Adjust Your SAP System to Keep Up with Changes in VAT

  • by Kees van Westerop, Senior SAP Consultant, Kwest Consulting
  • September 15, 2007
The European Union’s efforts to prevent tax fraud have led to a change in its value added tax (VAT) — the reverse charge VAT.
Key Concept

Value Added Tax (VAT) is a common tax system in the EU. Tax authorities are revamping the system to combat fraud. The original principles used for local VAT are being abandoned, with reverse charge VAT now being adopted particularly in certain industries, such as the telecommunications industry.

Throughout the supply chain in the European Union (EU), you have had to pay a value added tax (VAT) for each purchase or sale, and claim it to or from tax authorities. In recent years, however, tax authorities have altered VAT for specific industries because of significant fraud. Instead of the normal VAT, these branches (e.g., construction industry) have to use what is called reverse charge VAT. It changes who pays the tax, and requires modification of the sales invoice and tax condition records.

I’ll explain what reverse charge VAT is and how you need to set it up in your SAP system. I’ll provide a few SAP Notes for further information about specific situations. For information on the changeover process from normal VAT to reverse charge VAT, see the sidebar “Changeover Process.”

Kees van Westerop

Kees van Westerop has been working as an SAP consultant for more than 25 years. He has an MBA degree in mathematics and a degree in finance. Kees has been concentrating on the financial modules, especially in general ledger accounting, cost center accounting, and consolidation. He also has a great deal of experience with rollouts of kernel systems and integrating finance and logistics.

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