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EU VAT quick fix 3-blog 1

Introduction

The European Council has agreed to proposals from the European Commission to apply four ‘quick fixes’ to the current EU VAT system in February. Assuming that the European Parliament issues a favourable opinion in relation to these proposals, the Commission’s proposed VAT Directive will become effective throughout the EU on 1 January 2020. Latest on 2nd October 2018, the Council agreed on four adjustments to the EU’s current VAT rules to fix specific issues.

There are four key adjustments concerns below areas namely:-

  • Treatment of call-off stock
  • Mandatory VAT identification number to apply the zero VAT rate to intra-EU supplies
  • Evidence of intra-EU supplies
  • Chain transactions

The adjustments will have implication on your business and we explore how you can manage these changes effectively in our ERP with focus on SAP. As each of the topic is quite large we will explore one of the in each of blog/ blogs and provide possibilities for business to comply with them. Naturally each business is different and uses their SAP system differently and their specific cases can be discussed further.

Link to Quick fix:-

https://circabc.europa.eu/sd/a/2c36f43c-80b8-4fb1-a209-a2c30e060eae/VEG%20080%20-%20VAT%20quick%20fixes%20-%20chain%20transactions.pdf

https://circabc.europa.eu/sd/a/7fcfb315-fb0a-4369-ba09-4a5abdced628/VEG%20079%20-%20VAT%20quick-fixes%20-%20call-off%20stock.pdf

Problem Statement

In the first case we will explore the point no. 3- “Mandatory VAT identification number to apply the zero VAT rate”. As per this quick fix the implication is:-

“A customer’s valid VAT identification number a formal requirement for applying the zero VAT rate to intra-Community supplies of goods. But a ruling from Court of Justice of the European Union (CJEU) that, in principle, a taxable person only has to comply with the material conditions in order to apply the zero VAT rate. Therefore, the zero VAT rate cannot formally be refused due to the mere fact that a taxable person did not receive a valid VAT identification number from its customer.”

The text from VAT group is shown below and key point is availability of feature to allow Customer to provide the VAT ID to supplier.

Implication of the Fix on ERP

The quick fix 3 has below key implication for your ERP :-

  • Check and ensure the VAT ID present for your customer in ERP is current and ensure mechanism to have ERP master data is kept up to date.
  • Ensure your ERP has option to capture the VAT ID from customer in case customer can provide it.
  • Allow control on the order management to check the orders where VAT id is not captured ( and is not present in Customer master)
  • Ensure VAT determination can handle the VAT id provided by Customer ( in case customer has multiple VAT registration in EU).

Possible Solution (Specific to SAP)

We propose below setup in SAP to ensure provision to comply with the quick fix 3. We will cover the setup and required configuration to allow the setup for the solution proposed below.

Implication from Quick fix 3 Setup in SAP
Allow customer to provide VAT ID

Ensure SAP system has ability to capture the VAT ID on the order.

Additionally allow control on Sales order entry to check the order where the VAT ID is not provided by order entry ( EDI order etc)

Validation for VAT ID

Ensure check is done on the SAP customer master data with EU vies system.

 

 

  • Allow capture of customer VAT id during the order entry:-At the Sales item level set of a custom field allows the entry of VAT ID from customer. This can be done at the sales header level.

  • VAT number can be defaulted based on customer master (where applicable).

Additionally in case of extra validation needed a custom status profile can be setup on the sales order, this allows proper reporting and follow up for the orders where the VAT ID is not captured.

So with some custom development ( to be provided in next blog) we can ensure that if the VAT id field is filled the order status is updated.

We can also configure Delivery block in system to check against the order status.

  • Validation of SAP VAT data- SAP will allow check on the VAT ID based on the ISO code e.g.

However additional setup can be done to ensure the VAT ID is checked against the VIES provided check.

This will be web service call from SAP to VIES provided web service call. The technical information is can be obtained from:-

http://ec.europa.eu/taxation_customs/vies/technicalInformation.html

 

In the next blog we will demonstrate the various scenario ( e.g. EDI order etc.) and provide configuration for the proposal if client wants to go ahead with the proposed solution

https://blogs.sap.com/2019/08/19/eu-vat-quick-fix-3-blog-2/

Please do provide your feedback in term of comments or message on Linkedin and would love to know your perspective on this.

Regards

Rishab Bucha

Astron Technologies.

2 Comments
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  • Brilliant Rishab, but I am afraid the solution with WebServices could be tricky, because the indirect access licensing is an issue for a lot of clients. Maybe other idea is to populate with a copy (PDF for instance) a proof in the GOS and check with an userexit in the sales order.

    • Hello Eduardo,

      Thank you for your feedback,

      You are right on webservice check..in my next blog I am going to write more on the the process.

      Again this is just and option and we can connect to discuss each individual cases and support needed.

      Regards

      Rishab