What does it mean for a VAT number to be valid?

Checking the syntax of a VAT number confirms its format, but only a check against VIES confirms it is real and in use.

It is straightforward to verify the syntax of a VAT number — its format and the correct number of positions. That, however, says nothing about whether the number is actually valid. Yes, confirming validity is a separate step. For this purpose the European Commission maintains an online database, the VIES (VAT Information Exchange System), which lets organisations confirm that a given VAT number genuinely exists and is in use.

How common are incorrect VAT numbers?

Between 5% and 25% of VAT numbers in customer and vendor master data are typically wrong.

Our experience bears out why this matters. During a private data analysis exercise examining VAT numbers held in customer and vendor master data, we consistently found that between five and twenty-five percent of the existing numbers were either incorrect or invalid. In the cases we reviewed, the proportion of erroneous numbers sat close to the upper end of that range, approaching 25%.

Why are incorrect VAT numbers a material tax risk?

A wrong VAT number can mean the 0% rate was applied when it should not have been — and the amounts at stake usually exceed a company's risk appetite.

From a VAT perspective this is a material tax risk rather than an administrative inconvenience. Where VAT numbers are wrong, the 0% rate may have been applied incorrectly, and the exposure becomes particularly acute when cross-border transactions form part of the normal course of business. Because the tolerance in this area is effectively nil — both for the financial consequences and for the duty to prevent VAT fraud through proper client acceptance — an error rate approaching 25% sits well beyond any reasonable threshold. For that reason, correct application of the 0% rate is a predictable focus of any tax audit.

One of the most important controls in managing material indirect tax risk is therefore confirming that the 0% rate is being applied correctly. For cross-border transactions within the European Union, a prerequisite for that rate is a valid VAT number belonging to the client, and that valid number must also appear on the invoice. Monitoring this rigorously is essential to reducing the underlying risk as far as possible.

What is the financial impact of an incorrect VAT number?

Authorities can issue an assessment of 25/125 of the consideration at a 25% rate, plus interest and penalties.

If a VAT number proves incorrect, the tax authorities may seek to recover the tax due from the supplier by issuing a tax assessment. Where the applicable VAT rate is 25%, that assessment amounts to 25/125 of the consideration charged, and it is then increased by interest and penalties to arrive at the total tax burden. Quantifying this exposure provides a concrete basis for building a problem statement and a supporting business case for action.

How does the KGT add-on validate VAT numbers in SAP?

It checks each VAT number against VIES in real time currently it is entered into the customer master data.

SAP can check the syntax of a VAT number, including its format and number of positions, but it cannot establish whether the number is genuinely valid. That gap is accurately where substantial tax risk arises, and it is the gap the KGT add-on is designed to close.

The KGT add-on validates VAT numbers automatically the moment a number is entered into the customer master data, using a real-time link to VIES so each entry is checked against the official European database as it is recorded. You decide how the system responds to the result:

Why do VAT numbers need to be checked periodically?

VAT numbers can expire or change—for example, when a customer alters its legal structure—so numbers already on file need revalidation.

Validation at the point of entry is only part of the picture. Because VAT numbers can expire or change over time, it is important to revisit the validity of numbers already on file at regular intervals. The KGT add-on supports this by running these checks as detective controls within the Tax Control Framework on a periodic, fully automated basis — so the integrity of your VAT data is maintained over time without continual manual effort.