SAP VAT configuration review

During a SAP review we verify the proper working of the implemented VAT configuration. Changes in the business model, master data or legislation will have an impact on the implemented VAT configuration. The SAP review can demonstrate that the VAT configuration must be improved or that additional control measures should be added to the Tax Control Framework.

The review can also bring errors and risks to light, allowing a more focused data analysis to take place. After the quantification and evaluation of the risks and errors, these are assigned a risk profile in order to be able to test against risk tolerance.

Risk areas

In practice, the best way, seen from testing an effective control framework, is often to limit the first scope and request the top  indirect tax risks that exceed the company’s indirect tax appetite:

  • Inter-company transactions

  • Cross-border transactions

  • Correct deduction of input VAT (VAT paid)

  • Based on these risks areas defined the scope can subsequently be extended

Examples of possible errors in SAP

  • Not making use of the proper partner functions in SAP for a supplier who provides services in multiple countries and invoices VAT locally. Result: the standard VAT calculation generates incorrect results.

  • Missing/improper VAT registration numbers in customer master data, such that invoicing
requirements are not satisfied for cross-border transactions.

  • Master data is adjusted and tested in the test environment, but the changes are not included in the final upload to the production system.

  • The logic of the tax code structure is disrupted by VAT rate changes, something that could have been prevented using the SAP configuration.

  • When performing reverse charge bookings, VAT rate changes do not get changed.

  • For cross-border A-B-C transactions, a VAT mismatch between the VAT on procurement and the VAT on sales arises for party B.

  • Blocked so-called iDoc (electronic interface documents) because of errors in the OBCD design.
 Suppliers with invoices in other currencies and the VAT amount in Euro, so that the booked VAT amount is incorrect due to an incorrect exchange rate.

  • Incorrect derivation of VAT registration numbers for cross-border transactions caused by incorrect SAP configuration.

What do we offer

Depending on the client's requirements, the following VAT-relevant subjects can be analyzed during a SAP review from for example a risk perspective:

  • VAT treatment, correctness and the logic of the tax code structure and attributes such as VAT rate, the defined tolerance percentage when calculating VAT paid, the setting for EU-relevant VAT reporting

  • Incorrect VAT rates and reporting (filing and/or ICL listing)

  • Conditions tables, records and decision tree logic

  • Incorrect VAT treatment/code and returns

  • The derivation from VAT registration numbers on the invoice of the partner functions used – sold_to, ship to, payer and bill_to.

  • Incorrect VAT number on the invoice, no 0% rate possible

  • VAT code descriptions for invoices

  • Incorrect sales invoices

  • iDoc tables, if applicable

  • Incorrect exchange rates applied

Flyer SAP VAT configuration review

Take aways 

Formal support and active involvement of senior management

Optimum process improvement or business transformations will not likely be realized by the sum of individual independent efforts.The risk is that individually everybody knows what needs to be done within his or her own area of expertise, but what is lacking is overall direction and thus progress.

Anticipate what users would want

We combine technical knowledge with industry understanding and knowhow of technologically advanced tools and methodologies available in the market or developed by ourselves.

What do we like to achieve

  • Focus on tax processes that could be improved
    • Manual process: same data requests are made by different stakeholders
  • As Is assessment
  • Anticipate future changes and the data needed
    • What are tax trends?
    • What is happening locally and what should be considered across jurisdictions where you operate?
    • Anticipate new stakeholders and their data needs or requests (internal and external)
  • Define scope and actions for short, mid and long term
  • Write business case for change
  • Realize sponsorship for implementation

‘As is’ assessment, actions and business case

  • What tax data is requested and by whom?
  • What tax process can be improved and what can be automated?
    • CIT, VAT, tax data warehouse
  • What is the Return on Investment?
    • Hard saving: process improvement
    • Meeting (new) tax requirement
  • What systems are in use: SAP, Oracle, etc
    • By which entities?
  • How many end-use computing tools (e.g. excel spreadsheet) do we have?
  • How do we avoid an ad-hoc solution?
    • Understand the bigger picture
    • Real problem and not the symptom

Risk and reward

Technology-related tax risk: understand and address the potential harms and benefits of (new) technology.

Technology tools & systems integration

Ascertaining proper IT support for ensuring efficient, timely and reliable reporting.

Change and project management

VAT should be considered in every aspect of the process, from concept through completion and beyond. Managing by design — looking at any process or transaction from end to end and factoring in all the requirements and controls essential to designing and optimizing a compliant VAT process.

Effective communication and teaming

We speak the language of the business and IT and no translation is needed.

Set up a project plan

  • Set up a project charter that will take effect preferable during feasibility but ultimately during design
  • Write a business case and problem statement
  • Define scope of the project
  • Define objectives and goals of the project
  • Involve stakeholders and define priorities
  • Set measurable milestones
  • Ensure that the right sponsors provide buy-in.
  • Identify (project) risks and how to manage them
  • Jointly validate and refine the project plan and develop a roadmap to success
  • Hold regular meeting to track progress of the various work streams

From concept through completion and beyond

VAT should be considered in every aspect of the process, from concept through completion and beyond.

Managing by design

Looking at any process or transaction from end to end and factoring in all the requirements and controls essential to designing and optimizing a compliant VAT process.

Global tax environment is in a state of fast change

The key to success in the management is the ability to translate tax knowledge into workable business processes.