3308072 - Output tax determination in sales billing

Symptom

You would like to know more about how indirect tax is determined in Sales Billing within SAP S/4HANA Cloud.

Many complex business processes require a thorough understanding of tax determination in Sales Billing within SAP S/4HANA Cloud.

Environment

SAP S/4HANA Cloud

Resolution

Overview

This Knowledge Base Article aims to help you understand the determination of indirect taxes within Sales Billing by providing information about the relevant terminology, determination logic, and configuration. Therefore, it's structured into the following three main sections:

Definitions and Terminology
Determination Logic
Configuration

1. Definitions and Terminology

Departure Country/Region

Identifies the physical departure country/region from which the goods are delivered to the customer, or from where services are performed. It enables a logistics-focused perspective of the business process.

Tax Departure Country/Region

Identifies the departure country/region from a tax perspective. The tax departure country/region can deviate from the physical departure country in case taxation doesn't follow the logistics flow along the process chain as in, for example, chain transactions.

Destination Country/Region

Identifies the physical destination country/region where the goods are delivered to the customer, or the performed services are received. It enables a logistics-focused perspective of the business process.

Tax Destination Country/Region

Identifies the destination country/region from a tax perspective. The tax destination country/region can deviate from the physical destination country/region in case taxation doesn't follow the logistics flow along the process chain as in, for example, chain transactions.

RITA

Registration for Indirect Taxation Abroad (RITA) allows legal entities to extend their business abroad by enabling tax reporting in foreign countries/regions. This can happen via respective foreign plants, but also without setting up a permanent establishments in the respective countries/regions.

Foreign Plant

A regular plant is in the same country/region as the company code that it's assigned to. A foreign plant is in different country/region than the country/region of the company code that it's assigned to.

Tax Country/Region

Defines the country/region where taxes must be reported. When RITA is active, a tax country/region is determined during billing document creation. In the vast majority of cases, the Tax Country/Region field is functionally equivalent to the Tax Departure Country/Region field. The latter field is used in Finance to determine the correct tax procedure.

Tax Procedure

The tax procedure is only used in Finance and stores tax relevant posting information per country/region.

VAT ID (Company)

VAT registration number (VAT ID) of the company code issuing the billing document.

VAT ID (Customer)

VAT registration number (VAT ID) of the respective business partner.

Customer Tax Classification

Specifies the tax liability of the customer based on the tax structure of the respective tax-relevant country/region.

Material Tax Classification

Specifies the tax liability of the material (that is, product) based on the tax structure of the respective tax-relevant country/region.

Date of Services Rendered

Defines the date on which the invoicing party provided the service to the customer. For services, it is the date on which the services were performed. For physical goods, this is the goods issue date.

Pricing Procedure

The pricing procedure defines the conditions permitted for use in a document (for example, a sales order or billing document) and the sequence in which the system takes these conditions into account during pricing.

Condition Type

Identification that defines characteristics, attributes, and business meaning of a condition.

Access Sequence

A search strategy that the system uses to search for valid condition records of a certain condition type.

Tax Category

For each country/region, one or more distinct tax categories can be maintained. They are used to group taxes of a similar nature into categories. Tax classifications are then assigned to respective tax categories to form a unique key per country.

Condition Records - Tax Code

The tax code represents a tax cluster that must be considered for tax reporting to the respective authorities. The tax code and corresponding tax rate are stored in a condition record.

Tax Jurisdiction

Tax jurisdiction is used in the USA, Canada, and Puerto Rico and defines to which tax authorities taxes are to be paid.

2. Determination Logic

Pricing Procedure Determination

During sales document creation, the system determines the pricing procedure for the entire document based on the following key attributes:

- Sales Organization
- Distribution Channel
- Division
- Document Pricing Procedure*
- Customer Pricing Procedure**

For each of these key attributes, a dedicated pricing procedure can be assigned.

*The document pricing procedure can be customized for each sales document type and billing document type.

**The customer pricing procedure can be adjusted within the business partner master data.

Access Sequence Determination

The tax access sequence is assigned to a tax condition type, which is always part of a pricing procedure. It contains several accesses which, depending on the requirement to be fulfilled and specific input field values, lead to different condition tables being accessed. An access has the following attributes:

- Access No.: Each access is processed sequentially according to its number.
- Condition Table Number: Number identifying the condition table that is used to read the condition records if the access is performed.
- Requirement: The access is performed if the assigned requirement is fulfilled.
- Exclusive Access: Controls whether the system stops searching for a condition record after the first successful access for a condition type within an access sequence.

Additionally, it is important that all the required fields for the condition table are filled when an access is called, otherwise the access will not be processed.

The standard system includes the access sequence TTX1 with the following accesses:

- Domestic Taxes: This access is checked first and decides whether to read the condition table A002. The fields that are relevant for this condition table are Departure Country/Region, Customer Tax Classification, and Material Tax Classification.
  
  The requirements for this access are defined in Requirement 7 (see figure below). At the beginning of this routine, the system checks whether the Departure Country/Region and Destination Country/Region fields are filled in the document. If one of these fields is empty, the requirement is not fulfilled.
  
  Afterwards, the system checks whether both countries/regions are members of the European Union and whether the VAT ID is not available.
  If both of these conditions are met, the requirement is fulfilled.
  
  Otherwise, a final check is performed to verify whether both countries/regions are the same. In this case, the requirement is also considered to be fulfilled.
  
  The following figure provides an overview of the logic described above:

- Export Taxes Depending on the Billing Category: This access is checked second and decides whether to read the condition table A165. The fields that are relevant for this condition table are Departure Country/Region, Destination Country/Region, Billing Category, Customer Tax Classification and Material Tax Classification.
  
  The requirements for this access are defined in Requirement 8 (see figure below). At the beginning of this routine, the system checks whether the Departure Country/Region and Destination Country/Region fields are empty in the document and whether their values are identical. If one of these conditions is met, then the requirement is not fulfilled.
  
  Afterwards, the system checks whether the condition class is D, both countries/regions are members of the European Union, and whether a VAT registration number is not available. If all conditions are met, then the requirement is not fulfilled. Additionally, this access has the "Exclusive Access" flag set.
  
  The following figure provides an overview of the logic described above:

- Export Taxes: This access is checked last and decides whether to read the condition table A011. Moreover, it is only processed if the previous access (Export Taxes Depending on the Billing Category) was not successful.
  
  The fields that are relevant for this condition table are Departure Country/Region, Destination Country/Region, Customer Tax Classification and Material Tax Classification. The requirements for this access are defined in Requirement 8 (see figure below). This is the same routine that was already described above.
  
  The following figure provides an overview of the logic described above:

VAT ID Determination (Customer)

You can make settings that control, individually for each sales organization, how the system determines the value-added tax registration number (VAT ID) that is used in sales documents and billing documents.

How the system determines a VAT ID for a customer can mainly be influenced, via configuration, or indirectly by setting tax-relevant countries/regions in the sales order header. During and after billing document creation, the VAT ID can also be changed manually in the billing document header. The country/region of the VAT ID needs to be adjusted accordingly. You can do this via the Country/Region Sales Tax No. field in the billing document header.

The following figure provides a visual overview of the VAT ID determination logic that the system applies during billing document creation. Please note that this flow chart focuses on the overall, basic determination procedure and doesn't cover every process variation or niche scenario.
The green boxes represent the VAT ID being derived from the stated source and the determination procedure ending. You can check the source that was used to determine a specific VAT ID in a given billing document by looking at the Origin Sales Tax No. field in the billing document header.

Note: While the Maintain Determination of Value-Added Tax Registration Number configuration activity defines from which partner function the VAT ID is determined, the Origin Sales Tax No. field provides more granular information regarding how the relevant partner data values were filled (for example, according to the partner's country/region or tax destination country/region).

VAT ID Determination (Company)

The VAT ID of the issuing company code is derived based on the Tax Departure Country/Region field and is taken from the basic company code configuration in Finance.