External Sales & Use Tax Calculation Overview for S/4HANA Cloud
What is External Sales & Use Tax Calculation in S/4HANA Cloud ?
S/4HANA Cloud differentiates between internal and external tax calculation for the United States. External Sales & Use Tax Calculation would be for example via a tax partner like Sovos, Thomson Reuters, Vertex, Wolters Kluwer, or other Tax partners.
The External Sales and Use Tax Calculation solution in SAP S/4HANA Cloud uses 0TXUSX as its US tax procedure for the United States. SAP provides a standard tax interface system that can pass all necessary data on to an external tax system. This external system determines tax jurisdictions, calculates taxes, and returns these calculated results to SAP. This data transfer occurs during master data address maintenance to retrieve the appropriate tax jurisdiction codes. It also occurs during order and invoice processing out of finance, materials management, and sales and distribution, when tax rates and tax amounts are retrieved. The tax interface system also updates third party tax files with the appropriate tax information for legal reporting purposes.
Basically, External Sales & Use Tax Calculation in S/4HANA Cloud includes 3 parts:
In general, you begin by assigning the country to the tax calculation procedure and ensuring that your configurations are correct so you can connect to your external tax partner system. These steps and other important information about the external tax solution can be found in the About the US External Sales and Use Tax Solution topic.
Once these initial steps have been taken, you can initialize the External Sales and Use Tax Communication Scenario and use the business add-ins (BAdIs) for external tax calculation to specify what information you want to have passed during tax calculation. With that set up, you can use the SAP Application Integration Framework (AIF) to enable functional message monitoring for the external tax solution. You can also use the Manage External Tax Postings app to display the status of all transactions calling external tax update and force update functions. This app also provides you a simple way to check for data inconsistencies between your SAP S/4HANA Cloud system and the tax calculation engine.
How It Works: The Tax Calculation Process in Sales (Example)
Sales requires that sales orders and invoices reflect the tax applicability of each item and compute the total due on each item within the sales document. Appropriate tax amounts and tax rates are determined for both orders and invoices.
Several parameters influence the tax amount and tax rate determinations. The most important parameters influencing these determinations are:
- The ship-from jurisdiction (origin)
- The tax jurisdiction codes of the ship-from address (plant)
- The tax class of the material being shipped
- The tax jurisdiction codes of the ship-to party (customer)
- The tax class of the ship-to partner
- The tax calculation date
- The tax jurisdiction codes of the point-of-order acceptance and the point-of-order origin
Please note that SAP S/4HANA uses the ship-from jurisdiction maintained on the plant as the point-of-order acceptance, and defaults the ship-to jurisdiction maintained on the customer as the point-of-order origin. Order acceptance jurisdiction and order origin jurisdiction can be changed using the FOT_EXT_TAX_CALC_FIELDS_CHANGE Cloud BAdI. For more information, please see SAP Note 2614414 .
Sales uses the country, customer tax classification indicator, and material tax classification indicator to read the tax condition records. In sales order processing, the system exits the “normal’ pricing procedure during pricing execution when it recognizes the external tax calculation condition. It then calls external sales and use tax communication scenario SAP_COM_0177.
Once SAP_COM_0177 is called, a SOAP message with header and item data is populated with the information the partner’s tax solution needs to calculate the taxes. This information is then passed to partner’s integration flow (iFlow).
The partner’s iFlow passes the information to its tax solution. The appropriate tax is calculated and returned to the partner’s iFlow, and then onto the SAP_COM_0177. These tax amounts and rates are applied to the Sales document item’s pricing at each of up to six levels of jurisdiction.
How It Works: The Tax Calculation Process Finance and in Sourcing and Procurement (Example)
In Sourcing and Procurement and Finance, the system can compute the sales or use tax for each line of a purchase order or an invoice. For this to happen, however, the system needs to know where taxes are being charged. This means that you must maintain a ship-to tax jurisdiction code. This ship-to tax jurisdiction code can correspond to the plant, cost center, asset master, internal order, or project (WBS). If no jurisdiction code is maintained on the asset, order, or project, then the jurisdiction code of the responsible cost center maintained on the asset, order, or project will be used for the purchase order or invoice verification document by default during document creation. This jurisdiction code then is used as the ship-to tax destination.
In addition to the ship-to destination, the ship-from jurisdiction also influences taxability. A jurisdiction code can be maintained within the supplier’s master record. This jurisdiction code is used as the ship-from tax destination.
Sourcing and Procurement and Finance use country and tax codes to read tax condition records. The external tax procedure (0TXUSX) for the US calls External Sales & Use Tax communication scenario SAP_COM_0177. Once SAP_COM_0177 is called, a SOAP message with header and item data is populated with the information the partner’s tax solution need to calculate the taxes. This information is then passed to partner’s iFlow and then its tax solution. This solution in turn passes the tax data back to the iFlow and then back to SAP_COM_0177.