Richard Cornelisse

Author Archive

Best SAP add on solution for VAT for a reason

In Indirect Tax Automation, Indirect Tax Strategic Plan, Processes and Controls, SAP add on, SAP add on for VAT, SAP for VAT, SAP implementation, SAP review, SAP SLO renaming tax codes, System Landscape Optimization, VAT automation, VAT for SAP, VAT planning on 25/09/2014 at 12:34 pm

“It really takes a maximum of only 4 extra SAP tables to get our SAP add-on solution(s) up and running.  Other Add-on providers are trying to replicate our work.  A replication might be in practice cheaper than the original, however if quality service is the main driver where it relates to the company’s heart of its organization (its ERP system) and meeting a company’s strict IT policy is essential than such a bargain with the only effort of trying to replicate other people’s work without understanding the entire concept can backfire. Our add-on is in production for many years at listed multi billion Euro companies and client references are available. It is all about achieving client satisfaction for also the long run.”

In analogy with a car, we have tuned up standard SAP (i.e. given it extra brain power) to realize that extra indirect tax performance. The result is that the VAT treatment of all incoming and outgoing invoices is automatically determined for also the most complex transactions. In fact you have a SAP built in designated driver that makes that happen.

Even important is that you keep on driving safely. It therefore includes all the necessary safety features such as an integrated Tax Control Framework that stops the car or shows a RED light in an emergency table when danger is ahead.

Do you prefer a SUV instead of a supercar? That is possible as our features can be deselected and still added at a later stage. We are aware that not everybody needs a supercar immediately.

During Big4 software vendor selections Taxmarc™ has been selected various times as the ‘best’ SAP Add-on solution. Our Add-on is in production for many years at listed multi billion Euro companies.

A selection of our premium features:

  • Automated VAT determination of Inter-company and 3rd Party drop shipment chain transactions with 4 parties in the chain
  • Time stamped tax code design (never run out of tax codes)
  • Integrated Taxmarc™ decision tree in SAP as part of the Tax Control Framework with more automated real-time controls on transactions for VAT compliancy
  • In chain transactions with non EU countries the correct VAT treatment depends on which party is acting as importer or exporter of records. Additional data are used to either default the party acting as importer or exporter of records or define this at sales order level
  • Add-on checks the validity of VAT registration numbers against the European VIES database.
  • Data Analytics on the relevant VAT data for all sales transactions which provides a ‘Continuous Controls Monitoring tool
  • VAT management cockpit to monitor and maintain the VAT in a user friendly and cost efficient way.
  • VAT technical configurations and set-up options are grouped together in the standard SAP IMG

“The Add-on solution is also operational for non EU countries such as China, Chile, Israel, Japan, Malaysia, Mexico, Norway, Russia, Singapore, South Korea, Switzerland, Taiwan and the US?”

Besides above features our premium includes as well all our features of our standard package:

Standard package of Taxmarc™ tabel

Overview core features and its added value

  • Solution type: SAP Add-on solution
  • Technology used: SAP ABAP

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Taxmarc™ SAP solution2

Phenix Consulting: new solutions to optimize SAP

In Benchmark, business intelligence, Business Strategy, cash management, financial audit, Indirect Tax Strategic Plan, internal audit, liquidity management, Phenix Consulting, Processes and Controls, SAP add on, SAP add on for VAT, SAP for VAT, SAP implementation, SAP review, System Landscape Optimization, Technology, VAT for SAP on 24/09/2014 at 8:08 am

1. Phenix Consulting

Phenix Consulting is a company led by 6 partners and a team of around 30 employees who have strong international business and working experience in SAP environments.

Our main business focus is to optimize SAP from a tax, financial and control perspective. 

We are located in Amsterdam, Berlin, Cologne.

Products: Tax – standard audit file for tax purposes (SAF-T)

Based on the OECD requirements we developed an ERP system independent external solution that can combine data from different sources (i.e. SAP, Oracle and Sabrix).

Our solution provides a lean and flexible solution which extracts relevant data from any system automatically and transforms it into the country specific required XML format.

The output will be a correct SAFT-XML file.

Products: Tax – e-Bilanz-cockpit for Germany

Phenix Consulting e-Bilanz Cockpit is an easy-to-use solution for German e-tax balance requirements. It is fully integrated into SAP, easily accessible and generic interface risks are avoided. One central screen with all functions at your fingertips.

The cockpit’s ten steps process provides a simple guideline to create and submit mandatory filings. The cockpit is user-friendly due to well-designed features, such as the drag & drop functionality for mapping the company’s chart of accounts to the required fiscal taxonomy.

The cockpit has an interface to non-SAP systems to enable upload of financial data from subsidiaries not running on SAP.

All the group’s tax balances can be created in and filed from one central SAP system via an audit-proof process. Any tax adjustments made in the cockpit does not influence SAP data and these adjustment could be tracked via a separate document journal.

Similar to SAP all entries and changes are recorded (full audit trail), ensuring that the cockpit meets high standards of IT and process security.

3 Phenix Consulting

Services: SAP implementation and optimization

All of our consultants have a proven track record in implementing and optimizing SAP ERP at a broad variety of customers and industries.

Our service offering ranges from the functional improvement of existing SAP installations to full life-cycle implementation projects. Beside our business- and IT-expertise we also provide project management and development services.

Our distinguishing capabilities

  • We understand that no SAP implementation is alike – we recommend and implement the functionalities that best fit to your size, complexity and industry
  • We help you get the maximum out of SAP: we bring in best practice approaches and combine them with your individual requirements
  • For international rollouts we are best familiar with the local requirements even of highly specific countries such as Brazil, Russia or China
  • Our team of experienced consultants takes ownership and responsibility and pushes your project to success
  • We rely on a proven set of structured methods and tools that we can bring into the project

Other services in this line: Workflow optimization, Business Intelligence, Development Support

Services: Finance – cash management & liquidity management

Cash and liquidity management is becoming more and more crucial to each organization. Despite, many companies do not take full advantage of the system’s capabilities and run their processes and reporting on a semi-automated, or even spreadsheet based approach.

SAP offers an entire toolkit of functions related to cash-management topics that are branded as ‘financial supply chain management’:

  • Liquidity reporting and planning (cash position, liquidity forecast, liquidity planner, BO BPC)
  • Optimization of available cash (inhouse-cash)
  • Facilitation and automization of cash related transactions (electronic bank statement, bank communications Management)

To cover more specific requirements like loans management or hedge accounting SAP’s treasury and risk management solution (SAP TRM) is available.

Most of these functions can be implemented independently from each other. This brings a huge flexibility in terms what brings most benefits to an organization within reasonable time and budget.

Our recommended approach is to start with functional small packages (e.g. cash position, bank statement) and – once proven successful – implement subsequent add-ons.

Our distinguishing capabilities

  • We are not functionality-driven but instead develop and implement a sound roadmap towards an integrated cash- and liquidity management
  • We offer add-on products (e.g. EBS-Cockpit) to further drive efficiency in your cash processes
  • We are also best familiar with SAP’s treasury solutions

Other services in this line: Consolidation optimization, Intercompany optimization

Services: Tax – SAP implementation for VAT / GST

For nearly every company, the accuracy and efficiency of local-country VAT compliance is nearly completely dependent on the functionality of the underlying ERP system.

Operational malfunctions in a system that is used to manage VAT compliance can lead to substantial financial risks.

There are countless examples of the mismatching of VAT treatment of purchases and sales in chain transactions, double payments of VAT and “forgotten” manual adjustments to the VAT filing, all attributable to shortcomings in SAP’s automated VAT solution.

SAP VAT logic

The SAP VAT determination logic was developed a long time ago (1980’s) and except for the “plants abroad” logic SAP’s VAT determination logic has not changed.

This in contrast with the VAT rules and business models. A brief overview of some of these changes:

  • the EU VAT laws have been more harmonized (EU VAT directive)
  • substantial increase of cross border transactions
  • businesses are registered for VAT in multiple countries
  • businesses are operating more often under complicated principal structures
  • increased number of (integrated) inter-company and supply chain transactions

As a result, there has been a huge increase in the complexity for the SAP system to meet all VAT requirements, which leads to necessary modifications to the standard SAP VAT for many multinational businesses.

Modifications of already very complicated SAP systems create a risk for maintenance and half-hearted solutions. At the same time, tax authorities across the world both sharpen their focus on non-compliant taxpayers and increase their focus on reviewing ERP systems as a source of VAT compliance risks.

Businesses have to ensure that the VAT determination logic in the SAP systems is correct, easy to implement and remains VAT compliant.

Our distinguishing capabilities

Phenix Consulting possesses practical experience and understands SAP’s possibilities, but also its limitations and thus the capability to free up resources, reduce manual activities and manage risks.

With respect to the possibilities, we can express the wishes to the external SAP consultant in his own language and we can demonstrate how these can actually be achieved in SAP. In practice, we note that certain functionality intended for the support of indirect tax objectives does not get used – due either to reluctance (not within budget) or to a lack of knowledge in this area.

From an indirect tax standpoint, the realization that you are part of a larger team in which each of the participants have other priorities is key. This means that effective communication and agreements are essential.

Instructions must be understandable and so short and compact that they can also be used as a reference framework and material for the tests. In practice, Excel is often used to record all transactions and to indicate what the VAT treatment, etc. We developed our own normative decision trees for effective communication resulting in effective workforce and less risks.

Other services in this line: SAP review,Tax Performance Consultancy

Services: Risk and Control – GRC, security and authorization management

Management of information security becomes more and more critical because of increasing regulatory requirements. A key to ensure adequate information security is the design, implementation and ongoing operation of the authorization concept in SAP.

Management and continuous monitoring of authorizations can be carried out in SAP directly or tool-based.

Our distinguishing capabilities

  • We approach information security in a combined approach bringing together our long-year audit experience and our technical excellence in setting up authorizations in SAP
  • We provide our own tools to quickly assess the quality of security and authorizations in your SAP system
  • Because we know the market well we can assist our client finding the right approach and tools to ensure sustainable compliance

Other services in this line: Internal Audit Optimization, Financial Audit Optimization

Contacts

Netherlands

Richard Cornelisse
Managing Director, Phenix Consulting
E-mail: richard.cornelisse@phenix-consulting.nl
http://www.phenix-consulting.nl

Germany

Guido Czampiel
Managing Director, Phenix Consulting
E-mail: guido.czampiel@phenix-consulting.nl
http://www.phenix-consulting.nl

2 Phenix Consulting

SAP add-on: never run out of tax codes

In Indirect Tax Automation, Indirect Tax Strategic Plan, Processes and Controls, SAP add on, SAP add on for VAT, SAP for VAT, SAP SLO renaming tax codes, System Landscape Optimization, Tax News, Technology, VAT automation on 15/09/2014 at 4:02 am

Multi billion Euro companies operate with Taxmarc™ Tax Code Solution already for many years

Many SAP clients have multiple VAT registrations (in 10+ countries), principal structures, complex business model for sales of goods, cross-border, drop shipment, shortage tax codes (use of 900 + SAP tax codes) and centralized functions.

These organizations will face difficulties to solve the shortages of tax codes issue causing not only tax compliance, but commercial issues as well.

SAP developed a CDP solution on a 4 digit tax code. We understand that this SAP 4 digit tax code solution will not be rolled out to other customers because of risks around the stability and robustness of the solution.

This means that multinational companies still have limited options when facing issues with the limited number of available tax codes.

Alternative market solutions

  • Use the special characters ($,/,\,& etc.) for the tax code – even with the extended number of tax codes some companies will be running out of available tax codes and tax codes with these special characters are not user friendly to work with.
  • Purchase external tax engine – besides high purchase and maintenance costs as external interface have to be used for certain clients it is in conflict with own IT policy as use of standard SAP is preferred
  • Renaming of tax codes exercise (SLO projects) – downside is that in the future due to global VAT change increases a company will face shortages again

How can above downsides be avoided?

Taxmarc™ has developed – an integrated SAP solution that uses a time stamped rates for tax codes. As a result the tax code structure will always remain the same. The advantage is that SAP tax codes structure does no longer require changes and that maintenance costs and involvement of IT is reduced significantly.

Business case

A single VAT rate change could take (set up, transports across the SAP landscape and test cycles prior to production) about 200 – 300 hours. After implementation this is reduced to 2-3 hours and in order to calculate hard savings the surplus has to be multiplied by the amount of VAT rate changes expected.

How long does this process take within your organization and what will be the amount of annual saving (i.e. Return on Investment period)?

Proven solution: all our Taxmarc™ solutions are ‘implemented’, ‘tested’ and ‘in production’ for many years. This product have been implemented by several listed multinationals and are our client reference for Q&A. One customer has an annual revenue of approximately $36 billion and operations in more than 80 countries.

The solution also covers the important iDoc processes within this type of business with many intercompany transactions.

benefits tax codes

Renaming exercise of tax codes via System Landscape Optimization

One of SAP’s offerings are SLO (System Landscape Optimization) projects. For indirect tax that could mean a renaming exercise of tax codes – SLO renaming project – to set up a more logical tax code structure in which the different tax categories in each country will have the same meaning.

The result should be: a logical grouping of the various VAT tax codes in all countries. Such logical re-design of the tax code structure allows centralization of functions regarding indirect tax compliance in Shared Services Centers, as well as implementing control measures in an efficient and effective way.

This leads to substantial cost savings and improved indirect tax risk management.

The objectives of SLO projects are:

  • Align organizational structures and processes at the system level to meet the needs of corporate restructuring
  • Align with best practices and IT strategies to realize data harmonization and process optimization
  • Reduce IT complexity and centralize disparate IT solutions

SAP’s approach

The SAP approach for SLO projects regarding the tax code structure is not the most effective and efficient way. In order to keep the historical audit trail, the old active tax codes are duplicated and renamed often with the use of special characters ($,/,\,& etc.).

That causes not only an increase in tax codes but as well a potential shortage of tax codes when in the future country specific tax procedures are used.

As the company’s objective is a logical tax code structure, the use of these special characters ($,/,\,& etc.) does not meet that objective when investigation of historical audit trail is needed (e.g during a tax audit).

Our Taxmarc ™ approach

Taxmarc™ uses a different approach to perform such SLO renaming exercise of tax codes.
In our method, for the old active tax codes no new tax codes have to be set up as this will also follow the new tax code logic.

That means the renaming is no longer causing an extra increase of tax codes and that both ‘old active tax codes’ as new ‘renamed tax codes’ will follow the same logic and use of special characters ($,/,\,& etc.) is avoided.

Taxmarc ™ Time Stamped designed Tax Codes

In addition to such SLO renaming project, Taxmarc™ has also developed as describes above  a separate solution: Time Stamped designed Tax Codes. That is beneficial when a company would like to keep the current logic also in case of new VAT rate changes.

Downside of the SAP SLO renaming tax codes is that in the future due to global VAT rate changes the overall designed logic will no longer apply in all cases and could in certain cases cause a risk of tax code shortages.

The advantage of this ‘Time Stamped’ solution is also that such a VAT rate change can be implemented beforehand, takes no longer than 2 hours max to set up and has thus a quick Return on Investment.

Taxmarc™ SAP solution2

High level comparison between LRD, Commissionaire and Agent

In Audit Defense, Business Strategy, Indirect Tax Automation, Indirect Tax Strategic Plan, Processes and Controls, SAP add on, SAP add on for VAT, SAP for VAT, Technology, VAT automation, VAT planning on 07/09/2014 at 2:20 pm

If the reason of a business model change is to optimize company’s effective tax rate (tax opportunities), minimizing cash tax effect or cost reduction or realize efficiency overall such standardizing business processes, it is important that with regard to managing such change the indirect tax functions is timely involved (design phase) and also ascertains that proper implementation and executing of indirect tax planning has been taken place. That means that indirect tax issues should be addressed up front during the design phase.

Any change has impact on current processes and controls and its effectiveness. Business model change such as centralized operating model result often in an increased number of transactions and indirect tax obligations across many geographies.

Operational changes have a tax consequence due to the change in transactional flows and the change in a company’s assets, functions and risks profile. Important is to ensure that the new operating model is not only implemented correctly from a tax perspective, but also ensures that business processes are tax aligned realizing support of the business in the areas of compliance, finance & accounting, legal IT systems, indirect tax and regulatory matters. That means teaming is a necessity with with various work streams.

In many Asian countries the Commissionaire concept is not known. In several Asian and Latin- American countries centralized ownership of raw materials, work in progress and finished inventory is not possible. In most countries outside Europe having to register for VAT/GST/Consumption Tax will often results in a full taxable presence, including a liability for Corporate Income Tax.

One of the key processes relate to ERP system. A wrong perception in the design phase can lead to substantial tax and commercial risks. It could also impact the company’s reputation as also customers, suppliers, external auditor, senior management, tax authorities could become stakeholders when it goes wrong.

A condition for success of any ERP solution is involvement by the indirect tax department in design phase, teaming with other workstreams.

The change of a business model can create not only VAT risks, but as well commercial risks such as logistics problems in getting goods into a country and delays and hold off of shipments resulting in disruption of daily business. Some root causes: the company forgot to register for VAT or procurement forgot to agree with supplier who was importing the goods.

SAP change: the perception of Plug And Play

For ‘simple’ business models (AB scenario’s) standard SAP functionality works.

However when business models are more complex, standard SAP VAT functionality is insufficient due to the company’s business model, organizational structures and/or VAT requirements. To manage the correct VAT treatment additional features need to be implemented.

In practice, configuration – the amount depends – is needed when companies deal cross border and/or complex business model are set up such as a centralized principal structure with for example “Limited Risk Distributor” or „Commissionaire”. The latter also known as principal-toller-agent model (PTA).

The company’s principal bears – contractually – from a business deal perspective the major risks (business responsibility). Principals are in the main rule still owner of the goods when these are sent to customers. For corporate tax reasons, such principals have their residence in low tax countries.Tollers are manufacturers that produce on behalf of other parties (e.g. the principal). The toller receives as consideration a tolling fee.

Commissionaires only act as intermediaries to the customers. The principal pays them a commission fee. In a strip-buy-sell model not an agent but a reseller (LRD) is part of the supply. The difference is that a resellers becomes owner of the goods.

VAT Automation of complex business models

In the last decade, companies have increasingly automated their business processes. The most common method is by using an Enterprise Resource Planning (ERP) system. Such a set up can be hugely complex. This is definitely the case where it relates to European based indirect tax. As manual processes are subject to human error, automation could – under circumstances – result in performance improvements and savings.

There are all kinds of business reasons for setting up such centralized models. The challenge from an implementation perspective is indirect tax.

What Makes It Complex?

LRDs and Commissionairs have neither legal ownership to the inventory during storage nor during transport as the Principal is at that stage still the legal owner. It is often the case that the Principal delivers the goods physically and directly to the final customer.

This creates only one physical departure of goods (`goods issue’) in the ERP system. However, two invoices should be raised (one from Principal to LRDs/Commissionairs and one from the LRD/Commissionaire to the final customer.

In the ERP system, the correct ‘ship from’ information at the LRD and Commissionaire level is missing so that the VAT treatment by the system is determined based on the ‘ship from’ and ‘ship to’ information present at the Principal level. In principle, for cross-border transactions this results in the incorrect VAT treatment.

Therefore, in practice, it is time consuming to correctly configure the ‘tax determination logic’ set up. You need to know your practical workarounds, preferable in the design stage.

Even more bottlenecks in case of a commissionaire structure

A “Commissionaire Model” has some more bottlenecks. Since according to civil law, the “commissionaire” does not have ownership, the commissionaire does not own any inventory not even temporarily. That is different with the LRD as a LRD becomes owner via flash title for a very short period.

A “commissionaire” is never the legal owner of the goods. From a VAT perspective, the commissionaire however acts as though he was the owner and a fictitious supply takes place to and subsequently by the commissionaire. The commissionaire has to issue invoices in his own name which can create problems if there are no bookings with respect to inventory.

High level comparison between LRD, Commissionaire and Agent

A sales Principal located in non-EU country will create more complex registration and trading issues. VAT treatment for Commissionaires and LRDs in principle similar (buy and sell), but with different legal flows.

A LRD creates opportunity to have local inventory on LRD books, provided all relevant aspects have been resolved. Different accounting rules exist for LRDs compared to Commissionaires.

37_comparison_between_LRD_Commissionaire_and_Agent

38_comparison_between_LRD_Commissionaire_and_Agent

_1_compare_LRD_etc

Implementation

Once a commercial and tax-efficient structure is determined—one that addresses both historical and potential risk—it is time to take the theory behind the structure into the realm of practice.

Will using a classic principal structure in the new entity help keep maximum profits in low tax jurisdictions? If so, one entity will own title to inventory throughout the various jurisdictions and the principal would require a VAT registration in each location where inventory is held.

34_questions_migration_2

In some countries, particularly Asia and Latin America, a VAT registration will crystallize a permanent establishment for corporate income tax purposes. This could mean for example an increase in the US corporation’s foreign tax compliance obligation and could increase the amount of tax due as well as the workload.

1_TESCM_actvities

From Global Indirect Tax Management by Richard Cornelisse

SAP and ABC transaction with drop shipment

In Benchmark, Indirect Tax Automation, Indirect Tax Strategic Plan, Processes and Controls, SAP add on, SAP add on for VAT, SAP for VAT, VAT automation on 29/08/2014 at 3:32 pm

If the aim of an organization is full VAT automation of AP and AR, it is important to understand what exactly makes standard SAP not functioning optimally from an Indirect Tax perspective. Only then it is possible to validate whether company’s objectives can be achieved with upgrading standard SAP functionality and/or implementing a tax engine.

For a correct VAT determination of a cross border chain transaction the VAT relevant data of company code A and B has to be linked real time as Standard SAP itself is only processing a transaction within one specific company code.

SAP and bold-on tax engines exclusively focus on transactions within a single company; it only assesses the underlying individual transactions and fails to link the current transactions to the VAT results of previous transactions. As a consequence, companies with VAT registrations in different countries cannot automatically comply with all VAT obligations.

To realize such ‘birds eye’ view the tax logic should be based and generated on a higher SAP’s hierarchy: at client level combined with implementing the basic tax rules into the logic. Client level includes all the company codes working on the same SAP platform.

Without that approach: the ‘Garbage In’ and ‘Garbage Out’ principle will apply.

Case Study

The business models of many enterprises have radically changed over the last years and have become increasingly complex. SAP, however, has failed to keep up, which has resulted in the standard functionality of SAP being no longer sufficient for complying with VAT obligations.

Practical solutions must be found within the flexibility and static organization of SAP regarding indirect tax. Because of this, SAP Indirect Tax Consultants in the market can only patch up the existing SAP framework (e.g. ‘hard coding predefined VAT treatments’, see below).

  • Cross-border chain transactions with third parties or within a group of company (intercompany transactions) have become the rule rather than the exception
  • For example goods are sold twice but only are shipped once. Standard SAP VAT determination logic and functionality for VAT determination does not work for complex dynamic business models (e.g. Principal-Toller-Agent model) with for example multiple VAT registrations, pick up and drop shipments, chain transactions between legal entities (ABC / ABCD scenarios)
  • Tax logic should in those circumstance be based and generated on a higher SAP’s hierarchy: at client level combined with implementing the basic tax rules into the logic. Client level includes all the company codes working on the same SAP platform

Below you a case study re cross border intercompany transactions. It is representative for overall Standard SAP weaknesses from an indirect tax perspective.

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Hard coding predefined VAT treatments

One of the solutions is to work with assumptions and to implement these in the system (hard coding of transactions via a predefined VAT treatment). This means that a VAT treatment is no longer deduced using information present in the system. Assumptions may be incorrectly implemented during the actual execution or may undergo a change after “going live.” An incorrect VAT treatment is the potential risk.

If such solution is used, periodic audits as detective control need to be set up since the risks at hand will likely exceed the company’s risk tolerance. This results in extra man-hours, representing additional costs du to rework and retrospective corrections.

An important question to raise for sound business decision process is what tools are available in the market for still achieving full automation without making use of assumptions and determine the VAT treatment on real time data in the system.

ABC_SAP

From Global Indirect Tax Management by Richard Cornelisse and Robbert Hoogeveen

SAP and VAT simplified triangular

In Uncategorized on 27/08/2014 at 2:11 pm

Triangulation is used to describe a ABC chain transaction, which involves three different parties where the products are shipped directly by party A to party C. Party B acts as intermediary, never physically receiving the products.

A cross-border triangulation sale with three parties in three different EU countries has the following VAT consequences. Without any special rules party B would be considered to take legal title either in the EU country of dispatch of the products or in the EU country of arrival. If party B is not VAT registered in these countries it will need to register for VAT purposes in one of these two EU countries.

2 VAT simplified triangular

In order to apply the simplified triangulation measures, the following requirements are set by the EU VAT Directive:

  • There must be 3 parties in the supply-chain, which are identified for VAT purposes in three different EU countries;
  • Party B, must not be established in the EU country of arrival of the goods (EU country C) and in the EU country of dispatch (EU country A);
  • The goods must be transported directly from EU country A to EU country C;
    Party C must be registered for VAT in the EU country where it receives the products (country C);
  • The transportation of the goods must be ordered / arranged in the first part of the chain (i.e. between party A and party B).

The simplified triangulation rules do not apply if party B is registered for VAT in the EU country of dispatch and/or established in the EU country of arrival, however not all EU countries apply this rule strictly and there are in practice many country specific requirements.

SAP and triangulation

Due to the country by country deviations of the standard rule there are many country specific rules for triangulation. That means that in the determination logic different local rules should be taken into consideration when Party B is VAT registered in either the Ship from country or the final Ship To country where the customer receives the goods.

If the supplier (i.e third party vendor) is not set up in SAP the ship from location will not be available in standard VAT determination during billing and sales.

Based on the above the consequence of the simplified triangular is that standard SAP often requires manual intervention. Staff ( sales order staff/customer services representatives) needs to be trained to manually determine triangulations and detective controls have to be set up that it is done correctly.

This manual intervention could be avoided if extra functionality is to standard SAP to recognize these triangular scenarios and all the country specific rules so it can deal with it in an automated way. That is part of the basic VAT determination functionality of Taxmarc™.

_2_Simplified_Triangulation

From Global Indirect Tax management written by Richard Cornelisse and Robbert Hoogeveen

SAP and Plants abroad

In Indirect Tax Automation, Indirect Tax Strategic Plan, Processes and Controls, SAP add on, SAP add on for VAT, SAP for VAT, SAP SLO renaming tax codes, VAT automation on 26/08/2014 at 12:47 pm

The SAP ‘Plants abroad’ functionality is designed to handle tax issues for companies that have warehouses/distribution centres and VAT registration numbers in more than one EU country.

The functionality enables the use of different Tax reporting countries within one company code, the use of the correct company VAT registration number for the sales invoices, the correct VAT treatment for cross border stock transfers and consignment transactions and easier VAT and Intrastat reporting.

When should plants abroad be used:

  1. If a company has plant/storage/warehouse locations in multiple EU countries and the company is VAT registered in these plant/storage/warehouse location countries
  2. If there are intra-company transfers of goods between plant/storage/warehouse locations or in case of consignment stocks in multiple EU countries
  3. If the countries where the company is VAT registered are using different ‘tax currencies’

When plants abroad is implemented a new field for tax reporting country and currency conversion is available for VAT reporting. With activating plants abroad functionality you do not need to create separate company codes for European plants or implement manual processes for VAT and Intrastat reporting.

Cross border stock transfers and plants abroad

With the plants abroad functionality a plants abroad invoice (document type WIA) for cross-Border (intra-company) stock transfer can be created between a foreign plant (e.g. warehouse in France) and a domestic plant (e.g. warehouse in Germany) as such transaction is deemed to be a fictitious intra community transaction from a VAT perspective.

In below example an intra-community acquisition of goods via reverse charge mechanism needs to be reported in the German VAT return and an intra-community dispatch in the French VAT return. These transactions also needs to be reported in the Intrastat report.

Plants abroad

The SAP impact of activating plants abroad

The ‘Plants abroad’ functionality is integrated in SD, MM and FI. By activating the functionality new fields are updated at transaction level. These new database fields for plants abroad are standard available in every SAP environment.

On the tax code properties a new field ‘Tax reporting country’ is added and the ‘Tax reporting country’ field is added on the VAT return reports and EC sales list. A new currency field will be added to enable conversion of the VAT relevant amounts to the tax country currency.

New processes for stock transfers (intra-company replenishment/consignment business) are supported and enable creating a self-invoice (the “WIA” process). Although ‘Plants abroad’ is primarily global cross function setting in SAP it is possible to implement is only for specific company codes.

From a VAT perspective the SAP risk of activating plants abroad is low.

Roadmap of activating plants abroad

  • Review tax codes
  • Update all relevant tax codes with ‘tax reporting country’
  • Setup alternative currencies
  • Update exchange rate type per country
  • Setup configuration for stock transport orders including new pricing procedure
  • Review tax code selection for Accounts Payable and Accounts Receivable as this might be impacted

From Global Indirect Tax Management by Robbert Hoogeveen and Richard Cornelisse

Taxmarc™ SAP solution2

Translate indirect tax knowledge into a workable business process

In Audit Defense, Benchmark, Business Strategy, EU development, Indirect Tax Automation, Indirect Tax Strategic Plan, Macroeconomic effects of VAT, Phenix Consulting, Processes and Controls, SAP add on, SAP add on for VAT, SAP for VAT, SAP SLO renaming tax codes, Technology, VAT automation, VAT planning on 23/08/2014 at 1:16 pm

1 GITM

The global tax environment is in a state of fast change. A shift to indirect taxes represents the global trend. Driving Indirect Tax Management therefore becomes more and more important. The key to success in the management is the ability to translate indirect tax knowledge into a workable business process.

In general the advisory sector may bring you a wealth of knowledge but in practice the translation gap to a process within the actual execution of the theory makes a business vulnerable for an endless increase in consulting cost and an ineffective approach in timely dealing with current indirect tax exposures. This may easily result in a financial disaster.

Tax authorities are continuing to pick up on the common weaknesses identified in the Indirect Tax function. The restyling of the indirect tax function in a business may have to be considered by a business in order to deal with the increasing number of indirect tax challenges or to benefit from indirect tax opportunities.

Enhance the indirect tax communication within the business functional hierarchy, increase business awareness of the current state of its indirect tax function and set the right priorities for in-house stakeholders/departments (AP, AR, Legal, Finance etc) to successfully move to a best-practice is our philosophy.

Our aim is to share our expertise with you through this website, to create and share current state benchmarking knowledge, to inspire and also challenge your department functions through offering modules that can be used to scope process gaps from an indirect tax perspective.

A mythological way to express our mission statement would be to compare the general Indirect Tax function with the fall or rise of the Phenix legend.

Global Indirect Tax Management

Import and Export indicator for chain transactions

In Audit Defense, Business Strategy, Indirect Tax Automation, Indirect Tax Strategic Plan, Processes and Controls, SAP add on, SAP add on for VAT, SAP for VAT, System Landscape Optimization, VAT automation, VAT planning on 22/08/2014 at 1:32 pm

In chain transactions with non EU countries the correct VAT treatment depends on which party is acting as importer or exporter of records. Additional data have to be used to either default the party acting as importer or exporter of records or define this at sales order level.

Below examples explain the difficulties from a VAT automation perspective as standard SAP operates on company level only (see When is Standard SAP (in)sufficient?)

By Richard Cornelisse

Import scenario

A Dutch Sales organization is selling goods to a French customer. The goods are not is stock and are purchased from a Singapore group company. Transport is by vessel from Singapore to Rotterdam and then by truck to the French customer.

1

To determine the VAT treatment of the supply chain it is essential to know who the importer of records is. Is that the NL sales organization or the FR customer and where will the import takes place (country).

From a VAT point of view the difference for the sales invoice is as follows

Importer of record = NL Sales organization in country NL
  • NL sales organization must invoice as an intra-community supply 0% from the Netherland to France to the French customer
  • Transaction must be reported in Intrastat (dispatches) by NL sales organization
  • Transaction must also be reported on the EC sales list
Importer of record: Customer in France
  • NL sales organization must invoice as an out of scope 0% on the invoice to the French customer as the transaction takes place before any import in Europe
  • There is no Intrastat obligation by NL sales organization

Export scenario

Delivering plant Netherlands owner is Company Y (resident in DE) – Party A Sales organization: Netherlands Company Z (resident in NL) – Party B Customer: Ship-to location Singapore (SG) – Party C. In the situation above it is very important to know who the exporter of records is.

3

From a VAT point of view the difference for the sales invoice is as follows

Exporter of record: Company Z
  • Company Y (resident in Germany) must shift the Dutch VAT 0% (with its Dutch VAT number) on the sales invoice to Company Z
  • Company Z must book on the purchase invoice a self-assessed NL tax code (debit/credit)
  • Company Z must add an export 0% on the sales invoice to the Singapore customer
  • Transaction must be reported by Customer Z in extrastat
Exporter of record: Company Y
  • Company Y must add an export 0% on the sales invoice to Company Z
  • Company Z must book on the purchase invoice an out of scope 0%
  • Company Z must add an out of scope 0% on the sales invoice to the Singapore customer
  • Transaction must be reported by Company Y in extrastat
SAP automation

import export abc

Read more

SAP Implementation for VAT

In Audit Defense, Indirect Tax Automation, Indirect Tax Strategic Plan, Processes and Controls, SAP add on, SAP add on for VAT, SAP for VAT, Uncategorized, VAT automation on 21/08/2014 at 10:15 am

Written by Richard Cornelisse and Robbert Hoogeveen

For nearly every company, the accuracy and efficiency of local-country VAT compliance is nearly completely dependent on the functionality of the underlying ERP system. Operational malfunctions in a system that is used to manage VAT compliance can lead to substantial financial risks.

There are countless examples of the mismatching of VAT treatment of purchases and sales in chain transactions, double payments of VAT and “forgotten” manual adjustments to the VAT filing, all attributable to shortcomings in SAP’s automated VAT solution.

Errors in the basic VAT configuration of ERP systems can also carry consequences for an organization. Without the proper VAT rules, many systems are incapable of processing transaction information correctly, so that transactions may become blocked. This has a great impact on logistics processes, invoicing processes and financial processes.

Tax and financial departments are under increasing pressure to reduce the costs of compliance processes. One result of this is the increasing transfer of VAT-relevant processes from national tax supervision to Shared Service Centers.

These Shared Service Centers are not generally manned by tax specialists. They trust the functionality of the group’s ERP system to determine, calculate and report local VAT.

SAP introduction

The SAP VAT determination logic was developed a long time ago (1980’s) and except for the “plants abroad” logic SAP’s VAT determination logic has not changed much. This in contrast with the VAT rules and business models as these have changed significantly.

SAP historical final

As a result, there has been a huge increase in the complexity for the SAP system to meet all VAT requirements, which leads to necessary modifications to the standard SAP VAT for many multinational businesses.

Modifications of already very complicated SAP systems create a risk for maintenance and half-hearted solutions. At the same time, tax authorities across the world both sharpen their focus on non-compliant taxpayers and increase their focus on reviewing ERP systems as a source of VAT compliance risks.

Businesses have to ensure that the VAT determination logic in the SAP systems is correct, easy to implement and remains VAT compliant.

ABC SAP

Distinguishing capability

The added value often needed is the capability to free up resources, reduce manual activities and manage risks. Important is besides practical experience and understanding of both SAP’s possibilities, and its its limitations.

With respect to the possibilities, we can express the wishes to the external SAP consultant in his own language and we can demonstrate how these can actually be achieved in SAP.

In practice, we note that certain functionality intended for the support of indirect tax objectives does not get used – due either to reluctance (not within budget) or to a lack of knowledge in this area (e.g. activating plant abroad functionality and understanding impact on current SAP set up).

From an indirect tax standpoint, the realization that you are part of a larger team in which each of the participants has other priorities is key. This means that effective communication and agreements are essential. Instructions must be understandable and so short and compact that they can also be used as a reference framework and material for the tests.

In practice, Excel is often used to record all transactions and to indicate what the VAT treatment, etc., should be for each transaction individually. This cannot be imported and is difficult to evaluate for this reason. Moreover, the use of Excel carries the risk of making copy/paste errors.

The question is: what is the best format for providing instructions to other workstreams and for making the test phase efficient and effective? It turns out in practice that ‘decision trees‘ are a particularly effective communication resource with the IT consultant.

SAP has its limitations and not all transactions can be implemented in the systems in an automated fashion.

  • For example, in the standard configuration, it is not always possible to have SAP automatically determine the VAT treatment of chain transactions within a concern or with third parties (3 parties or more)
  • Solve the actual problem not a SAP VAT symptom

2 Simplified Triangulation

Customer Pick Up

service tax groups

Hard coding predefined VAT treatments

One of the solutions is to work with assumptions and to implement these in the system (hard coding of transactions via a predefined VAT treatment). This means that a VAT treatment is no longer deduced using information present in the system.

Assumptions may be incorrectly implemented during the actual execution or may undergo a change after “going live.” An incorrect VAT treatment is the potential risk. If such solution is used, periodic audits as detective control need to be set up since the risks at hand will likely exceed the company’s risk tolerance.

This results in extra man-hours, representing additional costs due to rework and retrospective corrections.

“An important question to raise for sound business decision process is what tools are available in the market for still achieving full automation without making use of assumptions and determine the VAT treatment on real time data in the system:  SAP add-on for VAT.”

Maintenance after go-live

The indirect tax objective of an SAP implementation should not be only that everything functions at the moment of “going live,” but that the maintenance and logic of the structure and the persistence of that logic in case of changes have been considered.

An example

  • In a given country, tax code VI is used for the standard VAT rate at the moment of “going live.” This means that a print can be made of the standard VAT rate used in various countries using the simple tax code selection, essential for monitoring the function and for the selection of the proper tax code for AP coding.
  • If a rate increase occurs, a tax code for the new standard rate must be created – VD, for example – one that deviates from the chosen standard. VAT rate increases are a worldwide trend and the result is that the logic of the tax code structure will no longer be present after the increase. This increases the chance of errors when selecting the correct tax code.
  • So the question is: how do you implement the rate changes in SAP without this having an impact on the logic of your tax code structure?: Tax Code Structure always remains the same

 

Examples of possible errors in SAP

  • Not making use of the proper partner functions in SAP for a supplier who provides services in multiple countries and invoices VAT locally. Result: the standard VAT calculation generates incorrect results.
  • Missing/improper VAT registration numbers in customer master data, such that invoicing requirements are not satisfied for cross-border transactions.
  • Master data is adjusted and tested in the test environment, but the changes are not included in the final upload to the production system.
  • The logic of the tax code structure is disrupted by VAT rate changes, something that could have been prevented using the SAP configuration.
  • When performing reverse charge bookings, VAT rate changes do not get changed.
  • For cross-border A-B-C transactions (goods are sold twice but only are shipped once), a VAT mismatch between the VAT on procurement and the VAT on sales arises for party B.
  • Blocked so-called iDoc (electronic interface documents) because of errors in the OBCD design.
  • Suppliers with invoices in other currencies and the VAT amount in Euro, so that the booked VAT amount is incorrect due to an incorrect exchange rate.
  • Incorrect derivation of VAT registration numbers for cross-border transactions caused by incorrect SAP configuration.
  • Analytics: Gain real hindsight, insight and foresight
  • Automated Controls: SAP Integrated VAT Control Framework

Template for SAP implementation roadmap

SAP implementation

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