Automating complex VAT flows in SAP

If the aim of your organization is full VAT automation of AP and AR, it is important to understand what exactly makes standard SAP not functioning optimally from an Indirect Tax perspective. Only then it is possible to validate whether company's objectives can be achieved with upgrading standard SAP functionality and/or implementing a tax engine?

For a correct VAT determination of a cross border chain transaction the VAT relevant data of company code A and B has to be linked real time as Standard SAP itself is only processing a transaction within one specific company code. That means that additional functionality need to be added to Standard SAP to give it its Birds Eye overview.

SAP and bold-on tax engines exclusively focus on transactions within a single company; it only assesses the underlying individual transactions and fails to link the current transactions to the VAT results of previous transactions. As a consequence, companies with VAT registrations in different countries cannot automatically comply with all VAT obligations.

To realize such Birds Eye view the tax logic should be based and generated on a higher SAP’s hierarchy: at client level combined with implementing the basic tax rules into the logic. Client level includes all the company codes working on the same SAP platform.

Without that approach: the 'Garbage In' and 'Garbage Out' principle will apply.

Taxmarc™ ensures that VAT relevant information is collected and added on client level. This is the highest level within the hierarchy of SAP in which legal entities are defined. Taxmarc™ distinguishes itself from regular ERP systems like SAP as it incorporates source data from different databases of organizations.

The VAT relevant information is subsequently entered into a decision tree, which, based on real time data, determines the VAT treatment or blocks the transaction automatically when it cannot be categorized or validated.