SAP S/4HANA Indirect Tax
1.1-SAP Indirect tax solutions, use case and TOM
About a couple of years back, I had started my blog series on SAP S/4HANA features which was quite well received. Now after 2 years, SAP S/4HANA is a matured product and offers a variety of features across the board. I am now starting a blog series to explore specific features in a particular area, how best to use them and what should be the ideal target operating model based on your organization. The first area I want to explore is Indirect taxes / VAT.
There has been a domestic and global trend of governments shifting focus from direct to indirect tax. While corporation tax rates have generally decreased, VAT rates have risen and the scope of firms paying VAT and scope of services (digital services are taxed where they’re consumed) have increased.
Another dimension has increase in detailed electronic VAT transactional reporting from businesses by tax authorities. This includes: EU SAF-T; Making Tax Digital in the UK; live invoice reporting in Spain, Hungary and Italy.
Implications of environment
All the above points makes complying with VAT regulations more complex and business will need more controls and solutions to ensure they comply with the regulations effectively.
SAP solutions for VAT/ Indirect taxes
VAT & Indirect tax support has been with SAP from R2 version and the baseline functionality supports a good number of scenario.
Additionally SAP have improved their offering and provided more tools to help with the Indirect tax processing and reporting.
We will look at the multiple solutions available in this series and then explore the best model based on the target operating model for Indirect tax for the business.
We will base this blog on providing baseline solution and version evaluated in SAP S/4HANA 1709 Sp1.
Baseline offering for S/4HANA
SAP solution for managing VAT with tax code and the tax determination is very much in places in S/4HANA as it was in ECC or prior versions. The VAT determination based scenario and assignment to the tax codes for reporting will still be the approach consultant should take.
However S/4HANA does offer additional tools which will help business and below are the details:-
- Manage tax lines-This is a very useful app which is shipped as part of 1709 release.
Use case- This is a great app to use for overall control on the tax items to be reported in a period. As shown above, the end user can select the document status for tax reporting and also set the correct tax reporting date to ensure the item is picked correct VAT reporting period. This is especially useful in case of return or in some regulation like Saudi Arabia where VAT is to be posted on advance (in case no order is generated in 15 days).
Additional setup- You need to enable the “Tax reporting date” field with SAP note –1232484 to use this app.
- Tax declaration reconciliation- This is a helpful app to reconcile the tax figures before the submission to tax authorities.
As shown above, the app will provide details of the breaks / difference amount per tax code for user to check. You can also set the tax box ID, which is the grouping needed by your tax authorities which will help you identify summarize the total breaks.
Additionally you drill down to posted documents which is useful to analyse and correct the differences
Additional setup- Tax box ID customizing needs to be setup in case grouping is needed as per the tax authorities.
- Tax reconciliation account balance- This apps provides the details of VAT breaks based on journal entry and provides the difference between the calculated amount and posted amounts.
It is additional supporting app for Tax declaration reconciliation.
- Multiple CDS view- Now we all have used the old VAT report-S_ALR_87012357 – Advance Return for Tax on Sales/Purchases and know how hard it is to add fields. There is possibility to use available reports from SAP which end user can adjust as his preference.
You will have a lot of view to choose from and these can be set as a specific tile for the end user.
As shown above, user can select multiple fields and create as many adhoc view for his / her tax reporting.
- Additional apps based on your country- The above list is generic can be applied to any country/ reporting requirement. However one additional place the consultant should check is Fiori app library (https://fioriappslibrary.hana.ondemand.com/sap/fix/externalViewer/#/detail/Apps(‘F3172’)/S12OP)
There are a lot of specific tiles are available per country which can be useful for end users.
With this I will end this blog which covers the baseline offering in S/4HANA, next up we will explore additional cool solutions provided by SAP namely Advance Compliance monitoring , Tax service, Tax compliance, Edcoument and finally look at how and which solution should be used.