MODERATOR’S NOTE: This blog post, originally published in 2019, contains information related to an older version of the SAP Tax Service product. For information about the latest version, please see Integration with External Tax Calculation Engines – New Concept for SAP S/4HANA Cloud and SAP S/4HAN...
Let's start understanding what “SAP Tax Service” is
It is all about determining and calculating indirect tax to ensure tax compliance.
SAP Localization Hub, Tax Service helps you to determine and calculate applicable country/region-specific indirect taxes. The tax service comes with predefined tax determination and calculation content and increases automation in tax-relevant transactions. The tax service also includes a partner framework that allows you to integrate partner solutions.
Now, let's see how the Integration with Avalara’s Solution works
The integration with SAP Localization Hub enables a robust, adherent, scalable and always up-to-date solution for the tax and tax peculiarities of the Brazilian market, allowing the determination and calculation of taxes in a fully cloud-based SaaS solution integrated with SAP S/4HANA Cloud.
The Avalara solution is called, via specific API, by SAP Tax Service and performs the calculation, determination and bookkeeping of various taxes such as ICMS, ICMS-ST, IPI, PIS, COFINS, for goods and services (ISS), in various operations, as well as tax withholdings. All this with tax content always updated and maintained by the team of experts of Avalara.
Herein, we will cover the main steps and configurations required in SAP S/4HANA Cloud and SAP Cloud Platform (SCP) so that the process can be successfully executed, both technically and operationally.
And, what are the pre-requirements?
To be able to use the Tax Service, you must have an account on SAP Cloud Platform.
You must also have SAP Tax Service purchased with the SAP sales team, as well as the Avalara Calculation Service. For more information to access the Avalara Brazil Tax Service application on the SAP App Center visit: https://www.sapappcenter.com/apps/23249/avalara-brazil-tax-service#!overview
Watch out for the set-up steps!
- To be able to use the service, you must enable it in the service catalog of the SAP Cloud Platform cockpit.
- Check whether applications have been subscribed
- Check whether destinations have been created
- When you enable the service, a number of destinations are created automatically
- After the above check, it is time to set up the Avalara Service Destination, according to credentials received when hiring the service.
In Destination Configuration option, fill in the main fields as follows:
- Name: Name of the calculation service. In this case: AVALARA-BR
- Type: HTTP
- URL: Avalara calculation engine endpoint, as per information received upon hiring
- Authentication: Basic Authentication
- User: according to information received on hiring
- Password: according to information received on hiring
To find the complete step-by-step setup procedure, please click in the link: https://help.sap.com/viewer/e33c530840f04326916f8dcc83fdc54e/Cloud/en-US/4051531dbe5047e4a73493ac1a8...
Tax Service will only work with Attributes
Attributes are the tax elements or information required for the correct calculation and determination of taxes in a commodity or service operation.
Attributes are mapped to SAP ERP, at various source points, by default by the SAP Tax Service module itself, and form the basis of the standard payload request to be routed via API to the Avalara Calculation Engine.
These attributes, in isolation or jointly, are responsible for determining the operation and tax rules to be applied in the tax process.
After tax determination and calculation, a default payload response is returned to the SAP Tax Service, which is responsible for interpreting and persisting it in the fields and processes of ERP SAP.
In summary, tax attributes are mapped from the following transactions:
- Define BR Specific Fields for Business Place (Subsidiary /Establishment);
- CNAE, a code used for identifying the business classification (National Classification of Economic Activities).
- Legal Nature, a code used for identifying the business Legal Nature.
- Tax Number, CNPJ Numbers are tax identification numbers required in Brazil for levying taxes and subsequently reporting to the tax authorities.
- Address
- Region, State
- ZIP Code
Business Partner Master Data (Customer/Supplier):
- CNAE, a code used for identifying the business classification (National Classification of Economic Activities).
- Legal Nature, a code used for identifying the business Legal Nature.
- Tax Number, CNPJ Numbers, are tax identification numbers required in Brazil for levying taxes and subsequently reporting to the tax authorities.
- Address
- Region, State
- Zip Code
Material Master Data:
- Control Code, NCM (Nomenclatura Comum do Mercosul – Common Nomenclature of Mercosur);
- Material Origin
- Material Usage
Specifics Apps, for example:
- Assign Service Type to Service Number
- Define Official Brazilian Service Types
- Define CPOM, information needed to calculate ISS
- Define Tax Classification for Material or Service, The Tax Classification is an attribute used by Sales and Distribution (SD) and Materials Management (MM) only when tax calculation is done by a Tax Service Partner.
Purchase Order / Sales Order:
- Material Usage
- Quantity
- Unit Price (NET)
Some attributes are automatically mapped in S4 internal processes:
- Id, single operation indicator
- operationNatureCode, operation type
The other attributes are obtained directly from the information entered in the records, so it is essential to have a process of sanitation in the master records at the beginning of the project, as well as its constant preservation, to keep determination and calculation correct and in compliance.
After these basic steps in the deployment process, the solution is ready to use and can be tested very easily by doing one of the following:
- Purchase Order
- Supplier Invoice
- Sales Order
- Billing Doc.
In the purchase order process, for example, when choosing the appropriate Tax Code for an Item, SAP Tax Service would call Avalara’s engine to perform CFOP determination and tax calculations, returning the information in the purchase order process itself, in a matter of milliseconds. Remembering that the Tax Service API is executed by Order or Invoice.
The above mentioned steps sum up how Avalara with its 100% cloud-based computing and tax assessment solution, integrated with the SAP Localization Hub, Tax Service is helping overcome the challenge of complexity pertaining to tax calculation.
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