The impact of ‘Brexit' - its VAT law change - is used to illustrate the SAP activities and resources needed when a company has to deal with a country setting change from UK to Non-EU.
Assumed VAT law changes
‘Brexit’ will result that trade between the UK and the EU countries and vice versa will be treated as imports and exports. VAT reporting will change as well as EC Sales Lists and Intrastat reporting will no longer apply. Transfer of for example own stock to or from the UK is no longer considered a fictitious intracommunity transaction.
With respect to chain transactions UK companies or non-EU companies with a UK VAT registration can for example no longer be party B of a simplified triangulation, unless that UK company is also VAT registered in the EU.
SAP - assess, redesign and ... test!
In order to implement 'Brexit', SAP settings have to be changed. In SAP's country table T005 the UK must me changed from EU to Non-EU. That also means that tax determination logic, tax codes, invoice and reporting requirements have to be assessed and any (new) rules implemented as well. Take for example 'Plant abroad' and transfer of own stock to or from the UK, it is no longer deemed a fictitious intracommunity transaction.
Companies that have GB hard coded in their tax determination logic to determine the VAT treatment of UK transactions need to review the logic setup to avoid non compliance.
Besides assessments by the tax function - extra costs when outsourced to external advisor - IT effort has to be scheduled in to make it happen. Change management processes follow strict IT policies and specific and extensive test rules in practice apply before it can go to production. Those mandatory test cycles are time consuming and have a huge impact on resources.
When manual processes and controls are setup to manage complex VAT transaction that includes dealing with the UK new guidance should be drafted and ongoing review take place to control that these new procedures are actually followed up.
The ideal SAP world of managing change
- In the ideal world to implement Brexit and the current VAT rules from EU to Non-EU you would go to customizing of SAP and change the EU indicator field from ‘EU’ to ‘Non-EU’ and that the immediate outcome is that UK transactions are considered automatically import and export. Conditition records do not have to be reviewed and 'Plants Abroad' settings are automatically updated.
- Test cycles as mentioned above do not apply as the overall functionality has been tested before and has been IT approved as it works.
- It would be ideal as well to have real-time access to UK transactions. That the blue print of the company can be shown so that you are able to immediately zoom in on (chain) transactions involving the UK. That such transactions can be made visible, accessed and changed on the spot. Not only important for UK companies but as well or even more for companies dealing with the UK.
- Suppose SAP would have its own Tax Control Framework that automatically checks non VAT compliance. For example, the UK in a simplified triangulation is automatically picked up and blocked or put in an emergency table just because you have changed the country setting from EU to Non-EU.
Is that functionality already available?
Is that functionality already available? Yes, all above functionality exists. It is called 'PwC Taxmarc'
Data and technology
- ERP systems and tax engines
- When is standard SAP (in)sufficient?
- SAP and triangulation
- SAP and import, export and chain transactions
- SAP and plants abroad
- SAP checklist for VAT rate change
- Everything you always wanted to know about VAT in SAP * but were not aware to ask
- SAP implementation
- Tax engines questions to ask before you commit
- SAP and SAF-T Poland
- SAP and monthly SAF-T VAT file in Poland (JPK-VAT)
Written by Richard Cornelisse
Richard advises multinational businesses in improving the efficiency and effectiveness of their Indirect Tax Function and Tax Control Framework.
He started his career as a manager at Arthur Andersen and then became a partner in EY where I led the indirect tax performance team for Netherlands and Belgium. Currently he is a senior managing director of Phenix Consulting.
Richard has over 20 years’ experience advising clients on international VAT issues. He is specialized in the tax aspects of financial transformations, shared service centre migration, and post merger integration work. Richard is also somewhat of a mentor, giving back to the profession. If you are interested in conversation and discussion, please feel free to contact him.