Reverse Charge Mechanism
Hello everyone,
I have seen on SCN that I’m not the only one wondering how to deal with the requirement of posting a reverse charge tax entry during the payment posting:
Not finding information issued by SAP directly if / how this requirement is covered, I opened a Customer Incident to gain clarification. In the meantime, I also prepared a functional specification which I will hand over to a developer in case no solution will be provided (on time).
Requirements definition for the user exit
- The user exit shall be called during the posting of the financial documents of the payment run
- The payment document shall be extended to debit input tax code TX and credit output tax code SR, the amounts balancing each other out.
- The calculation is based on the invoices which are grouped in a single payment; only tax code IS has to trigger this special treatment; this also means that if a payment is comprised of invoices where some match the given tax code and other(s) not, only the matching tax codes shall be considered. This configuration configuration shall be stored in a custom table.
- Concerning foreign currency: Valuation of the reverse charge tax lines will take the original local currency amounts
- A tax segment has to be created as well.
Configuration table
I prefer to store the tax codes in a configuration table, rather than hard-coding them in the user exit.
Tax codes TX and SR are set to 6 percent.
| Company Code | Invoice Tax Code | RC Input Tax Code | RC Output Tax Code |
|---|---|---|---|
| 0001 | IS | TX | SR |
Sample Invoices
Invoices to indicate that not necessarily all invoices being paid fall under the condition of the configuration table.
Sum of the invoices with tax code IS are 2850.00 USD / 6895.00 MYR.
| Company Code | Tax Code | Amount in doc. currency | Amount in local currency | FX rate |
|---|---|---|---|---|
| 0001 | IS | 1500.00 USD | 5020.00 MYR | 0.2988 |
| 0001 | IB | 600.00 USD | 2000.00 MYR | 0.3000 |
| 0001 | IS | 750.00 USD | 1875.00 MYR | 0.4000 |
| 2850.00 USD | 8895.00 MYR |
Expected posting and calculation
| Company Code | Account | Amount in doc. currency | Amount in local currency | Tax code |
|---|---|---|---|---|
| 0001 | (Vendor) | 2850.00 USD | 8895.00 MYR | |
| 0001 | (Cash) | -2850.00 USD | -8142.86 MYR | |
| 0001 | (FX diff.) | 0.00 USD | -752.14 MYR | |
| 0001 | (Input Tax) | 135.00 USD | 413.70 MYR | TX |
| 0001 | (Output Tax) | -135.00 USD | -413.70 MYR | SR |
Tax segment
| Account | Tax amount | Base amount | Tax code |
|---|---|---|---|
| (Input tax) | 413.70 MYR | 6895.00 MYR | TX |
| (Output tax) | -413.70 MYR | -6895.00 MYR | SR |
My questions to the readers
- Have you already received an answer from SAP if / by when a general solution can be expected?
- Do you agree with my understanding of the requirement?
- What do you think of the approach for this functional specification for a user exit? Would you approach the requirement differently, e.g. with a separate posting?
I am looking forward to your comments.
Best Regards,
Christoph
Hi Christoph, it was suggested to me to use a standard SAP Tax Deferred program (RFUMSV50) which shall be executed after payment run (or during month end) which help to make sure all posting related fall in the same month/period.
Basically the tax code you create is the source tax code (i.e. IS) and later when you execute the program you can specify the target tax code - TX and SR.
Hello Mohd,
thanks a lot for your comment.
I was invited to an SAP "Meet the Expert" online event on the GST-03 topic, reverse charge payment was mentioned on a side note. Their answer matched yours exactly, 'Deferred Tax' should be used.
They mentioned the following notes:
1979386
2000583
2011533
2062785
2073648
I will compare our custom program with the Deferred Tax solution.
Best Regards,
Christoph
Hi Christoph,
So which solution that's being implemented? User exit or there is another solution.
Regards,
Ferdinand
Hello Ferdinand,
we went for the custom solution, it's the stand-alone program as drafted above. Contrary to my earlier spec, the users have requested not to have "IS" as the triggering tax code for the reverse charge but a separate new tax code. This new one will be used in the underlying invoices, yet this tax code itself (= the invoices) will be excluded from the GST-03 report, only the separate reverse charge documents will be included in GST-03 reporting.
Best Regards,
Christoph