAT ID number?
NO
Yes
Yes
Yes
NO
2: DomesticNO
2: Domestic
Departure
country
Destination
country
Customer
tax class.
Material
tax class.
Tax
%
Tax code
GB BE 1 1 0% Intra community supply
Case 1

Case 1
Sold-to/Payer
190000
‘BE customer’
BE
Company code
BE10
Commercial
Invoice
Goods
Intercompany
Invoice
Company code
UK01
Plant UK01
UK
Ship-to 190000
BE customer
Business case in SAP

Case 1 - Invoice Header / VAT ID

Case 1 - Condition Analysis
 Export step selected (incorrect)
 Departure country = “GB”

Case 1 - Selected Tax Condition Record
 Condition record selected
 Incorrect tax percentage
 Due to incorrect tax departure country
 Incorrect tax code

Case 1
Departure
country
Destination
country
CTC MTC VAT ID Tax
code
GB BE 1 1 BE0000009797 GA GB: Intra community supply of goods
Actual result in UAT:
Departure
country
Destination
country
CTC MTC VAT ID Tax
code
BE BE 1 1 BE0000009797 B3 BE: 21% output tax
Sold-to/Payer
190000
‘BE customer’
BE
Company code
BE10
Commercial
Invoice
Goods
Intercompany
Invoice
Company code
UK01
Plant UK01
UK
Ship-to 190000
BE customer
X

Case 1
How to ensure that the correct tax departure country is determined?
(a) dummy condition records / additional fields in access sequence; or
(b) customise SAP to force the departure country = country of Company Code; or
(c) implement a flexible (table based) modification to derive the correct tax departure
country based on various characteristics (best practice)
Sold-to/Payer
190000
‘BE customer’
BE
Company code
BE10
Commercial
Invoice
Goods
Intercompany
Invoice
Company code
UK01
Plant UK01
UK
Ship-to 190000
BE customer
Note: Make sure, that if the tax departure country is re determined, also the CTC
and MTC is re determined, as these are based on the tax departure country

Case 1
Sold-to/Payer
190000
‘BE customer’
BE
Company code
BE10
Commercial
Invoice
Goods
Intercompany
Invoice
Company code
UK01
Plant UK01
UK
Ship-to 190000
BE customer

Case 1 - Condition Analysis
 Departure country = “BE”
 Domestic step is now selected

Case 1 - Selected Tax Condition Record
 Based on correct departure country
 Correct tax code selected
 Correct VAT rate applied

Case 1
Departure
country
Destination
country
CTC MTC VAT ID Tax
code
Actual result in UAT after system modifications:
Departure
country
Destination
country
CTC MTC VAT ID Tax
code

Sold-to/Payer
190000
‘BE customer’
BE
Company code
BE10
Commercial
Invoice
Goods
Intercompany
Invoice
Company code
UK01
Plant UK01
UK
Ship-to 190000
BE customer

Agenda
Part 1 : 10h45 – 11h30
Part 2 : 11h35 – 12h20

Case 2 – Triangulation
Specifics around Triangulation and (external) party suppliers
 Country specific rules : is triangulation allowed in all cases?
 If the entity (either affiliate or external party) that delivers the goods is not configured on
your SAP system, the ‘departure country’ in not known during the sales order process /
billing process
Solution
 Option 1: train sales order staff to manually determine ‘Triangulation’
 Option 2: teach SAP to recognise triangulation deals and the corresponding country
specific rules

Case 2
 Party 'B’ applies triangulation, and exempts the transaction from VAT
 Standard SAP requires manual intervention to achieve this
 The user must ‘tick a box’ in the sales order to indicate a triangular deal
Consider the following complications….
UK01
Party “A”
VAT Reg in UK
Customer
Party “C”
VAT Reg in NL
NLUK
BE10
Party “B”
VAT Reg in BE
BE
Goods
Intercompany
invoice
Commercial
invoice

Case 2
 Party 'B’ cannot apply triangulation, as it is VAT registered in NL (country ‘C’)
 Party 'B’ must report an acquisition in NL
 As Party 'B’ is not established in NL, it needs to apply the extended reverse-charge
Consider a further complication…......
UK01
Party “A”
VAT Reg in UK
Customer
Party “C”
Established in NL
VAT Reg in NL
NLUK
BE10
Party “B”
VAT Reg in BE
and
VAT Reg in NL
Goods
Intercompany
invoice
BE
Commercial
invoice

Case 2
 Party 'B’ cannot apply triangulation, as it is VAT registered in NL (country ‘C’)
 Party 'B’ must report an acquisition in NL
 As Party 'C’ is not established in NL, Party 'B’ cannot apply the extended reverse charge.
 Party 'B’ must therefore apply domestic NL VAT at 21%
UK01
Party “A”
VAT Reg in UK
Customer
Party “C”
NOT Established in NL
Only VAT Reg in NL
NLUK
BE10
Party “B”
VAT Reg in BE
and
VAT Reg in NL
BE
Goods
Intercompany
invoice
Commercial
invoice

Case 2
Solution option 1: Manual intervention
 Sales order staff or customer services representatives (CSR) are responsible
for setting up sales orders in SAP.
 In order to apply the correct VAT rules in standard SAP, train the CSR to
recognise possible ‘Triangular deals’ and train them to apply all various country
specific rules.
 If they still can remember and apply correctly all relevant rules, train the CSR
to manually check the box ‘EU triangular deal’ within the sales order.

Case 2
Solution Option 1: Manually tick the box ‘EU triangular deal’

Case 2
Departure
country
Destination
country
Validity
period
Tax
%
Tax code
Departure
country
Customer
tax class.
Material
tax class.
Validity
period
Tax
%
Tax code
Step 1: Export / Intra EU: Reduced
Step 2: Domestic
Departure
country
Destination
country
Customer
tax class.
Material
tax class.
Validity
period
Tax
%
Tax
code
Step 3: Export / Intra EU: Extensive
Departure
country
Destination
country
Customer
tax class.
Material
tax class.
Triang.
indicator
Tax
%
Tax
code
New step: Export / Intra EU: Extensive + Triangulation indicator
Additional: Define a new access sequence step to include the ‘EU Triangular deal’ indicator

Case 2
Solution option 1: Manual intervention
 The sales order staff in your company are expected to:
 be VAT experts in determining the correct rules for each transaction; and
 never get it wrong!
Solution option 1 works, but is a high risk solution and therefore
not considered to be a ‘Best Practice’ solution

Case 2
Solution option 2: Modify the system - Supply of goods either by affiliated company,
customized on SAP or by a third party supplier/affiliate not on SAP
Implement a combination of tables and logic
 In cases where the delivering party is configured as an entity on SAP:
 implement logic to detect possible triangular flows
 implement tables, that specify the country specific simplification rules
(triangulation as well as Extended reverse charge)
 implement logic to, based on the above, set the triangulation indicator in the sales
order in an automated way.
 In cases where the delivering party is an external supplier:
 implement a special partner role to represent the external supplier.
 add this new partner role to each sales order that is being delivered by this
external supplier
 add the new partner role into the above logic to correctly determine whether or
not the transaction could be a possible triangular flow

Case 2
Solution option 2: Modify the system - Supply of goods either by affiliated company,
customized on SAP or by a third party supplier/affiliate not on SAP
Implement a combination of tables and logic (cont..)
Advantages
 Only tables, containing country specific rules, need to be updated. This will only be
the case whenever a country decides to change its legislation
 All changes in your business processes (new entities, new logistical routes etc) or
changes in your customer data base (changed ship-to’s, new customers etc) will be
automatically included into the triangulation functionality
Disadvantages
 Fairly complex logic to build into SAP

Agenda
Part 1 : 10h45 – 11h30
Part 2 : 11h35 – 12h20

Case 3 – Customer pick-ups
Specifics around Customer pick-ups, where goods leave the country
 To exempt the transaction from VAT because of either an Intra community
supply or an export, you must obtain proof that the goods left the country.
 Check which party is performing the customer pick-up. VAT determination for
party ‘B’ or party ‘C’ customer pick-ups is different.
Solution
 Option 1: train sales order staff to manually determine the correct VAT
treatment for customer pick-ups
 Option 2: teach SAP to recognise customer pick-up transactions

Case 3 – Customer pick-ups (A)
 Party ‘A’ arranges and pays for the transport
 Party ‘A’ can prove that the goods left BE and may thus exempt this transaction as an
Intra Community supply of goods
Consider the following complications….
Customer
Party “B”
VAT Reg in NL
NL
BE10
Party “A”
VAT Reg in BE
BE
Goods
Commercial
invoice
Party ‘A’ arranges and pays for the transport

Case 3 – Customer pick-ups (B)
 Party ‘B’ arranges and pays for the transport
 Party ‘A’ must receive proof from Party ‘B’ that the goods left BE before Party ‘A’ can
exempt this transaction as an indirect dispatch
 If no proof is obtained, Party ‘A’ will need to treat this as a domestic transaction in BE
Consider the following (additional) complications….
Customer
Party “B”
VAT Reg in NL
NL
BE10
Party “A”
VAT Reg in BE
BE
Goods
Commercial
invoice
Party ‘B’ arranges and pays for the transport

Case 3 – Customer pick-ups (C)
Consider 3 parties in the supply chain:
 Party 'B’ applies the triangulation simplification and exempts this transaction from VAT
 For details around Triangulation, see Case 2
Consider the following (additional) complications….
UK01
Party “A”
VAT Reg in UK
Customer
Party “C”
VAT Reg in NL
NLUK
BE10
Party “B”
VAT Reg in BE
BE
Goods
Intercompany
invoice
Commercial
invoice
Party ‘A’ arranges and pays for Transport

Case 3 – Customer pick-ups (D)
 Party 'C’ arranges and pays for the transport
 Party 'A’ (interco. invoice) applies domestic UK VAT, as this becomes “non-moved leg”
 Party 'B’ will need to be VAT registered in the UK and can either:
 exempt the transaction from VAT as an indirect dispatch (with proof of dispatch, see D1); or
 apply domestic UK VAT (see D2)
UK01
Party “A”
VAT Reg in UK
Customer
Party “C”
VAT Reg in NL
NLUK
BE10
Party “B”
VAT Reg in BE
BE
Goods
Intercompany
invoice
Commercial
invoice
Party ‘C’ arranges and pays for Transport

Case 3 – Customer pick-ups (D1)
 Party 'B’ needs to be registered in the UK and can exempt the transaction from VAT as
an indirect dispatch as it obtained proof from ‘Party 'C’’ that the goods left the country.
UK01
Party “A”
VAT Reg in UK
Customer
Party “C”
VAT Reg in NL
NLUK
BE10
Party “B”
VAT Reg in BE & UK
BE
Goods
Intercompany
invoice
Commercial
invoice

 Party 'B’ needs to be registered in the UK and needs to perform a domestic transaction if
it did not obtain the proof from Party 'C’ that the goods left the UK.
 Party 'C’ would then need to be registered for VAT in the UK and needs to perform a
movement of own goods from UK to NL.
UK01
Party “A”
VAT Reg in UK
Warehouse
Customer
Party “C”
NLUK
BE10
Party “B”
VAT Reg in BE & UK
BE
Goods
Intercompany
invoice
Commercial invoice
Customer
Party “C”
VAT Reg in NL

Case 3 – Customer pick-ups
System implications for the previous flows

Case 3 – Customer pick-ups (A)
 Standard SAP can correctly determine an Intra Community Supply of goods within this
business flow
Customer
Party “B”
VAT Reg in NL
NL
BE10
Party “A”
VAT Reg in BE
BE
Goods
Commercial
invoice

Case 3 – Customer pick-ups (B)
 Standard SAP will always determine an Intra Community flow.
 If Party 'A’ cannot obtain proof that the goods have left the country, SAP needs to be
instructed to determine a domestic, BE transaction:
 Option 1: Train the CSR to change the destination country in the sales order
 Option 2: Teach SAP how to recognize these flows and then automatically change
the destination country by using system-driven logic
Customer
Party “B”
VAT Reg in NL
NL
BE10
Party “A”
VAT Reg in BE
BE
Goods
Commercial
invoice
Party ‘B’ arranges and pays for Transport

Case 3 – Customer pick-ups (C)
 See the Case 2 (Triangular deal scenarios) for the various solution options
UK01
Party “A”
VAT Reg in UK
Customer
Party “C”
VAT Reg in NL
NLUK
BE10
Party “B”
VAT Reg in BE
BE
Goods
Intercompany
invoice
Commercial
invoice

UK01
Party “A”
VAT Reg in UK
Customer
Party “C”
VAT Reg in NL
NLUK
BE10
Party “B”
VAT Reg in BE & UK
BE
Goods
Intercompany
invoice
Commercial
invoice
The intercompany invoice
 The destination country for the intercompany invoice needs to be changed to GB
 This needs to be system-driven logic, as intercompany invoices are normally created in an
overnight batch process. CSR’s will not be able to influence the VAT treatment for intercompany
invoices

UK01
Party “A”
VAT Reg in UK
Customer
Party “C”
VAT Reg in NL
NLUK
BE10
Party “B”
VAT Reg in BE & UK
BE
Goods
Intercompany
invoice
Commercial
invoice
The commercial invoice: Party 'B’ obtains proof of transport (indirect dispatch)
 Party 'B’ must perform an exempt Intra Community supply of goods, using its UK VAT
registration number!
 The departure country for the commercial invoice needs to be changed to GB
 Either train the CSR to change the tax departure country in the sales order or implement system
logic to determine a different tax departure country for this flow.

UK01
Party “A”
VAT Reg in UK
Warehouse
Customer
Party “C”
NLUK
BE10
Party “B”
VAT Reg in BE & UK
BE
Goods
Intercompany
invoice
Commercial invoice
Customer
Party “C”
VAT Reg in NL
The intercompany invoice
 The destination country for the intercompany invoice needs to be changed to GB
 This needs to be system-driven logic, as intercompany invoices are normally created in an
overnight batch processes. CSR’s will not be able influence the VAT treatment for intercompany
invoices

UK01
Party “A”
VAT Reg in UK
Warehouse
Customer
Party “C”
NLUK
BE10
Party “B”
VAT Reg in BE & UK
BE
Goods
Intercompany
invoice
The commercial invoice: Party 'B’ does not obtain proof of transport
 Party 'B’ must perform a domestic transaction in the UK , using its UK VAT registration
number!
 The departure AND destination country for the commercial invoice needs to be changed to GB
 Either train the CSR to change both countries in the sales order or implement system logic to
determine the correct countries for this flow.
Commercial invoice
Customer
Party “C”
VAT Reg in NL

Agenda
Part 1 : 10h45 – 11h30
Part 2 : 11h35 – 12h20

Case 4 – Commercial invoice
Adding access sequence steps and additional characteristics into condition records:
- Adds undesired complexity into tax condition records
- Multiplies number of tax condition records
- Maintenance and control becomes inefficient and expensive
- Increases risk of incorrect tax treatment on invoices
Dep
cntry
Dest
cntry
Plant Sales
org
Div Distr
chan
Triang.
indic.
Sold-to Ship-to Inco
term
CTC MTC Tax
%
Tax
code
BE NO 1 1 0 A1
BE NO NO01 1 1 25 B2
BE NO BE10 BE10 1 1 21 A7
BE NO NO01 BE10 10 1 1 25 B3
BE NO BE10 BE10 10 01 1 1 21 A7
BE NO UK01 UK01 10 01 190000 190000 1 1 0 X5
BE NO BE10 BE10 10 01 190000 190000 1 1 0 Z8
BE NO UK01 BE10 10 01 190000 290771 1 1 0 Z8
BE NO UK01 BE10 10 01 190000 290771 EXW 1 1 21 1C
Imagine 10,000 records like this, spread over 15 access sequence steps:
TIP: Limit the number of extra characteristics in access sequences. Only expand if absolutely
necessary

Agenda
Part 1 : 10h45 – 11h30
⁞ Introduction to tax determination in SAP
⁞ Case 1: Drop shipments
⁞ Case 2: Triangulation
⁞ Case 3: Customer pickups (EXW deliveries)
⁞ Tip: Avoid complexity in condition records
⁞ Case 4: Services
Part 2 : 11h35 – 12h20

Case 4 – Services
Specifics around Services
 Place of supply rules 2010 for (default) services: The ‘tax destination country’ needs to be
“the country of establishment” of your customer
 Standard SAP: The tax destination country is the country of your Ship-to
 Not all services are default services, and the place of supply varies
Possible solution
 Create specific material tax classifications for various services
 Modify the system to determine the correct ‘tax destination country’ in case of services
based upon those material tax classifications
 Create specific tax codes for services ‘Inside EU’ and ‘Outside EU’
 Create specific tax condition records to determine the correct tax codes

FR
Sold-to/Payer
‘Cust.Belgium’
BE
Company code
BE10
Plant BE10
Service Machine at a French site of
the Belgian customer
Case 4 – Services
VAT treatment for the above Commercial invoice for VAT:
‘Domestic 21% VAT Belgium’
(because the Belgian customer is established in Belgium)
Invoice

Case 5 – Services
Solution: Option 1
 Manually change the tax destination country in the sales order
Advantage
 No system modification necessary
Disadvantage
 Risk and inefficiency: non-tax experts manually manipulating tax treatment

Case 4 – Services
Solution: Option 2
 Implement the SAP notes as SAP issued on the new place of supply rules
 The SAP notes describe 2 possible solutions:
a) modification based upon item category.
b) modification based upon material tax classifications
Advantage
 SAP predefined sample coding for the place of supply rules
Disadvantage
 Option (a) “item category” – does not use VAT relevant characteristics. SAP
introduces yet another way to determine VAT which adds unnecessary complexity
 Option (b) “material tax classification” is a hard coded system modification

Case 4 – Services
Solution: Option 3
 Implement a more flexible, table-based solution, based on the MTC
 Determines the correct destination country based upon the new place of supply
rules
Advantage
 The solution can be flexible and can deal with all different kinds of services
Disadvantage
 Goods and services still need to be split over multiple invoices

Agenda
Part 1 : 10h45 – 11h30
Part 2 : 11h35 – 12h20

UK01 is registered for VAT in
country UK
UK01 is registered for VAT in
country BE
Plants Abroad, One Company Code, Foreign VAT Registration
Plants Abroad in SAP
Company code
UK01
Plant BEA1,
Based in Belgium
Plant UK01,
based in the UK
Business requirements

Stock movement
Intra company stock movement
Business requirements
Company code
UK01
Plant UK01,
based in the UK
Plant BEA1,
Based in Belgium

Why and what does it do?
 To be used if you have warehouses or
distribution centres in an EU country, other
then the country of establishment of your
company code
 Enables VAT and ECSL reporting for your
foreign VAT registrations
 Automates all VAT and Intrastat postings for
Intra-company, cross border transfers of stock

After activation of Plants Abroad, you notice the following major
changes in SAP:
 A new field is added to the tax code properties, representing the ‘reporting
country’. This reporting country is used within the selection criteria of the VAT
return report and EC Sales list
 The programs for running the VAT return report and the EC Sales list are
adapted with the reporting country
 The VAT return report is enhanced to report in the correct country specific
currency

Cross border – Intra Company Stock Transfers

Stock movement
Plants Abroad invoice (WIA): Stock movement from foreign plant to domestic plant
Company code
UK01
Plant UK01,
based in the UK
Plant BEA1,
Based in Belgium
UKBelgium
UK01 needs to report VAT and INTRASTAT since this is a cross-border goods flow
To support above flow and above requirements, a ‘dummy’ invoice has to be created.
(Plants Abroad invoice: WIA)

Standard price from material master
0% Intra community VAT in BE
100% rebate of the calculated VPRS
Calculation of the INTRASTAT value
Credit posting 20% acquisition tax in GB
Debit posting 20% acquisition tax in GB
Plants Abroad invoice (WIA) pricing procedure

NOTE: The total sum should always be zero.
No posting in A/R should be made for a dummy invoice, only a G/L posting!
Plants Abroad invoice (WIA) pricing procedure

Plants Abroad invoice (WIA2): VAT postings

The condition type WIA2 represents the VAT postings for the intra-Community sale.
In the example, it would determine the condition record below:
Plants Abroad invoice (WIA2): VAT postings

From the previous tax condition record, tax code
‘XA’ is determined for the output tax from Belgium
 Within tax code ‘XA’, reporting country BE
has been set for VAT reporting
Plants Abroad invoice (WIA2) : VAT Postings

Plants Abroad invoice (WIA1 / WIA3): VAT postings

Issue:
 Within MM / FI we are able to post
acquisition VAT with 1 tax code.
 This is also possible within SD if the
condition WIA3 is referenced to
WIA3
Plants Abroad invoice (WIA3, WIA1) : Reference WIA3 to WIA1

Plants Abroad invoice (WIA3, WIA1) : Reference WIA3 to WIA1
Transaction V/06: Change condition type WIA3:

The condition type WIA1 and WIA3 represent the Acquisition tax.
In the example we would create below condition record for condition WIA1
Plants Abroad invoice (WIA3, WIA1) : Intra-Community Acquisition VAT Postings
The condition type WIA3 doesn’t need to be created as it is referenced to WIA1

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

Interface Between Sales & Distribution and Finance

SAP - SD SAP - FI
INVOICE Accounting
document
The interface
Interface

Tax determination in SAP-SD
Stock movement
Company code
UK01
Plant UK01,
based in the UK
Plant BEA1,
Based in Belgium
 The delivering plant in the SD module is plant BEA1
 The country of this plant is BE
 SAP uses this delivering plant to determine the tax departure country
 The tax procedure assigned to BE is TAXB
 Condition WIA2 (0% Intra community supply from BE to GB) will determine tax code XA. Tax code XA needs
to be configured in tax procedure TAXB

Tax determination in SAP-FI
Stock movement
Company code
UK01
Plant UK01,
based in the UK
Plant BEA1,
Based in Belgium
 The billing document is transferred via an interface from SAP-SD to SAP-FI
 In SAP-FI, the accounting document is generated for the billing document
 SAP-FI has no plant information, it only recognizes the company code in which the posting is created
 The tax departure country therefore is determined from the company code, not from the plant (like in SD)
 The country of the UK01 company code is GB (In SAP-SD this was BE)
 The tax procedure assigned to GB is TAXGB (In SAP-SD this was TAXB)

Tax determination in SAP-FI
Stock movement
Company code
UK01
Plant UK01,
based in the UK
Plant BEA1,
Based in Belgium
 The tax code ‘XA’, determined in SAP-SD now needs to be determined from another tax procedure!
 Within SAP-SD, the tax procedure was TAXB, within SAP-FI the tax procedure is TAXGB
 Tax code ‘XA’ thus needs to be created in both tax procedures TAXGB as well as TAXB
 This leads to double maintenance of tax codes while using Plants Abroad

VAT code determination in SD differs from FI, so double maintenance of tax codes.
Example for tax code XA (WIA2 condition, 0% intra community supply from BE)
SD
Tax departure country = country of plant
Country of plant = BE
Tax procedure for country BE = TAXB
For the purpose of tax condition records:
Tax code XA needs to be created in TAXB
Tax (departure) country = country of
company code
Country of company code = GB
Tax procedure for country GB = TAXGB
For the purpose of postings in the G/L:
Tax code XA needs to be created in TAXGB
FI

Cause of the issue of double maintenance of tax codes and the solution for avoiding double maintenance
CAUSE
 The use of country specific tax procedures (every country uses a separate tax procedure)
Solution
 Assign to every (EU) country the same tax procedure (a common tax procedure used by all (EU)
countries, like tax procedure TAXEU)

Sales From a Plant Abroad

UK BE
Commercial
invoice (F2)
Goods
Since UK01 is registered for VAT in Belgium, the commercial invoice
needs to be created with 0% “extended reverse-charge” VAT in Belgium
Company code
UK01
Customer established
and VAT registered in BE
Plant BEA1
(belongs to cc UK01)

Specifics around Extended reverse Charge rules
 If you are a “non-established entity” i.e:=> you are established in country ‘A’, but VAT
registered in member state ‘B’, and/or ‘C’ etc..)
 You may be obliged to apply the ‘Extended Reverse Charge’ – depending on the
specific country
 This means, that instead of applying local VAT on your taxable supplies, you would not
charge VAT
 Your customer (depending on his status) would have to ‘self-assess’ the VAT via the
reverse-charge
 You would have a legal requirement to mention this on your sales invoice (billing
document)

Expected result:
Commercial invoice 1: Domestic BE VAT 21 %
Commercial invoice 2: Extended reverse Charge BE 0%
This result can only be reached if the customer tax classification for company code
BE10 differs from the customer tax classification of company code UK01
Commercial
Invoice 1
Company code
UK01
BEUK
Company code
BE10
UK Established / VAT
registered
Plant BEA1
(BE Foreign
Registration of
UK01)
Commercial Invoice 2
Customer established
and VAT registered in BE

Customer master data in SAP is company code independent
and only allows 1 customer tax classification per tax departure country:
Commercial
Invoice 1
Company code
UK01
Customer
registered in BE
BEUK
Company code
BE10
registered
Plant BEA1
(BE Foreign
Registration of
UK01)

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
UK01
Customer
registered in BE
BEUK
Company code
BE10
registered
Plant BEA1
(BE Foreign
Registration of
UK01)

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

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

Sales From a Plant Abroad: Commercial invoice 1: tax condition record
 Characteristics are correct

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

Sales From a Plant Abroad: Commercial invoice 2: Pricing analysis
 Dynamic change of CTC to “V”
 Drives different VAT treatment

Sales From a Plant Abroad: Commercial invoice 1: tax condition record
 Tax departure country is correct
 Special CTC of “V” drives tax decision for Extended
Reverse Charge
 Correct tax code BF determined

VAT Return Reports and EC Sales Lists

To facilitate the selection of multiple
countries for 1 Company Code , SAP
has extended the VAT report
Properties tax code XA
Using the reporting country in reporting
Monthly VAT reporting and Plants Abroad

Company code UK01
Plant UK01
Plant BEA1
Plant PLA1
Plant SEA1
VAT report for the UK Tax authorities
VAT report for the Polish Tax authorities
VAT report for the Belgium Tax authorities
VAT report for the Swedish Tax authorities
In GBP !
In PLN !
In SEK !
Using the daily average
rate of the European
Central Bank
Using the monthly
average rate of the
European Central Bank
All postings done in
UK01 are in GBP, so we
have to convert the
amounts
In EUR !
Example Monthly Reporting for UK01

To facilitate the conversions to
country currencies, SAP has
extended the VAT report:
NOTE: Plants Abroad creates
possibilities to manage these
currencies correctly
Managing different reporting currencies

To facilitate the reporting per
country in which the company is
VAT registered, SAP has
extended report RFASLM00
transaction S_ALR_87012400:
Quarterly VAT reporting: EC sales list and Plants Abroad

Agenda
Part 1 : 10h45 – 11h30
Part 2 : 11h35 – 12h20

Tax code determination in purchase orders
• Option 1: Tax code is set in purchase order
• Option 2: Tax code is determined via condition record technique in PO
• Option 3: No tax code in purchase order
VAT determination in Purchase orders

Option 1: Tax code is set in purchase order
• Manual VAT determination by purchase staff
• No automation necessary in SAP

Option 2: Tax code is determined via condition record technique in PO
• No manual VAT determination by purchase staff
• Automation in SAP, using condition record technique, similar to Sales transactions

Issues:
a) Destination country in purchase orders
 destination country in the PO “import data” is used within the tax condition records
 within the “import data” screens of a PO line item, the country of destination is
determined based on the country of the receiving plant.
 The receiving plant is not necessarily the destination country.
b) Departure country in purchase orders
 the departure country as used within the tax condition records is retrieved from the
dispatch country within the import tab.
 if the purchase order contains a partner role ‘GS’ (Goods supplier), the country of the
goods supplier is determined as departure country.
 if there is no Goods supplier, the country of the vendor is used as departure country

Issues:
c) Import Indicator
 SAP uses a so called import indicator within the condition record technique.
 This indicator represents either:
– ‘0’ No import (domestic)
– ‘1’ Import from outside EU
– ‘2’ Import within EU
 As the destination country and the departure country are doubtful, the import indicator
cannot be used
d) Missing EU rules
 Within the condition record technique, no logic is available for:
– domestic reverse charge, EU triangular deals, s
– special regions within the EU
– Etc.

Option 3: No tax code is set in purchase order
 Tax code is determined via:
 manual during invoice receipt
 automated via EDI – IDOC processing

VAT determination: EDI processing

The tax code for incoming electronic/EDI invoices can be determined via:
 table T076M (transaction OBCD)
 the purchase order
Table T076M contains
 the partner type
 the vendor number
 the (vendor) tax code as stated in the electronic/EDI invoice,
 the (vendor) tax percentage as stated in the electronic/EDI invoice,
 the destination country
Based on above parameters, the tax code for the AP invoice posting is determined IF no tax code is
stated on the purchase order

Question 1: Which VAT registration number will this vendor use?
FR
Company code FR10
BE
Belgian Vendor
209000
EDI - AP
Invoice
Warehouse BE
Vendor is registered
in BE, but also
registered in FR
Answer: Could be the BE VAT registration number or the FR VAT registration number?
(a) VAT treatment where BE VAT ID is used: Intra-EU acquisition: +/- 19.6% , self assessed
(b) VAT treatment where FR VAT ID is used: Extended reverse-charge: +/- 19.6%, self-assessed
(a) requires separate disclosure in boxes 03, 08, 20 and 17 of FR VAT return
(b) requires separate disclosure in boxes 3B, 08, 20 of FR VAT return

Partner
type
Partner
number
Tax
type
Tax rate Destination
country
Tax code
LI 209000 VAT 0.000 (%) FR QUESTION 2:
Intra community acquisition?
OR
Extended reverse charge?
Standard SAP VAT determination for EDI invoices (via OBCD)
In both cases, a reverse-charge posting needs to be created (debit/credit posting) – but it will need to be
a different tax code as this requires different disclosure in the VAT returns
Question 4: Is it goods or services?
(a) VAT treatment where BE VAT ID is used: Intra-EU acquisition: +/- 19.6% , self assessed
(b) VAT treatment where FR VAT ID is used: Extended reverse-charge: +/- 19.6%, self-assessed
Question 3: Which percentage needs to be used:
- Standard rate? or
- reduced rate? or
- super reduced rate?

ISSUES
• Missing EU rules
 Extended reverse charge
 EU triangular deals
 Special regions within the EU
 Etc.
 No material tax classification available
 No plant tax classification available
 No departure country available
 Incorrect determination of destination country
 Etc.

Solution
• Build an extended ‘OBCD’ functionality which contains:
 Logic to determine the various EU VAT rules
 Determination of material tax classifications
 Determination of the correct departure country
 Determination of the correct destination country
 etc.

Further information
Roger Lindelauf
e-mail: 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

Disclaimer
The information contained within this presentation is and shall remain the property of Meridian Global Services and its subsidiary and associate companies. This presentation is
supplied in strict confidence and must not be re-produced in whole or in part, used in tendering or for other purposes or given or communicated to any third party without
the prior written consent of Meridian
END

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