Value Added Tax (VAT) is a significant source of revenue for many governments worldwide. However, tax evasion, particularly in the context of VAT, presents a major challenge for authorities. To combat this issue, some countries have introduced a system known as "split payments" for VAT. This article explores the concept of split payment for VAT, its advantages, and the countries that have implemented this system.
What is Split Payment for VAT?
Split payment for VAT is a mechanism in which a buyer pays the net amount of an invoice to the seller, while the VAT portion is transferred directly to a separate account controlled by the tax authorities or to the seller's bank account. This system effectively separates VAT from sale proceeds, minimizing the risk of tax evasion and ensuring the government receives tax revenues promptly and efficiently.
Benefits of Split Payment for VAT
- Reduction in Tax Fraud: Split payments significantly reduce opportunities for tax evasion. Since VAT is handled separately, it becomes more difficult for businesses to misappropriate it.
- Improved Cash Flow for Authorities: Governments can collect VAT revenue more efficiently and predictably, which can enhance public service funding.
- Encouragement of Compliance: Businesses may be more inclined to comply with tax regulations when they know the system actively monitors VAT payments.
- Simplification of Tax Filing: Companies need not worry about setting aside VAT collected for remittance, as it is automatically handled through the split payment system.
Countries Implementing Split Payments for VAT
- Poland: Poland was one of the first EU countries to implement a split payment mechanism in 2018. It has since seen improvements in VAT compliance and a reduction in the VAT gap.
- Italy: Initiated in 2017, Italy’s split payment system applies to specific sectors and encourages businesses to separate VAT from sales revenues. The program has witnessed varying degrees of success.
- Hungary: Introduced in 2010, Hungary's split payment system focuses on high-risk sectors and has evolved over time to include more comprehensive measures to combat VAT fraud.
- Ukraine: Implementing a split payment mechanism in 2020, Ukraine aimed at improving VAT collection and transparency in public finances.
- Romania: In recent years, Romania has begun testing split payments in various sectors, marking a significant step towards enhancing tax compliance.
- Serbia: Serbia adopted the split payment system in 2019 as part of a broader strategy to digitalize tax collection and improve compliance.
Implementation of Split Payments in SAP
Implementing split payments for VAT in SAP requires careful planning and execution. Below are key steps and considerations to ensure a successful integration:
Understand Legal Requirements
Regulatory Check: Review local regulations regarding split payments for VAT to ensure compliance.
Identify Applicable Scenarios: Determine which transactions or customer segments will use split payments.
System Configuration
- SAP Versions: Ensure that your SAP system is up to date, as newer versions may have built-in functionalities or modules supporting split payments.
- Define Payment Terms: Configure payment terms in SAP to include provisions for split payments. Create specific terms to differentiate between regular payments and split payments.
- Set Up Separate Accounts: Configure separate bank accounts or clearing accounts for receiving VAT payments, ensuring that the system can track these funds effectively.
Adapt Master Data
- Customer and Vendor Master Data: Update customer and vendor master records to reflect VAT treatments. Specify which customers/vendors are subject to split payments.
- Tax Codes: Create or modify existing tax codes to handle the split payment calculations accurately, ensuring VAT is tracked separately from the net sale amount.
Customize Document Types
- Invoice Document Type: Customize invoice document types in SAP to accommodate split payments. Determine how SAP will treat and record these transactions.
- Payment Document Type: Similar to invoices, set up specific payment document types for handling VAT amounts separately.
Develop Workflows and Processes
- Transaction Workflows: Redefine workflows to ensure that when invoices are generated, the VAT portion is calculated and directed to the designated VAT account.
- Payment Processing: Reconfigure payment processing routines so VAT amounts are automatically managed based on selected payment terms.
Custom Development (If Required)
- ABAP Enhancements: In some cases, custom ABAP programming may be necessary to ensure that the split payment logic works seamlessly with existing processes.
- User Exits and BAdIs: Utilize User Exits or Business Add-Ins (BAdIs) to introduce additional business logic where standard functionality falls short.
