Introduction
This document 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 main sections:
- Definitions and Terminology
- Determination Logic
- Configuration
- Additional documentations
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:
Domestic Taxes
- 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.
Departure Country/Region
The physical Departure Country/Region is derived from the country/region of the plant from which the goods are delivered.
Destination Country/Region
The physical Destination Country/Region is derived from the country of the ship-to party.
Tax Departure Country/Region
The Tax Departure Country/Region field is by default derived from the country/region of the plant from which the goods are delivered. In case a sales order contains items with multiple plants in different countries/regions, the resulting billing document is split.
The Tax Departure Country/Region in the sales order header can be overwritten manually or via BAdI. In case a Tax Departure Country/Region has been set, it's valid for the entire document. The countries/regions of the individual plants are no longer taken into consideration.
In case RITA is not active:
- No foreign plants can be utilized to alter the Tax Departure Country/Region
- Only a country/region equal to the country/region of the company code can be set in the sales order header.
- If a Tax Departure Country/Region other than the company code country has been set in the sales order header, the associated billing document cannot be released to financial accounting.
Tax Destination Country/Region
The Tax Destination Country/Region field in the sales order header can be set manually or via BAdI.
If left empty/blank, the country/region is determined according to the country/region of the derived VAT ID, which can be influenced via respective configuration.
Tax Country/Region
The Tax Country/Region determination takes place as part of pricing and only occurs for condition types with the following condition classes:
- D – Taxes
- G – Tax Classification
- W – Wage Withholding Tax
Additionally, RITA must be active in the issuing company code. If RITA is not active, Finance does not utilize a Tax Country/Region, and therefore no determination takes place.
If all requirements are met, the Tax Country/Region is per default derived from the Tax Departure Country/Region field.
RITA
RITA (Registration for Indirect Tax Abroad) can be activated on company code level. After successful migration, for each activated company code, respective countries/regions can be assigned for which a foreign VAT ID is available.
VAT ID Determination Logic
The following figure provides an overview of the VAT ID determination logic:
VAT ID Determination Logic
3. Configuration
Condition Types
The standard system contains predefined condition types.
The condition types for sales taxes (except ones relevant for United States tax jurisdictions) are defined by condition class ‘D’ (taxes). In the area of sales taxes, the corresponding predelivered condition type for output tax is TTX1.
During configuration you can create new tax condition types that better suit your individual business requirements. In addition, you can also change predefined condition types.
You can do this in the Set Condition Types for Pricing configuration activity. You can find this configuration activity by searching for it in your configuration environment. For more information, see Configuration Environment of SAP S/4HANA Cloud.
Access Sequence
Each condition type must have an access sequence assigned to it.
The standard system contains predefined access sequences that have already been assigned to standard condition types such as TTX1. For output taxes on sales that are calculated in Sales Billing, the corresponding predelivered access sequence is TTX1.
During configuration you can create new tax access sequences that better suit your individual business requirements. In addition, you can change predefined access sequences.
You can do this in the Set Access Sequence configuration activity. You can find this configuration activity by searching for it in your configuration environment. For more information, see Configuration Environment of SAP S/4HANA Cloud.
Tax Category and Classification Assignment
The standard system contains predefined condition types.
- Tax Categories are defined for each country.
- For each tax category, tax classifications are defined that can be consumed during master data maintenance for:
- Customer master data
- Product (that is, material) master data
During configuration you can only change the description of tax classifications to better suit your individual business requirements. Because these tax classifications are SAP-managed data, you cannot add new classifications nor remove existing ones.
Business Partner Master Data
The predefined tax categories and classifications also need to be maintained in the relevant business partners with the corresponding values. A tax classification can be stored there for each tax category, tax condition, and country/region.
To maintain master data, such as customer master data, you can use one of the following apps:
- Maintain Business Partner
- Manage Business Partner Master Data
- Manage Customer Master Data
You can maintain customer tax licenses for output tax maintained for different countries/regions as follows:
- Go to the customer's Sales Area and then the Billing
- Select an entry from the Output Tax
Based on the assigned tax classification in the business partner master data, the different tax condition records can be determined. You can also change the assigned tax classification manually in the header of sales documents and billing documents, both during and after creation of the respective document.
Material Master Data
The predefined tax categories and classifications must also be maintained in the respective material (that is, product) master data with the corresponding values. A tax classification can be stored there for each tax category, tax condition, and country/region.
To maintain product master data, you can use one of the following apps:
- Manage Product Master
- Manage Product Master Data
You can maintain customer tax licenses for output tax maintained for different countries/regions as follows:
- Go to the customer's Sales Org. 1 and Tax Data
- Select an entry from the table.
Based on the assigned tax classification in the product master data, the system can determine the correct tax condition records. You can also change the assigned tax classification manually at item level during and after sales document creation.
Maintenance of Condition Records
The system automatically determines condition records for these pairs while taking the respective tax categories and tax classifications in the business partner and product master into account.
Tax condition records can be created, changed, deleted, and displayed. You can maintain tax condition records in the Set Tax Rates - Sales app as follows:
- Select a condition type, for example TTX1 then press Enter
- If there is more than one key combination, select one combination, for example, Domestic Taxes, then press Enter. (Key combination depends on the defined access sequence.)
- On the selection screen, make an entry in all mandatory fields, for example, Departure Country/Region.
- On the resulting screen, you can maintain tax codes for different combinations of key fields. The system automatically matches the tax code that you enter here against Finance data and validates whether this tax code exists, and whether the entered value equals the value maintained in Finance.
Pricing Procedures and Their Determination
The standard system contains predefined pricing procedures.
In the Set Pricing Procedures configuration activity, you can create new pricing procedures that better suit your business requirements. In addition, you can also change predefined pricing procedures.
You can do this as follows:
- In your configuration environment, search for the Set Pricing Procedure Determination configuration activity. For more information, see Configuration Environment of SAP S/4HANA Cloud.
- Enter the correct sales area, document pricing procedure, and customer pricing procedure as the target pricing procedure.
- For the document pricing procedure, you can use the procedures specified in the Pricing Proc. field within the Define Billing Types or Define Sales Document Types configuration activities.
- For the customer pricing procedure, you can use the procedure specified in the Cust. Pricing Proc. field within Maintain Business Partner app. You can also check Define Customer Pricing Procedure configuration activity.
4. Additional documentations
Configuration Environment of SAP S/4HANA Cloud
2809760 - Missing sales document item condition - SAP S/4HANA Cloud
2976186 - Rounding of amounts in specific currencies in SAP S/4HANA Cloud
3010434 - Tax rate vanished - SAP S/4HANA Cloud
3119009 - Billing split due to different tax classification of customer - SAP S/4HANA Cloud
2808834 - Price condition update does not work in sales documents
2799312 - Pricing determination fails due to no valid condition record exists for the date which sys...
3107122 - How to avoid errors caused by very small gross prices when using gross pricing procedures ...
3275376 - TTX1 for export is not determined - S/4HANA Cloud
3267065 - Unexpected Tax Condition value in item of Sales document or Billing document - S/4HANA Clo...
3251557 - How to add new entries on Maintain tax relevance for materials
3264820 - Origin Sales Tax coming as 'H' for Service Contract
2808834 - Price condition update does not work in sales documents
2787234 - Down payment requests with Tax Jurisdiction Codes in US and CA
3268030 - Export tax is not getting determined for intercompany scenario
3253562 - System was using incorrect tax code for intercompany sales order billing
2987763 - Time dependent tax is not considered in sales process
3201622 - EU Tax Condition is not determined (Requirement 0000008 not fulfilled) - S/4HANA Cloud
3151428 - How to Enable a Single Pricing Procedure for Multiple Countries or Regions
3152532 - Error with Saint Martin (MF) country tax calculation - SAP S/4HANA Cloud
3126116 - Tax Code/Classification getting applied to all distribution channels/Sales Area
3135162 - Amount to be billed changes results in rounding on billing item - Switzerland S/4HANA Clou...
3057987 - Set up Threshold Check Needed for Turnover Tax Act
3050679 - "Tax-related condition type “&” is not supported" in Manage Prices - Sales app - S/4HANA C...
2945007 - Negative tax in document item in SAP S/4HANA Cloud
2765888 - Brexit: Guidelines for taxes in Sales relevant for SAP S/4HANA Cloud
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