Richard Cornelisse

Validation process of VAT numbers in SAP

In Audit Defense, Business Strategy, EU development, Indirect Tax Strategic Plan, Processes and Controls, Technology, VAT planning on 07/02/2013 at 8:09 pm

Taxmarc™ SAP solution2

An important control measure in terms of material indirect tax risks is checking whether the 0% rate is correctly being applied.

A prerequisite for the application of the 0% rate for cross-border transactions within the European Union is a valid VAT number of the client.

The valid VAT number must also be mentioned on the invoice. Adequate monitoring of this is crucial to eliminating risks as much as possible.

Validation of VAT numbers

In native SAP is it possible to check the syntax – the format of the VAT number, including the number of positions.

However, it is not possible to check whether the VAT number is valid. To this end, the European Commission has provided an online database, VAT Information Exchange System (VIES) for the validation of VAT numbers.

Standard SAP does not have an interface with the VIES database. In practice, it appears that 5 to 25 percent of the VAT numbers is incorrect or invalid. The KEY Group checked the VAT numbers through a data analysis for a client:

Description Records

Comments

Total in customer master

9.194

Without VAT number

2.972

These could also be ‘bill to/payer’ or ‘ship to customers’

Unique BE VAT numbers

3.628

Only Belgium VAT numbers are validated.

Validation in VIES:
Valid VAT number

2.777

77 percent

Incorrect format

35

  1 percent

Invalid number

816

22 percent

The number of erroneous VAT numbers is close to 25%. From a VAT perspective this implies material risks that exceed every risk tolerance (0 percent, client acceptance with regard to preventing VAT fraud).

Taxmarc™’s solution for validation of VAT numbers in SAP

Taxmarc™ can automatically check the VAT numbers when a VAT number is added to the customer master data.

A real time link to VIES is made to validate the entered VAT number.

The client can choose to treat the result of the VIES validation as:

  • An “error”: it is not possible to enter invalid VAT numbers in the customer master data or
  • A “warning”: invalid VAT numbers can be entered but are reported separately.

The list could be used to check the VAT number with the customer.

VAT numbers can expire or change due to changes in the legal structure of customers.

It is therefore important to periodically check the validity of the VAT numbers.

In Taxmarc™ it is also possible to periodically carry out these controls as detective controls within the Tax Control Framework.

This can be done in a fully automated process.

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