Introducing a new VAT system

On 16 June 2016, the Finance Ministers of the Gulf Cooperation Council (GCC) held an
extraordinary meeting in Jeddah, Saudi Arabia on GCC Value Added Tax (VAT). GCC States
Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates that make up GCC
will most likely introduce VAT on 1 Jan 2018 or by 1 Jan 2019 at the latest.

Everything You Always Wanted to Know About VAT in SAP * But Were Not Aware
to Ask

Posted on July 17, 2014by Richard Cornelisse

SAP Solutions Questions to Ask Before You Commit

The following is a non-exhaustive list of questions that could be raised during tax software
vendor selection. For readability we use Solution to refer to the product of the respective
tax software vendors.

Use all VAT relevant data available in SAP to determine the VAT treatment
How does the Solution retrieve VAT relevant data?
Are VAT relevant data gathered at SAP client level or at lower level in the SAP
hierarchy (i.e. company code)?
Does the Solution connect the VAT relevant data in chain transactions (sale-
purchase-sale) in an automated way or are manual interventions required?
Determine the right VAT treatment
How many tax procedures are used?
What VAT determination logic is used for the following type of transactions:
1. Standard chain (ABC) transactions;
2. Simplified chain (ABC) transactions: how are VAT registration in multiple countries
taken into account?;
3. Pick-up and delivered transactions;
4. Supply of service: how are countries of establishment and type of services included?
What if certain type of services are classified differently in EU/non-EU countries;
5. Intercompany drop shipments, including the posting of the Intercompany invoice in
Accounts Payable (iDoc/EDI);
6. 3rd party drop shipments;
7. Domestic reverse charge scenarios for foreign non established companies (sales and
purchases).
Are VAT codes for sale and purchase in chain (ABC) transactions automatically linked
by the Solution from VAT perspective?
Is the Incoterm used as parameter in the VAT determination logic?
Can the Solution handle multiple VAT rates for a single product in multiple
countries?
Can the Solution handle multiple VAT rates for a single product in multiple regions
within a country (e.g. France/Corsica)?
Integrated Tax Control Framework
Does the Solution contain an integrated Tax Control Framework (TCF)?
 Will non-compliant transactions be identified and blocked for further processing?
Example: are EU cross border transaction without valid customer VAT number or local
transaction in country where company is not VAT registered blocked?
What are the options to release blocked transactions in case of business urgency? Are
emergency releases logged?
Which material VAT risk areas (risk that matter) are automatically validated by the
TCF?
Are tax-errors logged in a risk register by the Solution and easily accessible for
detailed review and resolutions?
Managing the correctness of SAP master data
Does the Solution validate the VAT number against the VIES database when
customer master data are added?
How are SAP tax classifications (customer/material/service) used by the Solution?
Are SAP tax classifications based on tax reporting country instead of departure, or
destination country?
Will the Solution provide a standard model for SAP tax codes?
VAT determination based on hard coding (fixed assumptions)
Does the Solution require hard coding for VAT determination?
How does the Solution check whether the actual transaction (as is) corresponds
with this hard coded transaction (expected to be)?
1. Example how does the Solution amend the VAT treatment when delivery suddenly
takes place from another stock location from another country than expected?
2. Which control measures are built into the Solution or remains this the responsibility
of the buyer to design and manually maintain?
SAP tax code structure
Does the Solution use the standard tax code design of SAP and requires new tax
codes in case of VAT rate changes?
Does the Solution include functionality to avoid a shortage of SAP tax codes in the
future?
Does the Solution contain a time stamp design for the tax code structure by which
naming convention of tax codes does not change when VAT rates increase or decrease?
What is the impact of VAT rate changes on existing IT and business (i.e. compliance)
processes?
Structured and transparent configuration and end-user tools?
Is the configuration centralized in the standard SAP IMG module?
Is there an end-user VAT cockpit with all relevant VAT compliance and control
transactions?
Invoice requirements
Does the Solution include the required invoice text messages for zero rated VAT
transactions?
Does the Solution manage the correct determination of supplier and customer VAT
numbers?
Does the Solution handle the required sequential invoice numbering (number
ranges per tax jurisdiction)?
After Go-Live Maintenance
How many VAT condition records per tax jurisdiction are required in the Solution?
Is it required to add multiple new VAT condition records in case of new VAT
registrations in (foreign) countries?
 What is the process in case of VAT rate changes? Is a complete SAP change
management process required, including review of all VAT condition records? What are
the total maintenance costs annually re VAT rate changes?
Is it possible to outsource maintenance to the Solution provider? If yes what are the
annual fees and who is responsible for the control of the maintenance (IT, Tax or
Finance)?
How long does it take to change hard coded VAT determination in SAP and what are
the costs respectively labour effort needed (change management process)?
Client references
Is the Solution previously implemented by other customers with comparable
business models (multinationals)?
Is it possible to have a reference call with customers that have implemented the
Solution?
Tax configuration for condition based tax procedure - TAXINN
Other terms

VAT, CIN,TAXINN, Tax Procedure, Tax Conditions

Reason and Prerequisites
Legal Change
The customers who have already made the relevant changes for VAT 2003
would only have to make the changes accordingly.
Solution

For VAT 2005, SAP recommends all customers to look into this note only.
Initial Settings:
Tax procedure for country India is "TAXINN". If you are using any other Tax procedure
similar to TAXINN , use the same in place of TAXINN in the recommended configuration
settings.
Glossary
CG - Capital Goods

o RM - Material other than Capital Goods

o CIS - Client Independent Setting

Overview
A Set of New Tax condition types have been introduced for Purchase and Sales Process.
These new condition types should be used from 1st of April 2005.

o Define the tax conditions that are currently Non deductible as VAT Non
deductible . This will enable you to address the transition to VAT at a later
point of time. This would help in reporting Taxes on Sales/Purchases for the
Tax Year 2005.

o For Inbound transactions five new Tax condition types have been introduced:

JVCS: A/P CST Non Deductible under VAT

JVRD: A/P VAT RM Deductible
JVRN: A/P VAT RM Non Deductible
JVCD: A/P VAT CG Deductible
JVCN: A/P VAT CG Non Deductible

o Each of the condition type mentioned above should be assigned to a separate

Transaction/Account Key and a separate G/L account. This will help in the
period end processing where indvidual taxes need to be clearly identified &
 reported. For e.g. a separate treatment may be required for taxes on
interstate sale, that could vary from state to state.

Note: Certain settings have to be available on the production system when you start the
transaction for the Tax Year 2005. Those settings are highlighted with "TY2005" and you
should capture these in separate request.
Configuration Steps:
1. Create Tax Conditions Types for Sales/Purchases (CIS):
IMG - Financial Accounting - Financial Accounting Global Settings - Tax on
Sales/Purchases - Basic Settings- Check Calculation Procedure - Define Condition Types
(OBQ1)
a) Create Condition Type JVCS: A/P CST Non deductible under VAT as a copy of
JIPC for 'TAXINN'
Maintain Condition Category as 'D'-"Tax.
Maintain the Access sequence as 'JST1'.
b) Create Condition Type JVRD: A/P VAT RM Deductible as a copy of JIPC
Maintain Condition Category as 'D'-"Tax".Ensure the Access sequence "JST1"
c) Create Condition Type JVRN: A/P VAT RM Non-Deductible as a copy of JIPC
Maintain Condition Category as 'D'-"Tax".Ensure the Access sequence
"JST1"
d) Create Condition Type JVCD: A/P VAT CG Deductible as a copy of JIPC
Maintain Condition Category as 'D'-"Tax".Ensure the Access sequence
"JST1"
e) Create Condition Type JVCN: A/P VAT CG Non-Deductible as a copy of JIPC
Maintain Condition Category as 'D'-"Tax".Ensure the Access sequence
"JST1"

Note: Ensure that all the existing Condition Types used in Tax procedure TAXINN have the
following attributes. These settings are required to work without any Jurisdiction Code.
These changes are applicable from 1st April 2005. This is over and above the new condition
types created. "TY2005"
Access Sequence : JST1
Condition Category : D
2. Define New Transaction Key for the new TAX Conditions:(CIS)
IMG > Financial Accounting > Financial Accounting Global Settings > Tax on
Sales/Purchases > Basic Settings > Check and Change Settings for Tax Processing (OBCN)
Akey Description Tax Type Non Deduct Posting Ind

o JP4: A/P CST Non Deductible 2 X 3

o JP5: A/P VAT RM Deductible 2 2

o JP6: A/P VAT RM Non Deductible 2 X 3

 o JP7: A/P VAT CG Deductible 2 2

o JP8: A/P VAT CG Non Deductible 2 X 3

3. Define G/L Accounts:

IMG > Financial Accounting > General Ledger Accounting > G/L Accounts Master
Records > G/L Account Creation and Processing > Edit G/L Account (Individual Processing) >
Edit G/L Account Centrally (FS00)
For SAP R/3 4.0B: IMG > Financial Accounting > General Ledger Accounting > G/L
Accounts Master Data > G/L Account Creation > One Step Manual/Automatic (Alternative 3)
> Alternative Methods to Create GL Accounts > Create GL Account Manually (FS01)
Create new Tax G/L Accounts for all new Tax transaction keys created above.
4. Define Tax Accounts:
IMG > Financial Accounting > Financial Accounting Global Settings > Tax on
Sales/Purchases > Posting > Define Tax Accounts (OB40)
Assign appropriate G/L Accounts to the Transaction keys.

Note:The changes to the tax procedure would be applicable from 1st April 2005.
5. Change TAXINN procedure:
IMG > Financial Accounting > Financial Accounting Global Settings > Tax on
Sales/Purchases > Basic Settings > Check Calculation Procedure > Define Procedure
(OBQ3)

o Select Procedure TAXINN.Add JVCS, JVRD,JVRN, JVCD, and JVCN in TAXINN

immediately after JIPC.

o Assign Transaction/ Account Keys and Alternative Calculation type as follows

JVCS - JP4 (ST inventory - India)

JVRD - JP5 (ST setoff - India)
JVRN - JP6 (ST inventory - India)
JVCD - JP7 (ST setoff - India)
JVCN - JP8 (ST inventory - India)
New Pricing Conditions in SD.

o The following condition types have to be created.

JIVP: A/R VAT Payable

JIVC: A/R CST Payable
6. Define Condition Types:
IMG > Sales and Distribution > Basic Functions > Pricing > Pricing Control >
Maintain Condition Types (V/06)
Create Condition Type JIVP: A/R VAT Payable as a Copy of JLST & Maintainthe same
attribute as in JLST.
 Create Condition Type JIVC: A/R CST Payable under VAT as a Copy of JLST & Maintain
the same attribute as in JLST.
7. Define New Transaction Key for the new TAX Conditions:(CIS)
IMG > Financial Accounting > Financial Accounting Global Settings > Tax on
Sales/Purchases > Basic Settings > Check and Change Settings for Tax Processing (OBCN)
Akey Description Tax Type Non Deduct Posting Ind

o JN6: A/R VAT Payable 1 2

o JN7: A/R CST Payable under VAT 1 2

8. Define G/L Accounts:

IMG > Financial Accounting > General Ledger Accounting > G/L Accounts Master
Records > G/L Account Creation and Processing > Edit G/L Account (Individual Processing) >
Edit G/L Account Centrally (FS00)
For SAP R/3 4.0B: IMG > Financial Accounting > General Ledger Accounting> G/L
Accounts Master Data > G/L Account Creation > One Step Manual/Automatic (Alternative 3)
> Alternative Methods to Create GL Accounts > Create GL Account Manually (FS01)
Create new Tax G/L Accounts for all new Tax transaction keys created above.
9. Define Tax Accounts:
IMG > Financial Accounting > Financial Accounting Global Settings > Tax on
Sales/Purchases > Posting > Define Tax Accounts (OB40)
Assign appropriate G/L Accounts to the Transaction keys.

Change SD Pricing Procedure(s): Applicable from 1st April 2005

IMG > Sales and Distribution > Basic Functions > Pricing > Pricing Control > Define
and assign Pricing Procedure > Maintain Pricing Procedure (V/08)
Select the relevant SD Procedure. Add JIVP, JIVC after JLST.