From 1 January 2020, four Quick Fixes will be introduced to simplify and harmonize the EU VAT rules of intra-EU supplies of goods, that will address the vital importance of VAT number check again.
Local tax authorities often raise VAT assessments because businesses cannot meet local requirements to prove the use of the zero-rate. The Quick Fixes offer an opportunity to implement a harmonized process to collect the proof of dispatch across all EU Member States. Obtaining the customer’s VAT number is a mandatory formal requirement to be able to zero- rate intra-EU supplies of goods.
From a VAT perspective, this is a material tax risk area as the 0% VAT rate might have incorrectly been applied for sales to customers with an invalid VAT number:
If the customer’s VAT number is missing, the supplier needs to charge local VAT at either standard or reduced rate. If not correct, the tax authorities might seek to recover tax due from this supplier via a levy of a tax assessment. If the applicable VAT rate is 25%, the tax assessment will be 25/125 of the consideration charged. This assessment will be increased with interest and penalties to determine the total tax burden.
Businesses, therefore, should make sure that proper processes concerning customer’s VAT numbers. To this end, the European Commission has provided an online database, VAT Information Exchange System (VIES) for the validation of VAT numbers or cross border transactions on goods or services.
What do we offer?
Our add-on can automatically check the VAT numbers when a VAT number is added to the customer master data. A real-time link to VIES VAT number validation website is made to validate the entered VAT number.
VAT numbers can expire or change due to changes in the legal structure of customers. It is, therefore, again, important to periodically check the validity of the VAT numbers.
With our add-on, it is possible to periodically run the validation of VAT numbers report as detective control within the
Tax Control Framework and as part of master data cleansing/maintenance. This batch job can be done in a fully automated process with a scheduled batch job, for example, last Sunday of the month. That batch job will validate all VAT numbers in customer master data.
Explanatory Notes 2020 Quick Fixes
What is an SAP add-on?
An SAP add-on enhances standard SAP itself.
Add-on components are extra functionalities that do not come with the main SAP product. Different organizations have different requirements. SAP has recognized that and facilitated that additional functionality can be added and that such functionality as a component can be integrated with Standard SAP.
An add-on is permitted by SAP – the code 'ABAP' is written and transported where SAP allows it. That means these add-on components sit above the core and access the same dictionary objects or repository objects and perform the required functionality. It contains custom authorization objects according to SAP standards.
SAP add-on solutions are, therefore, without an external interface or external software and can be implemented with minor or no SAP impact in any other area. An SAP add-on does not change the programming code of SAP. As a result, SAP upgrades do not lead to any problems, and maintenance is straightforward. Additional functionality is added to Standard SAP.
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 Key Group.
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.