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Author's profile photo Nadja Medeiros

Tax Registration for Indirect Tax known as Plants Abroad – Workaround S4 HANA Public Cloud – A real case

Last Review: 16th August 2019

Remarks: This blog will be updated accordingly

Reading Time: 10 minutes

What is Tax Registration for Indirect Tax?

Companies are optimizing tax structures by registering permanent establishments in lower-tax countries while production, distribution, or sales takes place in other countries.

The companies must comply with all local tax reporting requirements, but this is significantly less effort than consolidating full company codes.

In on-premise ERP, customers and their SIs/tax advisors configure and modify systems to enable support for tax-optimized processes.

Current Status

SAP S/4HANA Cloud will not support plants abroad/tax abroad requirements in the short term

Architecture not suited for Cloud delivery: The existing On-Premise architecture is not suited for cloud enablement since it involved a high degree of the user exists / customer modifications during the implementation process. These options are not available in a public cloud setup, where different extensibility concepts are used, and which are currently not ready to serve the needs of plants abroad.

Current Organization Structure doesn’t allow an assignment of Plant that doesn’t belong to the same country of the Company Code

Data migration: Customers using an interim solution would have to migrate to a future solution based on a different architecture, which would add complexity and risk.

What Companies can do in the meantime?

Ø Use standard company codes for the countries where transactions take place ( in accordance with standard localization practices ).

Ø Intercompany process should take place in order to allow companies to move goods and to transact with the many plants

Ø Consolidation tasks will be required to report across countries and to bring together the virtual companies’ w/ plants to report under the structure of one single country

Ø Local reports might need to be adjusted according and some country combinations may not feasible, this needs to be accessed by the project consultants, and in case that the conclusion is that the local reports cannot be adapted, the workaround here described cannot be used.

Real Case Solution

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Step 1 – Country Activation

The current Organization Structure doesn’t allow the assignment of a plant that doesn’t belong to the country of the persistent company code. In order to have the desired plants abroad, it is mandatory to activate the countries where those plants belong to.

With this activation, any legal compliance report will be delivered as standard content for the designated countries, making a legally compliant solution or tax abroad compliant.

In our specific case, we had to activate more 8 countries besides the one where the plants belong to.

It is important to know here for planning purposes, that the timelines for country activation in S4 HANA Public Cloud must be respected and take into consideration the project plan.

Step 2 – Moving goods between the plants with 1MX – Intercompany Sales Order – International

In order to process the various movements between the plants, 1MX scope item is required. A

Sales Order is raised in one company code, but the good is being shipped by an international plant. This process will generate a customer invoice, and through the intercompany postings, it will generate a Payables entry on the ordering CC and a receivable in the shipping CC.

As a side effect, some adjustments on the reconciliation of payments and banks for this process might be needed.

A high-level approach:

  1. Internal Bank Account (like in-house cash without having the In house cash functionality)
  2. Set up an internal payment method (intercompany)
  3. Set up payment job
  4. Intercompany reconciliation manual
  5. Set up clearing job

Another possibility explored was the usage of “virtual bank account service” where the bank would keep track of multiple virtual accounts (associated with the Workaround Company Codes), tied to the single Country account.

The EBS in S/4HANA Cloud would then be updated to consume this information – this could improve the manual reconciliation step.

Step 3 – Consolidating your entities with 1SG – Group Reporting Financial Consolidation

As a consequence of activating the countries for the purpose of this solution, all the new plants will belong to a specific company code, but the process and business-wise all these companies/ with respective plants belong to an entity (Company Code).

So, the approach here is to create all the consolidation units of the virtual company codes and tied them up to a consolidation group that will represent the entity holding the plants.

With more complex scenarios, a hierarchy with multiple consolidations groups might be defined.

Another importance of using consolidation is that you will probably need to report under a specific local accounting principle and the usage of the FS items will be crucial for this new reality, bringing all countries/companies activated under the same accounting principle as the mapping of the overall accounts all flowing to the FS items representing this accounting principle.

Consolidation will also provide automation for the eliminations that will happen with the intercompany processes.

And here is where consolidation plays a big role in this overall solution.

Reports such P&L, Trial balance run after consolidation will represent the new consolidated structure.

Step 4 – Local Reports adjustments with the usage of Custom CDS views

Consolidation scope item 1SG is a cross country scope item, meaning that there is no local framework on it is content.

Depending on the countries involved in this workaround, local reports might need adjustments.

In our case we have faced the following problem, the customer had to file a legal report under the local accounting principle. The report baseline was a kind of detailed journal entries list with a focus on the GL accounts and some other mandatory dimensions.

So we had to find a solution for such a requirement, and what we did was to bring to the table the reporting requirement and used the available flexible tools on reporting, more specific, the usage of custom CDS view.

We had to combine the cube for journal entries and the major CDS cube for Consolidation, in our new reality the GL accounts are now mapped to the FS items representing the local needs.

I will not extend on the detailed explanation because of this the step may not be required depending on the country or it might not be possible at all, local reports may vary and the requisites may be too complex to be handled with CDS views.

Conclusions

It is extremely important to remember that this is a workaround and as such will never perfectly fit as a standard solution or it may not apply to all use cases.

SAP is currently working on a standard solution for Plants Abroad in S4 HANA Public Cloud, the timelines for the said functionalities are still unknown.

Considerations

SAP doesn’t commit to developing any migration path for customers that use this workaround.

At the time of the standard functionality being available, the recommended approach will be the deactivation of the existing virtual units in the system and the postings of the balances to the new accounts used by the standard functionality.

This scenario doesn’t work with consignments.

Each country will have very specific statutory reports, as such the peculiarities of each one of these countries need to be evaluated to understand the feasibility of this workaround.

Additional Resources

A detailed PPT is published under the link below:

https://jam4.sapjam.com/groups/siCwUB2doqMRBEdJDPsIqX/documents/sY2b9XTsSGTxf86xDucjme/slide_viewer

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      26 Comments
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      Author's profile photo Sandeep Kumar
      Sandeep Kumar

      Thanks for sharing, this provides valuable inputs as Plants abroad is a hot topic.

      Author's profile photo Nadja Medeiros
      Nadja Medeiros
      Blog Post Author

      Thanks, Sandeep and you are welcome!

      Author's profile photo Riwa Mouawad
      Riwa Mouawad

      Thanks for sharing - this is great!!

      Author's profile photo Nadja Medeiros
      Nadja Medeiros
      Blog Post Author

      Thanks Riwa! "Sharing is caring" ! 😀

      Author's profile photo Cassiano Lins
      Cassiano Lins

      Cogratz, Nadja! Awesome blog.

      Author's profile photo Nadja Medeiros
      Nadja Medeiros
      Blog Post Author

      Thanks Cassiano! Obrigada! 🙂

      Author's profile photo Ana Goncalves
      Ana Goncalves

      Many thanks for the great blog, Nadja! This is very helpful.

      Author's profile photo Anirban Dutta
      Anirban Dutta

      Great Blog Nadja ….gives very comprehensive insight .

      Author's profile photo Clare Campbell-Smith
      Clare Campbell-Smith

      Very useful to now have this set out concisely in one blog (having seen the pain of working it our from first principles in the past)!

      Thank you for posting

      Author's profile photo Sian Lynch
      Sian Lynch

      This is very helpful!

      Author's profile photo Beth Grant
      Beth Grant

      Fab blog Nadja, thanks for writing and sharing!! 😀

      Author's profile photo Yanica Shalaurov
      Yanica Shalaurov

      Thanks for sharing, Nadja!

      Author's profile photo Grace Zou
      Grace Zou

      Hello Nadja, I am the help documentation author for 1SG. Do you see the necessity we put more details in the help docu: https://help.sap.com/S4_CE_GR , for example, about mapping GL accounts with FS items for local accounting principles, and creating queries using the released CDS views. Contact me at Grace.zou@sap.com, thanks!

      Author's profile photo Gabriel Mattos
      Gabriel Mattos

      Very Good and detailed! Great job! 🙂

      Author's profile photo Satyanarayana Sighakolli
      Satyanarayana Sighakolli

      Nadja Medeiros

      Good one. Thanks for sharing.

      Author's profile photo Harika Gali
      Harika Gali

      Thanks for sharing! Very useful..

      Author's profile photo Cassiano Lins
      Cassiano Lins

      Thanks for this blog, Nadja Medeiros !

      btw, very nice thumbnail =D

      Author's profile photo Michael Zhan
      Michael Zhan

      Thanks for sharing.

      I have one query about the solution, could you help to give more detail of business scenario which 1MX is going to solve in this VAT walk around solution?

      Author's profile photo Liling Jia
      Liling Jia

      Looking forward for the updates. is there any news for this topic?

      Author's profile photo Nadja Medeiros
      Nadja Medeiros
      Blog Post Author

      Hi Liling J,

      No news for now, standard functionality is being developed and hopefully, the disclosure of the delivery release will come up soon.

      Author's profile photo Clare Campbell-Smith
      Clare Campbell-Smith

      How does this relate to the Registration for Indirect Taxation Abroad functionality as described in note 2907372? It would be really good to understand a bit more about what this delivers (I know it is only beta release) - as this one had totally slipped under my radar.

      When will this be more widely available?

      It could be of interest to a number of clients I am working with - and it would be good not to have to go down this older route of creating additional company codes if the necessary functionality is to be delivered soon.

      Be grateful for any additional information!

      Author's profile photo Nadja Medeiros
      Nadja Medeiros
      Blog Post Author

      Hi Clare Campbell-Smith and Liling Jia

      Initially, RITA will be only delivered with functionalities for the registration of a plant abroad for tax purposes, invoice requirements, import, and remit indirect taxes to authorities abroad.

      The functionality will not contemplate the needs of a Business Place (stock on a foreign country for example; this will come on later releases).

      At the moment there is no commitment with dates for the wider availability!

      Heads up that even when this comes out for wider usage it will come with only a set of countries., the current Beta version only has 2 possible countries (Germany and Netherlands).

      I have published an abstract of the functionality here: https://s4hanacloud.community.sap/groups/gWegOMXcBpa2cguppVggqF/documents/Kqnq7la3kh4usEryUJjXFt/slide_viewer

      I hope this helps!

      KR

      Nadja

      Author's profile photo Clare Campbell-Smith
      Clare Campbell-Smith

      Nadja Medeiros that's hugely useful - thank you for the quick response. Is there even a tentative roadmap for release to other countries? This might be very relevant for soem projects just starting - and I guess you don't want to have to end up with a sub-optimal Org Structure design (via additional company codes) if a neater solution might become available.

      Thank you!

      Author's profile photo Nadja Medeiros
      Nadja Medeiros
      Blog Post Author

      My pleasure! 🙂

      There is an indication for 2011 (again no commitment), but the countries on this release are still unknown (I know that it won't be localized for all the countries that we have available now)... I will keep this thread updated with any more news about the topic as we will definitely have more information in the next couple of months and I am following the topic closely with PM.

      I agree with you that ideally, you won't start the workaround conversation knowing that there is a standard solution to come.

      KR

      Nadja

      Author's profile photo Priyank Barot
      Priyank Barot

      Nadja Medeiros  Is there any update on this topic with the 2111 release, like which countries will be available/activate for RITA etc?

       

      Kind Regards,

      Priyank

      Author's profile photo Vijayendra Tiwari
      Vijayendra Tiwari

      Thanks for this!