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Multinationals face SAP VAT Tax-code shortages and compliance risks

As jurisdictions around the world introduce VAT rate-changes, multinationals are met with new challenges

Value Added Tax (VAT) is a key tax lever for governments looking to stimulate business and economic recovery. As economies re-open, many tax jurisdictions are considering VAT rate reductions as part of their recovery package.This is welcome news for consumers and businesses alike, however, making relatively un-planned changes to VAT-rates can create significant challenges for multinationals using SAP (SAP ECC and S/4 HANA).

VAT is usually a steady tax. Rates can remain static for years, and when changes to rates do occur, they usually happen with advance notice and across a small number of jurisdictions at any one time.

So, when there are multiple rate-changes across multiple jurisdictions, simultaneously – as is more likely now almost every global market needs to stimulate a recovery, and to empower a country to once again thrive – businesses operating across these jurisdictions can face real challenges.

The first challenge is how to update the existing SAP Tax codes, with new codes. The SAP ERP was not designed to implement mass-VAT changes across multiple countries and jurisdictions all at once. For a start, there are a limited number of codes available to use for VAT – this is because there are only two alphanumeric characters to use in SAP, which equates to a maximum number of 1,296 unique alphanumeric combinations. For a complex business, with a large geographical footprint, facing mass VAT-rate changes, this isn’t enough.

The option to reuse existing Tax codes or to add-in new characters has limits too. IT Systems generally don’t like re-using characters and codes that equal one value today, and equal a different value tomorrow. SAP does not promote this approach either as it could increase compliance risks. And using non-standard alphanumeric characters to increase the number of options available, causes problems when the data is transported elsewhere. Think about downloading this information into excel, and then the complexities of the human-interaction stage if the person looking at the data isn’t familiar with the characters, or even able to describe them.

The second challenge comes in the form of the complexities of updating SAP with new Tax codes. Even if there were enough Tax codes to go around, updating them means enlisting the help of the IT function. In many organisations the IT function is already over-stretched. So, the Tax function submitting a large change-request for SAP Tax codes will likely face turnaround time pressures, and will require a full programme of management to deliver the change.

The final challenge is Tax department resources. Understanding multi-jurisdictional VAT changes, across numerous products, services and activities, within the complex operating model of a multinational organisation, is resource intensive. Impact assessments will need to be done, IT tickets will have to be created, tests will need to be performed, and manuals and reporting systems will need updating. It could easily consume the Tax function for months. Months that may not be available if businesses are to meet their compliance requirements efficiently rather than rely on manual adjustments.

So, how can Deloitte help a business to cope with the current situation, while also building resilience into SAP to manage the future VAT legislation changes?

Introducing Deloitte’s ITL Tax Codes with Validity Periods (TCwVP) SAP Add-on

Given the challenges a business will face around simultaneous, multi-jurisdictional VAT changes, the preferred solution has to be one where no new Tax codes are needed, the IT function is not confronted with a large-scale change-request, and the Tax department’s resources are not consumed.

This is what Deloitte’s ITL TCwVP add-on provides. This add-on integrates with the SAP ECC and S/4 HANA systems – meaning no core modifications to SAP are needed and is comparatively easy to implement. Once in place it simply adds a start and end date to the VAT rate in the existing Tax code.

As global economies re-open, and VAT changes are brought in, you can contact us through a number of ways to find out more about Deloitte’s potential solution to your SAP tax-code challenges: You can speak to your Lead Tax Partner, or contact your local Tax Management Consulting team. You can also contact our Deloitte ITL SAP Solutions Team, who will be happy to direct you to the correct person in your country, you can email them here. Alternatively you can contact Eliza Alberts-Muller or Neus Vicente Llodrà for more details.

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