During a SAP review for VAT and GST we will verify the proper working of the implemented VAT configuration. This will provide understanding of how changes in the business model, master data or legislation will have an impact on the implemented VAT configuration.
A SAP review will highlight where the VAT configuration could be improved or if additional control measures should be added to the business’s Tax Control Framework. The VAT review can also identify where errors occurs and there are increased risks allowing a more focused data analysis to take place.
After the quantification and evaluation of the risks and errors, these are assigned a risk profile for further testing of risk tolerance. In practice often the best way, with respect to testing an effective control framework, is to limit the initial scope of the review and focus on the top 3-5 indirect tax risks that exceed the company’s indirect tax appetite. These risks may include:
- Inter-company transactions
- Cross-border transactions
- Correct deduction of input VAT (VAT paid)
- Once these key risks have been analyzed a more detailed and focused scope can developed. Examples of possible VAT errors encountered in SAP include:
- Ineffective use of the proper partner functions in SAP for a supplier who provides services in multiple countries and invoices VAT locally. This can result in the standard VAT calculation generating incorrect results.
- Incorrect derivation of VAT registration numbers for cross-border transactions caused by incorrect SAP configuration.
- Missing/improper VAT registration numbers in customer master data, such that invoicing requirements are not satisfied for cross-border transactions.
- Master data is adjusted and tested in the test environment, but the changes are not reflected in the production system.
- The logic of the tax code structure is disrupted by VAT rate changes. This can be mitigated using the correct SAP configuration.
- When performing reverse charge bookings, VAT rate changes do not get changed.
- For cross-border A-B-C transactions, a VAT mismatch between the VAT on procurement and the VAT on sales arises for party B.
- Blocked iDocs (electronic interface documents) because of errors in the OBCD design.
- Suppliers with invoices in other currencies and the VAT amount shown in Euro. This results in an incorrect VAT amount due to an incorrect FX conversion.
What Phenix Consulting offers on SAP review
Our objective is to verify that the implemented VAT configuration is properly working: 'VAT determination logic in the SAP systems is correct and compliant.
The review includes the following critical VAT SAP elements:
- Tax code design: 'all created tax codes including specific properties'
- VAT determination tables including applied access sequences based on the tax matrices
- VAT sensitive master data (i.e. VAT registration numbers en tax classification)
- VAT registration number determination (SAP default is not the correct logic)
- Invoice messages for specific VAT transactions (according to legal requirements of the EU VAT directive)
- Sequential invoice number ranges (correctly set-up, especially for IT)
- “Plants abroad” logic and VAT impact
- VAT reporting (VAT return and EC Sales list)
- Intrastat reports (completeness of data in the standard SAP report, i.e. commodity code, statistical value etc).
The deliverable is the identification of VAT compliance risk areas and how to remediate these in SAP ( overview of quick wins / improvements).