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Saturday, May 16, 2015

SAP review for VAT and GST

A SAP review should highlight where the VAT configuration could be improved or if additional control measures should be added to the business’s Tax Control Framework.

The SAP review can also identify where errors occurs and there are increased risks 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 for further testing of risk tolerance.

During a SAP review for VAT and GST the proper working of the implemented VAT configuration has to be vericated. This will provide understanding of how changes in the business model, master data or legislation will have an impact on the implemented VAT configuration.

Examples of possible VAT errors encountered in SAP include:

  • Ineffective use of the proper partner functions in SAP for a supplier who provides services in multiple countries and invoices VAT locally. This can result in the standard VAT calculation generating incorrect results.
  • Incorrect derivation of VAT registration numbers for cross-border transactions caused by incorrect SAP configuration.
  • 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 reflected in the production system.
  • The logic of the tax code structure is disrupted by VAT rate changes. This can be mitigated using the correct 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 iDocs (electronic interface documents) because of errors in the OBCD design.
  • Suppliers with invoices in other currencies and the VAT amount shown in Euro. This results in an incorrect VAT amount due to an incorrect FX conversion

Written by Richard Cornelisse, one of the articles published on Global Indirect Tax Management

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