VAT is a consumption tax. It is collected in stages by the businesses (or intermediaries) and should be borne by the final consumer. Consequently, VAT is a transactional tax with the potential to impact all transactions with suppliers and customers.
At multinational companies, we're quickly talking about amounts of over 5 billion euros of VAT flowing through the books.
VAT/GST is typically cost neutral for most businesses: "a cash in and cash out" scenario. However, the tax function knows that deductible input VAT and liable output VAT have to be managed separately to avoid substantial VAT assessments. It is a risky business to monitor only the balance between output VAT and input VAT. A taxpayer can only achieve VAT neutrality – better is the word 'earn' – if specific formal and material requirements are met.
A practical example, a supplier is responsible for ensuring that all the conditions for applying the zero VAT rate are met. If not, the tax authorities will seek to recover the tax due from the supplier. If the applicable VAT rate is 25%, the tax assessment will be 25/125 of the consideration charged. This assessment is increased with interest and penalties to determine the total tax burden.
Something as basic as a billing error leading to invoices issued in the wrong name could delay revenue receipt and result in non-recoverable VAT. The penalties for incorrect invoicing can be a percentage of the turnover, so amounts can quickly become material—up to 25 percent VAT in Europe (Hungary 27%) on the turnover plus penalties.
The tax function and tax digitalization: 'what to do'
SAP add-on for tax reporting and VAT risk management
KGT SAP add-ons for SAF-T, e-invoicing and MTD UK for VAT work as a standalone application within the SAP system and does not change existing customer SAP functionality or processes. It is fully configurable with custom namespace /KGT.
KGT partnered up with SAP regarding 'SAP Advanced Compliance Reporting for SAP HANA'. The 'Advanced Compliance Reporting' (ACR) service enables you to configure, generate, analyze, and electronically submit statutory reports that contain indirect taxes, such as value-added tax.
KGT provides also S/4 HANA transformation support.