external tax calculation in sap 4.6c configuration guide revised 2

External Tax Calculation in SAP R/3 4.6CConfiguration Guide

CONTENTS

I INTRODUCTION...........................................................................8II GENERAL.....................................................................................8II.1 TYPES OF TAXATION IN SAP.....................................................................................8

II.1.1 Taxes at Federal Level..................................................................................8II.1.2 Taxes Below Federal Level...........................................................................8

II.1.2.1 Interface to External Tax Calculation Programs for Taxes Below Federal Level..........................................................................................................8

II.1.3 Combination Types of Taxation.....................................................................9II.2 TAX TYPES IN SAP...................................................................................................9

II.2.1 General.........................................................................................................9II.2.2 Tax Types.....................................................................................................9

II.2.2.1 Tax on Sales and Purchases..............................................................10II.2.2.2 Sales Tax............................................................................................10II.2.2.3 Additional Tax.....................................................................................10II.2.2.4 Withholding Tax..................................................................................10

II.3 TAX CATEGORIES IN SAP.......................................................................................10II.3.1 Tax Categories in Sales and Distribution.....................................................10

II.4 TAX CODES IN SAP................................................................................................11II.4.1 Tax Codes in Sales and Distribution............................................................11II.4.2 Tax Codes in MM........................................................................................11

II.5 TAX CLASSIFICATION IN SAP..................................................................................11II.5.1 Tax Classification in SD...............................................................................11II.5.2 Tax Classification in MM..............................................................................11II.5.3 Tax Classification Indicator for Material........................................................12II.5.4 Tax Classification Indicator for Plant............................................................12II.5.5 Tax Classification Indicator for Account Assignment....................................12

III TAX CALCULATION PROCESSES IN SAP..............................13III.1 STANDARD SAP NON-JURISDICTIONAL TAXES ON SALES AND PURCHASES.............13

III.1.1 Tax Calculation Process in SD (for all sales document types)......................13III.1.1.1 Example: Tax Calculation in a Sales Order........................................13

III.1.2 Tax Determination Process for Billing Documents in SD..............................16III.1.3 Tax Calculation Process in MM (for all purchasing document types)............18III.1.4 Example: Tax Calculation in a Purchasing Order.........................................19III.1.5 Tax Determination Process in FI..................................................................20

III.1.5.1 Example: Tax Calculation in Logistics Invoice Verification.................20III.1.5.2 Example: Tax Calculation in Document Entry in Accounting for Accounts Payable.................................................................................................22III.1.5.3 Example: Tax calculation in Document Entry in Accounting for Accounts Receivable............................................................................................23

III.2 STANDARD SAP JURISDICTIONAL SALES & USE TAXES..........................................24III.2.1 Tax Calculation Process with Jurisdiction Code in SD..................................24III.2.2 Example: Tax Calculation in a Sales Order..................................................25

III.2.2.1 Tax Determination Process with Jurisdiction Code for Billing Documents in SD..................................................................................................27

III.2.3 Tax Calculation Process in MM (for all purchasing document types)............29III.2.4 Tax Determination Process with Jurisdiction Code in FI for MM...................30

III.3 STANDARD SAP TAX INTERFACE TO 3RD PARTY EXTERNAL TAX PACKAGES..........31III.3.1 General.......................................................................................................31III.3.2 Example of Pricing Procedure for External Tax Calculation:.........................32III.3.3 External Tax Calculation Process in SD (for all sales document types).........33

III.3.3.1 Example: External tax Calculation in a Sales Order...........................33

Page / Last Updated

III.4 EXTERNAL TAX DETERMINATION PROCESS FOR BILLING DOCUMENTS IN SD..............37III.4.1 External Tax Calculation Process in MM (for all purchasing document types)

38III.4.1.1 Example: External Tax Calculation in a Purchasing Order.................40

III.4.2 External Tax Determination Process in FI....................................................41III.4.2.1 Example: External Tax Calculation in Logistics Invoice Verification...41III.4.2.2 Example: Tax Calculation in Document Entry in Accounting for Accounts Payable.................................................................................................43III.4.2.3 Example: Tax Calculation in Document Entry in Accounting for Accounts Receivable............................................................................................45

IV SETTING UP SAP......................................................................46IV.1 GENERAL...............................................................................................................46IV.2 REQUIRED CONFIGURATION STEPS.........................................................................47

IV.2.1 Configuring the Communication...................................................................47IV.2.1.1 Testing the RFC Destination and External System Tax Data Retrieval

48IV.2.2 Defining Access Sequence and Condition Types for Pricing and Tax Procedures................................................................................................................49

IV.2.2.1 Defining Simplified Access Sequence for SD Pricing Procedure.......49IV.2.2.2 Defining Condition Types for SD Pricing Procedure...........................53

IV.2.2.2.1 Defining Condition Type ZDED for SD Pricing Procedure.............................53IV.2.2.2.2 Defining Condition Type ZDEE for SD Pricing Procedure..............................54IV.2.2.2.3 Defining Condition Type ZTR1 for SD Pricing Procedure..............................55

IV.2.2.3 Defining Condition Types for MM Pricing Procedure..........................56IV.2.2.3.1 Defining Condition Types for Tax Calculation Procedure for MM and FI........57IV.2.2.3.2 Defining Condition Type ZTX1 for Output Tax in Tax Procedure for MM and FI

58IV.2.2.3.3 Defining Condition Type ZIN1 for Input Tax in Tax Procedure for MM and FI.59

IV.2.3 Defining Procedures for External Tax Calculation........................................60IV.2.3.1 Defining SD Pricing Procedure for External Tax Calculation..............60IV.2.3.2 Defining Tax Procedure (for MM and FI) for External Tax Calculation

61IV.2.4 Define Pricing/Tax Procedure Determination for External Tax Calculation....62

IV.2.4.1 Define Pricing Procedure Determination for External Tax Calculation in SD 62IV.2.4.2 Define Tax Procedure Determination for External Tax Calculation in MM/FI 63

IV.2.5 Tax Jurisdiction Codes................................................................................64IV.2.5.1 Specify Structure for Tax Jurisdiction Code........................................64IV.2.5.2 Define Tax Jurisdictions......................................................................65

IV.2.6 Activating the Tax Interface System.............................................................65IV.2.7 Configuring the External Tax Document......................................................66

IV.2.7.1 Define Number Ranges for External Tax Documents.........................66IV.2.7.2 Activating External Updating...............................................................66

IV.2.8 Customer/Material Master Data Tax Classification Indicators.......................67IV.2.8.1 Tax Determination Rule (Tax by Country Configuration)....................67

IV.2.8.1.1 Master Data Maintenance / Customer Master Data Configuration.................68IV.2.8.1.2 Master Data Maintenance / Material Master Data Configuration for SD.........71

IV.2.9 Tax Codes and Condition Records in SD Pricing Procedure........................74IV.2.9.1 Tax Codes in SD.................................................................................74IV.2.9.2 Condition records in SD Pricing Procedure........................................75

IV.2.10 Assign Delivering Plants for Tax Determination........................................76IV.2.11 Tax Calculation in MM and FI:..................................................................77

IV.2.11.1 FI Condition Records / Tax Codes.....................................................77IV.2.12 Tax Calculation Procedure in MM............................................................79

Page / Last Updated

IV.2.12.1 Material Master Configuration (MM)...................................................79IV.2.12.2 Define Tax Classification Indicators for Plant (MM)...........................79IV.2.12.3 Assign Tax Classification Indicators to Plant (MM)............................80IV.2.12.4 Define Tax Classification Indicators for Account Assignment (MM)...80IV.2.12.5 Assign Tax Classification Indicators for Account Assignments (MM).81

IV.2.13 MM Condition Record Maintenance.........................................................82IV.2.13.1 Condition Record Maintenance..........................................................83

V APPENDIX..................................................................................85V.1 CREATING AND MAINTAINING SAP TABLE FOR DOCUMENT CREDIT INDICATOR........85V.2 EXAMPLES FOR EXTERNAL TAX CALCULATION IN OTHER SD DOCUMENTS...............86

V.2.1 Inquiry.........................................................................................................86V.2.2 Quotation....................................................................................................88V.2.3 Scheduling Agreement................................................................................90V.2.4 Quantity and Value Contracts.....................................................................92

V.2.4.1 Quantity Contract................................................................................92V.2.4.1.1 Create Sales Order (call off) with reference to Quantity Contract....................93

V.2.4.2 Value Contract....................................................................................95V.2.4.2.1 Create Sales Order with reference to Value Contract.....................................96

V.2.5 Create Billing.............................................................................................100

Page / Last Updated

I Introduction

The focus of this document is external Tax Calculation in SAP. This document should give an answer to the following questions:

How does standard tax calculation work in SAP? How does external tax calculation work in SAP? How do you switch tax calculation on in customizing? How do you enhance the existing tax interface so that it can be used for External Tax

Calculation? What is the External Tax Calculation line and what are the enhancements?

All the relevant customizing transactions for the needed functionality are described, and examples how the system could be set up are shown. Furthermore there are many examples in the appendix with screen shots for sales, purchasing and accounting documents.

II General

II.1 Types of Taxation in SAP

Basically two types of taxation can be processed in the SAP System:

Taxes at federal level/national level Taxes below federal level/at regional level

Combination types of taxation are also possible.

II.1.1 Taxes at Federal LevelIn most European states, in South Africa and in Australia, taxes are levied by a federal authority. Tax percentage rates are defined at federal level and local differences do not exist.

II.1.2 Taxes Below Federal LevelIn other countries, taxes are levied at local level when goods are sold (USA and Brazil, for example). The local tax authorities can exist at state level, county level, or town level. Sales taxes are a typical example of tax below federal level. Since the sales tax usually consists of several levels, it is processed using a tax jurisdiction code in addition to the tax code.

II.1.2.1 Interface to External Tax Calculation Programs for Taxes Below Federal Level

Taxes below federal level are usually made up of several levels. In the USA in particular, up to six different taxes are possible in parallel, resulting in tax scenarios with more than 67,000 tax jurisdictions for which time-dependent tax percentage rates must be maintained, taxes paid periodically, and to which tax revenues must be reported. These factors make maintaining tax percentage rates manually or communicating with tax authorities very time-consuming, since formats can vary from authority to authority. However, software products are available that are tailored to these scenarios, allowing taxes to be calculated, reported, and paid where such special rules apply. In addition, the companies that provide these products keep their customers up-to-date concerning changes to percentage rates and calculation types, thereby reducing manual maintenance time considerably, especially for companies that offer direct sales or have a large number of organizational units in different locations. For these reasons, SAP supports generic interfaces to such systems. These interfaces provide all the necessary data at the appropriate points. Data transfers that are tailored to individual taxation systems must however be created within a particular project. These interfaces enable both the jurisdiction code for an organizational unit and the taxes to be determined externally and with reference to the transaction.

document.docx / 99Last Updated 8/4/2010 2:04:00 PM

II.1.3 Combination Types of TaxationIn some countries, such as Canada, India, and Brazil, taxes are levied both at and below federal level. In these countries the purchase tax is usually levied at federal level and the sales tax at local level.In Canada, for example, GST is a tax on sales and purchases at federal level, whereas PST or QST is a province tax, the percentage rate and basis of calculation varying from province to province.

II.2 Tax Types in SAP

II.2.1 General SAP System can manage various types of tax according to the legal requirements of a country or a region. The Financial Accounting components Accounts Receivable (FI-AR), Accounts Payable (FI/AP), and General Ledger provide the following comprehensive tax functions:

Tax calculationThe system calculates tax amounts with or without cash discount based on the tax base amount. Tax codes are used to calculate and check the amounts.

Tax postingThe system posts the tax amounts to defined tax accounts.

AdjustmentsThe system corrects tax amounts, in the case of cash discount or other deductions, for example.

Tax reportingThe system could be used to create tax returns.

II.2.2 Tax Types The SAP System supports the following tax types for calculating, posting, and correcting tax, as well as for tax reporting:

Tax on sales and purchases Sales tax Additional tax Withholding tax

Taxes on sales and purchases, sales taxes and additional taxes are determined and calculated using condition methods. For the calculation, the system requires details of the calculation procedure, the tax code, the jurisdiction code if applicable, and so on. These taxes are posted when the documents are processed.

Withholding tax, by contrast, is not calculated using condition methods, nor is it posted during document processing. Withholding tax is not considered until the outgoing payment is made.


II.2.2.1 Tax on Sales and Purchases

Taxes on sales and purchases are levied on every sales transaction in accordance with the principles of VAT (Value Added Tax). This applies to output and input tax, for example.

Output tax is calculated using the net price of products and is charged to the customer. Input tax is calculated using the net invoice amount and is charged by the vendor.

The input tax can be completely or partially non-deductible. This part cannot be claimed from the tax office. The amount can be posted to a separate expense account, or it can be distributed to the G/L account and asset line items.

II.2.2.2 Sales Tax

An example of sales tax is the sales and use tax that exists in the USA. Sales transactions that are taxed must be kept strictly separate from sales transactions that are not taxed.In general, goods that are intended for production or for resale to a third party are procured untaxed; that is, the vendor does not calculate tax on the sale of these goods (sales tax). Procurement transactions for individual consumption, on the other hand, are taxable (use tax).The principle of sales tax does not permit the option of offsetting input tax against output tax. The vendor must pay the taxes to the tax authorities.The system calculates sales tax based on material and customer location and posts it in Sales and Distribution (SD) and Materials Management (MM). If customers or vendors are exempt from taxation, this could be specified in their master records by entering the appropriate indicator.

II.2.2.3 Additional Tax

Additional taxes are taxes that are posted in addition to tax on sales/purchases. They are usually country-specific, such as investment tax in Norway, or sales equalization tax in Belgium.

II.2.2.4 Withholding Tax

In some countries a portion of the invoice amount must be withheld for certain vendors and paid or reported directly to the tax authorities.

II.3 Tax Categories in SAP

II.3.1 Tax Categories in Sales and DistributionThe tax category identifies the condition that the system uses to determine country-specific taxes automatically during pricing. A tax category has to be defined by departure country. Allowable departure country is the plant’s country and/or the company code’s country.In Germany, for example, a tax category for Value Added Tax (MWST) could be defined.The tax category allows tax classification to be entered in the customer master and material master.

The tax category displayed in the customer master record depends on: The customer sales organization’s company code country. The country of each plant assigned to that sales organization.

The tax category displayed in the material master record depends on: The material sales organization’s company code country. The country of each plant assigned to that sales organization.

II.4 Tax Codes in SAP

Tax code is a two-digit code and is used to:


Check the tax on sales/purchases amount in the document Calculate the amount of tax on sales/purchases automatically on request Calculate the non-deductible input tax portion Check if a tax account with tax type (input or output tax) can be posted to Determine the tax account.

Important! Tax codes are the link between pricing procedure and tax procedure.

II.4.1 Tax Codes in Sales and DistributionTax codes contain properties that are relevant for correct tax calculation for example within the external tax system. First, the tax category needs to be defined for the country, followed by the configuration of possible tax classifications for customer and material master files. Finally, the allowed tax classifications can be entered in the master files themselves.

II.4.2 Tax Codes in MMTax codes can be automatically derived from material, plant and account assignment for purchasing transactions. Tax classification must be maintained to determine the tax codes. The tax code can be overwritten within the purchase order (item details) and the invoice verification document.

II.5 Tax Classification in SAP

II.5.1 Tax Classification in SDSpecifies the tax liability of the customer based on the tax structure of the customer's country. You can use the tax classification to specify, for example, whether a customer is liable for sales taxes, such as VAT or state sales taxes.

During sales order processing, the system copies the tax classification from the tax information stored in the

customer master record of the payer, if the payer is different from the sold-to party and the sales tax identification number is maintained for the payer.

ship-to party, if the sales tax identification number of the ship-to party is maintained. sold-to party, if none of the criteria for the payer or the ship-to party are met.

During pricing, the system calculates any relevant taxes by taking the following factors into account:

The tax classification of the customer and the material. The country keys of the customer and the delivering plant.

II.5.2 Tax Classification in MMFor the purposes of automatic tax code determination, tax indicators derived from the material master record, customizing, or the purchasing document are used. The system determines the tax code on the basis of the combination of these tax indicators.

There are tax indicators at the levels "material", "plant" and "account assignment category".

In addition, there are two tax indicators that are derived from the purchasing document: Country of origin and country of destination differ. Region of origin and region of destination differ.

II.5.3 Tax Classification Indicator for Material The tax classification indicator for material with which the system determines output tax for the material when processing sales and distribution-specific documents.


II.5.4 Tax Classification Indicator for PlantThe tax indicator is used in the automatic determination of the tax code in purchasing. If you have some plants that are liable to tax and others that are not, you can define two tax indicators with the aid of which different tax codes can be determined.

II.5.5 Tax Classification Indicator for Account AssignmentThe tax indicator is used in the automatic determination of the tax indicator in Purchasing.If you have taxable and non-taxable account assignments, you can define two tax indicators with the aid of which different tax codes can be determined.


In item 10 of this sales order 10 pieces of material TAXTEST_001 are ordered by the customer 1 who is in the same country as the delivery plant.

III Tax Calculation Processes in SAP

SAP offers three standard methods to compute taxes on sales and purchases or sales and use taxes.

Standard SAP Non-Jurisdictional taxes on sales and purchases Standard SAP Jurisdictional Sales & Use Taxes Standard SAP Tax Interface to 3rd party external tax packages.

III.1 Standard SAP Non-Jurisdictional Taxes on Sales and Purchases

III.1.1 Tax Calculation Process in SD (for all sales document types)

SD requires that sales documents (Inquiries, Quotations, Sales Orders, Delivery Agreements and Contracts) and invoices reflect the tax applicability of each item and compute the total tax due on each line item within the sales document. Appropriate tax amounts and tax rates are determined for sales documents and invoices.Several parameters influence the tax amounts and tax rates determination. The most important ones are: the delivering country (origin), the tax classification of the ship-to partner, the tax classification of the material being shipped, the tax calculation date and if necessary the jurisdiction codes from the ship-to party (customer), ship-from address (plant), point of order acceptance and point of order origin.Please note that SAP defaults the ship-from maintained on the plant as the point of order acceptance, and defaults the ship-to maintained on the customer as the point of order origin.

III.1.1.1 Example: Tax Calculation in a Sales Order

As an example the following will show how tax calculation is performed within a Sales Order in Standard SAP.

Menu Path: Logistics > Sales and Distribution > Sales > Order > Create/Change

Transaction : VA01 create/ VA02 change

Header & Item data of sales order:

The tax in SD is calculated in the pricing procedures of sales documents. A pricing procedure might consist of several condition types. If a condition type is activated during the pricing procedure execution, the condition type might return an amount back, i.e. material price,


Pricing for Item 10:

The pricing procedure of the document contains a condition type for tax (MWST). The condition table to this condition type defines the tax rate for the document.

The pricing procedure used in this case is RVAA01.

For the standard pricing procedures e.g. RVAA01 there is one condition type MWST defined. The actual tax rate for a document is determined via a condition record for that condition type.

discount, surcharge, freight, tax amount, etc. which in turn, might be part of the total item sales price depending on the condition type customizing set up. There are several ways to activate a condition type within a pricing procedure. One approach is using condition records. The parameters of a condition record are defined in the access sequence for the condition type. When the condition record is being read, it usually returns a value for its condition type in the pricing procedure. This value can be defined during the condition record maintenance or determined using condition value formula configured in the pricing procedure.


This is the condition record found for condition type MWST. It was determined from the country, customer and material tax classification indicator. This condition record carries a tax rate and a tax key – which controls the accounting.

Above the condition record was shown how it could be seen from the sales order. Here the definition of the condition record can be seen.

Here also the tax code and the account key assigned to that condition record can be seen.

A1

The tax code A1 is assigned to the accounting key MWS. This means that when the FI document is created 16% of the base amount will be posted to the account assigned to MWS.

Evaluated conditions for condition record MWST

Condition record for condition type MWST

The definition of the tax code contains the FI condition records that control the accounting. Below the definition of the tax code A1 can be seen.

Definition of tax code A1


The analysis of the pricing shows that the same pricing procedure RVAA01 as has been used for sales order creating also is used for billings.

III.1.2 Tax Determination Process for Billing Documents in SD

Billing represents the final processing stage for a business transaction in Sales and Distribution.Invoices, credit memos, debit memos, pro forma invoices and cancellation will be created, changed or deleted during billing processing.

Deliveries and services which are carried out on the basis of sales orders have to be invoiced to the customer. The most frequently used billing document, Invoice, is normally created with reference to either a sales order or a delivery.During billing processing the tax is calculated in the same pricing procedure of the referred sales document.

When creating a billing document, the billing data is forwarded to Financial Accounting and the corresponding accounts will be posted automatically.


Menu Path: Logistics > Sales and Distribution > Billing > Billing Document > Create/Change

Transaction: VF01 create/VF02 change


III.1.3 Tax Calculation Process in MM (for all purchasing document types)

During the purchasing document creation process (purchase order, contract, scheduling agreement) a price determination process (e.g. standard calculation schema RM0000) is executed. This calculation schema has no tax condition types for deductible input taxes but for non-deductible taxes NAVS and NAVM. Non-deductible tax portions are displayed in the conditions and taken into account in material valuation.

For purchasing (and FI) transactions tax determination for deductible taxes makes use of a tax calculation procedure instead of a pricing procedure. Tax procedure also uses the condition techniques.Tax procedure also determines the G/L (tax liability) accounts to which the tax amounts are to be posted to accounting.

The relevant tax rate is taken into consideration in the PO automatically. The tax rate is derived from the key in the Taxes field in the relevant PO item.The tax code is suggested at the time of invoice verification. You can thus check the vendor’s net price when the invoice is received.How the tax amount was calculated in the item conditions from within a PO, a quotation, or an outline agreement could be determined as follows (this function can only be performed in the case of items having a valid tax key.):

Select an item on the item overview screen. Choose the Tabstrip Invoice.

The system lists all amounts and condition types included in the calculation of the tax amount. The condition types and their amounts are determined from the tax calculation schema defined for your country in Customizing.


III.1.4 Example: Tax Calculation in a Purchasing Order

The following example will show how tax calculation is performed within a Purchasing Order in Standard SAP.

Menu Path: Logistics > Materials Management > Purchasing > Purchase Order > Create/Change

Transaction: ME21N create/ ME22N change (old: ME21 create/ ME22 change)

Header & Item data of purchase order:


III.1.5 Tax Determination Process in FI

As mentioned before for FI transactions (Accounts Receivable Document Entry, Accounts Payable Document Entry, Logistics Invoice Verification) tax calculation makes use of a tax calculation procedure (e.g. standard tax calculation procedure TAXD for Germany).

III.1.5.1 Example: Tax Calculation in Logistics Invoice Verification

The following example with reference to a purchasing order will show how tax calculation is performed within a Logistics Invoice Verification in Standard SAP.

Menu Path: Logistics > Materials Management > Logistics Invoice Verification > Document Entry > Enter Invoice

Transaction: MIRO

With selecting the Tabstrip Tax respectively G/L account Tabstrip we can see the tax or account data.


The analysis of the pricing shows that the same pricing procedure RM0000 as has been used for purchase order creating also is used here.

The item conditions (pricing) could be shown with double click on line item.

The tax calculation however is based on standard tax calculation procedure TAXD for Germany.

III.1.5.2 Example: Tax Calculation in Document Entry in Accounting for Accounts Payable

An incoming invoice (an invoice or a credit memo), a document from an invoicing party containing the payments to be made based on business transactions performed in Purchasing and Inventory Management could be entered as follows:


Menu Path: Accounting > Financial Accounting > Accounts payable > Document Entry > Invoice

Transaction: FB60


With selecting the Tabstrip Tax the tax data can be seen.

The tax calculation in this example is based on standard tax calculation procedure TAXD for Germany.

III.1.5.3 Example: Tax calculation in Document Entry in Accounting for Accounts Receivable

Analogous to the document entry in Accounting with Transaction FB60 for Accounts Payable is the document entry for Accounts Receivable (Invoice to the customer for outbound deliveries due to sales order, Billing).

Menu Path: Accounting > Financial Accounting > Accounts Receivable > Document Entry > Invoice

Transaction: FB70

III.2 Standard SAP Jurisdictional Sales & Use Taxes

In the USA, Brazil and some other countries, taxes are sometimes calculated using jurisdiction codes.


A jurisdiction code is a key that in conjunction with the tax code, determines the amount of tax and the breakdown of the total tax amount among the different tax authorities.Due to the jurisdiction code structure a tax jurisdiction code contains several different components.It can be subdivided into a maximum of four levels (for example, state/county/city/district). This way the tax rate is defined per level and the tax value is calculated individually per level.

Example: Tax jurisdiction code with three levels 25022110525 = State Code022 = County Code1105 = City Code

III.2.1 Tax Calculation Process with Jurisdiction Code in SD

The decisive difference between the standard SAP non-jurisdictional tax calculation on sales (Taxes at Federal Level) and the standard SAP jurisdictional sales & use taxes sales (Taxes Below Federal Level) is that up to four different tax amounts could be calculated individually per each level of jurisdiction codes unlike one amount in non-jurisdictional tax calculation .So the pricing procedure must have further condition types for these tax amounts.

A look on the standard pricing procedure with jurisdiction code for USA, RVAJUS, shows this clearly.


The pricing procedure used in this case is RVAJUS.

III.2.2 Example: Tax Calculation in a Sales Order

As an example the following will show how tax calculation with jurisdiction codes is performed within a Sales Order in Standard SAP.


Transaction: VA01 create/ VA02 change



Due to the jurisdiction code structure (3 levels) and settings in our example the pricing procedure of the document contains three condition type for tax (JR1, JR2 and JR3).


For comparison here the Standard SAP Non-Jurisdictional tax calculation in SD:


The tax is calculated in the same pricing procedure of the referred sales document. In the following example it is RVAJUS.

III.2.2.1 Tax Determination Process with Jurisdiction Code for Billing Documents in SD

Creating , changing or deleting of invoices, credit memos, debit memos, pro forma invoices and cancellation will be processed during billing processing.





III.2.3 Tax Calculation Process in MM (for all purchasing document types)


During the purchasing document creation process the price determination process RM0000) is executed. This calculation schema has no tax condition types for deductible input taxes but for non-deductible taxes NAVS and NAVM. Non-deductible tax portions are displayed in the conditions and taken into account in material valuation.

Unlike the tax calculation in SD the tax in MM is not calculated with the pricing procedure but with tax calculation procedure, in this example with TAXUSJ.


III.2.4 Tax Determination Process with Jurisdiction Code in FI for MM

As mentioned in III.1.4 for FI transactions (Accounts Receivable Document Entry, Accounts Payable Document Entry, Logistics Invoice Verification) tax calculation makes use of a tax calculation procedure (e.g. tax calculation procedure with jurisdiction TAXUSJ for US).

Tax calculation in Logistics Invoice Verification (Transaction MIRO) or Tax calculation in document entry in Accounting for Accounts payable (Transaction FB60) is similar to 1.3.1. or 1.3.2.


III.3 Standard SAP Tax Interface to 3rd Party External Tax Packages

III.3.1 General

SAP provides a Standard Tax Interface System, which is capable of passing all neededdata to an external tax system which calculates taxes and then returns these calculated results back to SAP. This occurs during order and invoice processing out of SD, MM, and FI, to retrieve tax rates and tax amounts.

As already shown in 1.1.1. the tax is calculated using a tax condition type MWST in the pricing procedure.

In the following diagram can be seen how tax is calculated using external tax calculation. During pricing a special conditions type is found that triggers a call to the external tax system. The data for that item is then sent to the tax system – there the tax is calculated and finally the calculated value is transferred back to the pricing procedure.

document.docx / 99Last Updated 8/4/2010 2:04:00 PMTransfer calculated

tax back to pricing.Transfer calculatedtax back to pricing.

Create Sales OrderCreate Sales Order

Add item data(material no, quantity)

Add item data(material no, quantity)

Call external tax system.

Call external tax system.

Perform pricing for item.

Perform pricing for item.

Tax System

As of SAP R/3 release 4.6A, the Tax Per Document method is available. This method is important to allow Max Tax calculation rules across multiple items to be applied for a SD document. Tax Per Document is also important for performance reason: The RFC call made to the external tax system happens only once for the entire document instead of for each line item.

Using the external tax calculation per document capability at least two condition types are needed within the pricing procedure. In “plain” tax calculation the tax condition type fetches the actual tax rate from a condition table.

III.3.2 Example of Pricing Procedure for External Tax Calculation:

The difference between the standard pricing procedure and the procedure for external tax calculation is that the procedure for pricing with external tax calculation has three condition types assigned to the calculation formulas 500, 501 and 301. The pricing procedure ZTTAX for Germany is an example for external tax calculation.

During condition value formula 500, all document items will be collected and stored. A pricing procedure that has this formula must also have formula 501 (as mentioned in documentation in SAP include program FV64ANNN > FV64A500) and at least formula 301 for one tax amount or formulas 301 to 306 for jurisdiction levels 1 to 6 if these are needed.


After the tax relevant data is stored for all items, it will be passed to the external tax system for tax calculation. The tax results from the external system will be distributed back to the corresponding item through the condition value formula 501. The condition value formulas 500 and 501 are able to operate accordingly because ZDED and ZDEE in this example for pricing procedure ZTTAX are group conditions.

III.3.3 External Tax Calculation Process in SD (for all sales document types)

SD requires that sales documents (Inquiries, Quotations, Sales Orders, Delivery Agreements and Contracts) and invoices reflect the tax applicability of each item and compute the total tax due on each line item within the sales document. Appropriate tax amounts and tax rates are determined for sales documents and invoices.

III.3.3.1 Example: External tax Calculation in a Sales Order

As an example the following will show how external tax calculation is performed within a Sales Order in SAP.


Transaction: VA01 create/ VA02 change


In item 10 of this sales order 5000 pieces of material 1 are ordered by the customer 1 who is in the same country as the delivery plant.

Selecting the item 10 and item conditions the price calculation for this item will be shown.



As explained in previous chapters the tax in SD is calculated in the pricing procedures of sales documents. This is the case also here.

The pricing procedure of the document contains three condition types for external tax calculation.

NOTICE: During the Sales Order creating no tax calculation will be executed!Due to this the fields “Tax Amount 1 Rate” and “Tax Amount Condition Value” have not data yet.The external tax calculation takes place when the sales order will be posted.

The pricing procedure used in this case is ZTTAX.


The pricing procedure of the document contains three condition types for external tax calculation.

As seen in III.1 (Standard SAP Non-Jurisdictional taxes on sales and purchases) the tax rate that is determined in a pricing procedure depends on the condition record for the tax condition type in the pricing procedure that is assigned to a document.

With external tax calculation the condition record is only needed to trigger external calculation therefore the tax rate has to be 100%. The tax rates will be than determined in the external tax system appropriately.


The definition of the tax code, here DX, contains the FI condition records that control the accounting.

The tax code DX is assigned to the accounting key MWS. This means that when the FI document is created 100% of the 16% (tax rate for example set for Germany in the external tax system) of the base amount will be posted to the account assigned to MWS

Condition type ZDEE is not determined using condition records.


III.4 External tax determination process for billing documents in SD

Creating , changing or deleting of invoices, credit memos, debit memos, pro forma invoices and cancellation will be processed during billing processing.



I


The tax is calculated in the same pricing procedure of the referred sales document. In this example it is ZTTAX.


III.4.1 External Tax Calculation Process in MM (for all purchasing document types)

During the purchasing document creation process a price determination process e.g. standard calculation schema RM0000 is executed. This calculation schema has no tax condition types for deductible input taxes but for non-deductible taxes NAVS and NAVM. Non-deductible tax portions are displayed in the conditions and taken into account in material valuation.


For purchasing (and FI) transactions tax determination for deductible taxes makes use of a tax calculation procedure instead of a pricing procedure. Tax procedure also uses the condition techniques.Tax procedure also determines the G/L (tax liability) accounts to which the tax amounts are to be posted to accounting.

The relevant tax rate is taken into consideration in the PO automatically. The tax rate is derived from the key in the taxes field in the relevant PO item.The tax code is suggested at the time of invoice verification. You can thus check the vendor’s net price when the invoice is received.How the tax amount was calculated in the item conditions from within a PO, a quotation, or an outline agreement could be determined as follows (this function can only be performed in the case of items having a valid tax key.):

Select an item on the item overview screen (transaction ME22N or ME23N) Choose the Tabstrip Invoice.

The system lists all amounts and condition types included in the calculation of the tax amount. The condition types and their amounts are determined from the tax calculation schema defined for your country in Customizing.


III.4.1.1 Example: External Tax Calculation in a Purchasing Order

The following example will show how tax calculation is performed within a Purchasing Order in Standard SAP.

Menu Path: Logistics > Materials Management > Purchasing > Purchase Order > Create/Change

Transaction: ME21N create/ ME22N change (old: ME21 create/ ME22 change)

Header & Item data of purchase order:


III.4.2 External Tax Determination Process in FI

As mentioned in III.1.5 for FI transactions (Accounts Receivable Document Entry, Accounts Payable Document Entry, Logistics Invoice Verification) tax calculation makes use of a tax calculation procedure (e.g. standard tax calculation procedure TAXD or external tax calculation procedure TAXDEX for Germany).

III.4.2.1 Example: External Tax Calculation in Logistics Invoice Verification

The following example with reference to a purchasing order will show how tax calculation is performed within a Logistics Invoice Verification with external tax system.

Menu Path: Logistics > Materials Management > Logistics Invoice Verification > Document Entry > Enter Invoice/Display Invoice

Transaction: MIRO / MIR4

With selecting the Tabstrip Tax respectively G/L account Tabstrip we can see the tax or account data.


The item conditions (pricing) could be shown with double click on line item


The analysis of the pricing shows that the same pricing procedure RM0000 as has been used for purchase order creating also is used here.

The tax calculation however is based on tax procedure TAXDEX for external tax calculation for Germany.

III.4.2.2 Example: Tax Calculation in Document Entry in Accounting for Accounts Payable

An incoming invoice (an invoice or a credit memo), a document from an invoicing party containing the payments to be made based on business transactions performed in Purchasing and Inventory Management could be entered as follows:

Menu Path: Accounting > Financial Accounting > Accounts payable > Document Entry > Invoice

Transaction: FB60


With selecting the Tabstrip Tax the tax data can be seen.

The tax calculation in this example is based on tax calculation procedure TAXDEX for Germany.

III.4.2.3 Example: Tax Calculation in Document Entry in Accounting for Accounts Receivable

Analogous to the document entry in Accounting with Transaction FB60 for Accounts Payable is the document entry for Accounts Receivable (Invoice to the customer for outbound deliveries due to sales order, Billing).

Menu Path: Accounting > Financial Accounting > Accounts Receivable > Document Entry Invoice

Transaction: FB70


SAP 1

SAP 2

SAP 3

SAP 4

SAP 5

IV Setting up SAP

IV.1 General

SAP will communicate with the external tax system using SAP RFC (Remote Function Calls) and SAP tRFC (Transactional RFC). The RFC interface enables function calls between two SAP systems (R/3 or R/2), or between a SAP system and an external one. This allows executing functions on remote systems. The remote system need not be available at the time when the RFC client program is executing a tRFC. In R/3 Systems, the tRFC component stores the called RFC function together with the corresponding data in the database, including a unique transaction identifier (TID). This ensures that the called function module executed exactly once in the RFC server system.

In the system landscape provided at company level for external tax calculation tRFCs will be executed between SAP and WAS.

In order for SAP Tax Interface System to work with an external tax package via WAS (Web Application Server) and TAXI, the appropriate version of SAP’s certified tax partner’s API (Application Programming Interface) must be installed at WAS. The current SAP-API interface version is TAXDOC00.


IV.2 Required Configuration Steps

In SAP a number of settings have to be maintained for external tax calculation. Some of these settings are technical settings (like setup of the connection to the tax system), some of these are application specific settings. The steps should be performed sequentially:

IV.2.1 Configuring the Communication

A RFC destination must be created which specifies the type of communication and the directory of the executable program.

Menue Path: Tools > Administration > Network > RFC destinations

Transaction: SM59

In the example below the external tax package resides on a different server (WAS). In the field program a script is specified that starts the RFC server (and sets some environment variables before).


IV.2.1.1 Testing the RFC Destination and External System Tax Data Retrieval

Using the button Test connection in the definition screen of the RFC destination the connection to the external system could be tested.If the test succeeded the result should look like this:

If the first test succeeded then it should be tested if the RFC server can call the external tax system. Calling the function modules e.g. RFC_CALCULATE_TAXES (transaction SE37) with the defined destination and setting the relevant fields manually can do this.


IV.2.2 Defining Access Sequence and Condition Types for Pricing and Tax Procedures

PRICE ELEMENTS ARE REPRESENTED IN THE SAP SYSTEM BY CONDITION TYPES. PRICE ELEMENTS CAN BE, FOR EXAMPLE, PRICES, SURCHARGES, DISCOUNTS, TAXES OR, FREIGHT, AND ARE STORED IN THE SYSTEM IN CONDITION RECORDS. AN ACCESS SEQUENCE IS A SEARCH STRATEGY BY MEANS OF WHICH THE SYSTEM SEARCHES FOR VALID RECORDS IN VARIOUS CONDITION TABLES.

IV.2.2.1 Defining Simplified Access Sequence for SD Pricing Procedure

As explained before tax calculation in SD document transactions, is processed within the pricing procedure. A pricing procedure might consist of several condition types. If a condition type is activated during the pricing procedure execution, the condition type might return an amount back, i.e. material price, discount, surcharge, freight, tax amount, etc. which in turn, might be part of the total item sales price depending on the condition type customizing set up.

There are several ways to activate a condition type within a pricing procedure. One approach is using condition records. The parameters of a condition record are defined in the access sequence for the condition type. When the condition record is being read, it usually returns a value for its condition type in the pricing procedure. This value can be defined during the condition record maintenance or determined using condition value formula configured in the pricing procedure.

A frequently used SAP standard access sequence for tax condition types is MWST. It is delivered with 3 access numbers:

IMG Path : Sales and Distribution > Basic functions > Pricing > Pricing control > Define access sequences

Transaction: V/07

1. Access number 8 with the following access (defined in condition table 78 = A078):Departure Country / Destination Country


2. Access number 10 with the following access (defined in condition table 2 = A002):Country/ Customer Classif.1/ Material Classification 1

3. Access number 20 with the following access (defined in condition table 11 = A011):Country/ Destination Country/ Customer Classif.1/ Material Classification 1

Using this access sequence require a lot of different condition types to be maintained. The first key field in all 3 condition tables (78, 2 and 11) is ALAND. Here is a proposal how to simplify the access sequence so that only very few condition records are needed:

For this purpose a new Condition Table, e.g. 501 (between 501 and 999), should be created first. The new condition table could be copied from existing condition tables e.g. table 078 or 002.

IMG Path : Sales and Distribution > Basic functions > Pricing > Pricing control > Define Condition Tables ( > Create condition tables)

Transaction: V/03


Select the last 2 key fields and delete.

With the help of “other description” button the key field will be shown as ALAND.

Maintain Conditions in created Condition Table 501:

Activate (generate) the table.


IMG Path : Sales and Distribution > Basic functions > Pricing > Pricing control > Define access sequences

Transaction: V/07

In the following create a new access sequence for example ZEXT enter the appropriate Data and save:

Select ZEXT and double click Accesses;

Double click new entries, edit (select AcNo, double klick Fields etc.) and save;


The access sequence still consists of three accesses. However all these accesses go to the same table. All access only depend from one field: the delivering country. This means they need to be one condition record per country (see also 4.2.11.).

IV.2.2.2 Defining Condition Types for SD Pricing Procedure

IMG Path: Sales and Distribution > Basic functions > Pricing > Basic settings > Pricing control > Define condition types > Maintain condition types > (New entries)

Transaction: V/06

AS SEEN IN III.3.2 THE SD PRICING PROCEDURE WITH EXTERNAL TAX CALCULATION NEEDS THREE CONDITION TYPES ASSIGNED TO THE CALCULATION FORMULAS 500, 501 AND 301. The key for the new (customer) condition types should start with the letter Z since SAP reserves this letter for that purpose in the standard system. As an example these could be ZDED, ZDEE and ZTR1 to be assigned in pricing procedure to calculation formulas 500, 501 and 301

IV.2.2.2.1 Defining Condition Type ZDED for SD Pricing Procedure

IMG Path: Sales and Distribution > Basic functions > Pricing > Basic settings > Pricing control > Define condition types > Maintain condition types


Transaction: V/06

IV.2.2.2.2 Defining Condition Type ZDEE for SD Pricing Procedure


Transaction: V/06


The condition type ZDEE has no access sequence, it will always be active in the pricing procedure during SD document transactions.

IV.2.2.2.3 Defining Condition Type ZTR1 for SD Pricing Procedure


Transaction: V/06

For tax amount calculated and returned by external tax system condition types are needed.


In our example with only one (dummy) jurisdiction level this would be for one tax amount.The ZTR1 defined below is such a condition type.

IV.2.2.3 Defining Condition Types for MM Pricing Procedure

IMG Path: Materials Management > Purchasing > Conditions > Define Price Determination Process > Define Condition Types

Transaction: M/06

As mentioned in III.1.3 a price determination process (e.g. standard calculation schema RM0000) is executed during the purchasing document creation process.


This calculation schema has no tax condition types for deductible input taxes but for non-deductible taxes NAVS and NAVM. Tax determination during the purchasing document creation process for deductible taxes takes place in a tax calculation procedure which is used also in FI.Because of this no further condition types than the existing SAP standard types NAVS and NAVM are needed for MM pricing procedure.

IV.2.2.3.1 Defining Condition Types for Tax Calculation Procedure for MM and FI

IMG Path: Financial accounting > Financial accounting global settings > Tax on Sales/Purchases > Basic Settings > Check Calculation Procedure > Define Condition Types

Transaction:

A tax calculation procedure is used for determining of deductible taxes in MM and FI in common. A standard SAP tax procedure for non jurisdictional tax calculation e.g. TAXD contains among others the condition types MWAS for output tax and MWVS for Input tax.For tax amount calculated and returned by external tax system comparable condition types are needed.


IV.2.2.3.2 Defining Condition Type ZTX1 for Output Tax in Tax Procedure for MM and FI

Output tax is charged to the customer and should be set up like the example below.


Transaction:


IV.2.2.3.3 Defining Condition Type ZIN1 for Input Tax in Tax Procedure for MM and FI

For calculating of tax which is charged by the vendor a condition type for input tax like ZIN1 is needed.


Transaction:


IV.2.3 Defining Procedures for External Tax Calculation

Two important procedures are used as the base for tax calculation in R/3:

1. Pricing procedure: for SD2. Tax Procedure: for SD, MM and FI

IV.2.3.1 Defining SD Pricing Procedure for External Tax Calculation

In SD document transactions, tax calculation is processed within the pricing procedure.For what is minimum necessary to make full use of the Tax Per Document method is obvious in the following example.

IMG Path: Sales and Distribution > Basic functions > Pricing > Basic settings > Pricing control > Define And Assign Pricing Procedures > (Maintain pricing procedures)

Transaction: V/08

After selecting for example the SAP standard pricing procedure RVAA01 and coping it to procedure that has to be created for external tax calculation, e.g. ZTTAX this new tax procedure must be modified/extended appropriately with condition types and condition formula for axternal tax calculation.


AS AN EXAMPLE THE PRICING PROCEDURE ZTTAX BELOW IS SET UP FOR FEDERAL TAX DETERMINING (= ONE DUMMY JURISDICTION LEVEL AS IT WILL BE DESCRIBED IN 4.2.6. LATER).

IV.2.3.2 Defining Tax Procedure (for MM and FI) for External Tax Calculation

IMG Path: Financial accounting > Financial accounting global settings > Tax on Sales/Purchases > Basic Settings > Check Calculation Procedure > Define Procedures

Transaction:

After selecting for example the procedure TAXD and coping it to tax procedure which has to be created for external tax calculation, e.g. TAXDEX.This new tax procedure must be modified appropriately with condition types and condition formula.


IV.2.4 Define Pricing/Tax Procedure Determination for External Tax Calculation

During pricing, the SAP System automatically has to determine which pricing procedure is valid for a business transaction dependent on it, which customer, sales area, sales document type etc. are effective.Similar is the automatic determination of tax procedure during billing, purchase order generating, invoice verification ect.To guarantee this automatism pricing/tax procedure determination has to be defined.

IV.2.4.1 Define Pricing Procedure Determination for External Tax Calculation in SD

When setting up external tax calculation a new pricing procedure has to be created and assigned to as combination of sales organisation, distribution channel, division and document procedure.In the example below is the pricing procedure ZTTAX assigned to the sales organization DE00, distribution channel CH, division 8C and document procedure A.

IMG Path: Sales and Distribution > Basic functions > Pricing > Basic settings > Pricing control > Define And Assign Pricing Procedures > (Define Pricing Procedure Determination)

Transaction: OVKK

IV.2.4.2 Define Tax Procedure Determination for External Tax Calculation in MM/FI


The relationship tax calculation procedure to country is 1:N. One calculation procedure can assigned to various countries.

IMG Path: Financial accounting > Financial accounting global settings >Tax on Sales/Purchases > Basic settings > Assign country to calculation procedure

Transaction: OBBG

As it can be seen in the screen below it is possible to assign a different tax calculation procedure for every country.


IV.2.5 Tax Jurisdiction Codes

The tax jurisdiction code structure has to be defined for tax calculation procedures. This must be set – otherwise external tax calculation can’t be activated for a tax calculation procedure.For this purpose a two-character dummy jurisdiction code has to be defined for Germany and all other countries without a real existing jurisdiction code (e.g. USA). The value of this dummy jurisdiction code should be equal to the country code.To return the country code for any address in such countries the RFC_DETERMINE_JURISDICTION function module has to be implemented on the Web Application Server (WAS).

IV.2.5.1 Specify Structure for Tax Jurisdiction Code

IMG Path: Financial accounting > Financial accounting global settings >Tax on Sales/Purchases > Basic settings > Define tax jurisdiction code structure

Transaction: OBCO

Table: TTXD

This configuration data is stored in table TTXD; the external tax calculation is an additional field in that table - if there is no entry in this table for a certain tax calculation procedure then this flag can’t be set.


IV.2.5.2 Define Tax Jurisdictions

For dummy jurisdiction codes the value should be equal to the country code.

IMG Path: Financial accounting > Financial accounting global settings >Tax on Sales/Purchases > Basic settings > Define tax jurisdictions

Transaction: OBCP

Table: TTXJ

IV.2.6 Activating the Tax Interface System

IMG Path: Financial accounting > Financial accounting global settings >Tax on Sales/Purchases > Basic Settings > External Tax calculation > Activate External Tax calculation

Table: TTXD

In this step external tax calculation can be enabled for a calculation procedure with a defined jurisdiction code structure. Assigning a logical system (communication configuration) to a tax calculation procedure does this.

In this example external tax calculation is switched on for the tax calculation procedures TAXDEX, using the logical destination S.


IV.2.7 Configuring the External Tax Document

The External Tax Document is the entity name for tax relevant information for one particular document. This information is to be updated into the external audit register file for legal reporting purposes.An External Tax Document is created when a SD, MM or FI document is successfully posted to accounting. The following configuration steps have to be set up:

IV.2.7.1 Define Number Ranges for External Tax Documents

IMG Path : Financial accounting > Financial accounting global settings >Tax on Sales/Purchases > Basic settings > External tax calculation > Define number ranges for external tax documents

Transaction: OBETX

The number range ‘01’ should be internal. DO NOT SET the External number range flag.

Note: The numbers are buffered. Therefore, gaps can occur.

IV.2.7.2 Activating External Updating

IMG Path : Financial accounting > Financial accounting global settings >Tax on Sales/Purchases > Basic settings > External tax calculation > Activate external updating

Transaction:

Table: TRWCA

IV.2.8 Customer/Material Master Data Tax Classification Indicators


Setting this flag will activate the updating facility for the external tax system.

The data is sent to the external system when the relevant items are posted to Financial Accounting.

The current data could be displayed using the RFYTXDISPLAY report.

The tax condition record depends on a customer and on a material tax classification indicator (and on other fields depending on the access sequence and the type of transaction).

These tax classification indicators depend on the tax configuration for a country (for each tax determination rule a number of different customer and material tax indicators can be defined).

C u s t o m e r M a t e r i a l

M W S T0

1

2

0

1

S D t a x d e t e r m i n a t i o n r u l e

C u s t o m e rt a x i n d i c a t o r s

M a t e r i a lt a x i n d i c a t o r s

M W S T 0 0

M W S T 0 1

1 0

1 1

2 0

2 1

M W S T

M W S T

M W S T

M W S T

P o s s i b l e c o n d i t i o nr e c o r d s

IV.2.8.1 Tax Determination Rule (Tax by Country Configuration)

The tax category identifies the condition that the system uses to determine country-specific taxes automatically during pricing. One or more tax categories could be defined for each country. When more than one tax category applies in a particular country the sequence of possible taxes for each country defines the sequence in which the system accesses tax condition records.

Note: No more than one tax category should be maintained for each country for which the use of external tax calculation is determined.

A tax category has to be defined by departure country. Allowable departure country is the plant’s country and/or the company code’s country. It allows tax classification to be entered in the customer master and material master.

During sales order processing, the system applies the tax category according to the geographical location of the delivering plant and the location of the customer receiving the

goods tax classifications in the customer master record and the material master record.

SAP delivers several standard tax categories among others MWST. This should be used as copy pattern for defining new tax categories.


The illustration on the right shows the relationship between the tax determination rule and the master data tax indicators. Based on a certain tax determination rule (= condition record) a number of master data tax classification indicators can be defined. For combinations of these indicators (+ other fields like country) the tax condition records can be defined.

IV.2.8.1.1 Master Data Maintenance / Customer Master Data Configuration

The tax category displayed in the customer master record depends on:

1. The customer sales organization’s company code country.2. The country of each plant assigned to that sales organization.

IMG Path : Sales and Distribution > Basic Functions > Taxes > Define tax relevancy of master records > (Customer Taxes)

Transaction: OVK3

Table: TSKD

This configuration defines the possible values for the field tax category in the customer master-billing screen. As it can be seen in the screenshot above this transaction allows maintaining a set of tax classification values for each tax rule (the rule is a condition type).


IV.2.8.1.1.1 The Effect of Customer Master Data Configuration

A look in the customer master record with transaction VD03 or VD02 (billing document Tabstrip) shows where this tax indicator can be set (the allowed tax indicators depend on the country of the customer and of the tax condition type that is assigned to this country).

Besides the tax indicator that controls which condition record is found for a certain combination customer – material the customer master record still contains other data fields that are relevant for taxation. These are among others:

Jurisdiction codeImportant: Even though the field jurisdiction code may not be needed it has to be filled.

An appropriate implementation of the function module RFC_DETERMINE_JURISDICTION on the Web Application Server (WAS) ensures the return of the country code for any address automatically.If this field is not filled then external tax calculation will not work (see IV.2.5).

VAT registration numbersFor every customer in an EU country who carries out business transactions with other EU member states, the VAT registration numbers (VAT reg.no.) has to be specified.

Tax Code 1 (Tax number)Tax number of the customer which is to be used for reporting to the tax authorities in some countries


IV.2.8.1.2 Master Data Maintenance / Material Master Data Configuration for SD

The material tax classification indicator is also used as a key in automatically determining the tax code within SD.Multiple tax classifications may need to be set up for special tax rules and regulations based on material. These tax classification indicators are user defined, and point to user defined tax codes.

The tax category displayed in the material master record depends on:

1. The material sales organization’s company code country.2. The country of each plant assigned to that sales organization.

IMG Path: Sales and Distribution > Basic functions>Taxes > Define tax relevancy of master records > (Material Taxes)

Transaction: OVK4

Table: TSKM


IV.2.8.1.2.1 The Effect of Material Master Data Configuration for SD

A look in the material master record with transaction MM03 or MM02 shows where this tax indicator can be set. The tax classification is assigned to the material in the Sales: sales org. 1-Tabstrip.


Besides the tax indicator that controls which condition record is found for a certain combination customer – material the material master record still contains other data fields that are relevant for taxation. The Foreign trade/export is one among others:


IV.2.9 Tax Codes and Condition Records in SD Pricing Procedure

As seen in IV.2.8 master data tax indicators will refer to the tax rule that is set for a certain country. The tax conditions that can be created in SD master data will refer to the tax rule that was defined here per country. The condition type that is assigned here to a certain country defines for which tax condition type conditions can be maintained in SD > Master Data > Conditions > Taxes. The master data indicators are also defined in reference to this condition type.Tax codes can be automatically derived from material and customer master file – tax classifications.

IV.2.9.1 Tax Codes in SD

IMG Path : Financial Accounting > Financial Accounting global settings > Tax on Sales/Purchases > Calculation > Define Tax Codes for Sales and Purchases

Transaction: FTXP

Table: T007A

Tax codes are created for a combination of country and tax calculation procedure. Tax codes define the values for all condition types that are defined in a tax calculation procedure.

Example: Definition of output tax code DX for Germany


When using external tax calculation the tax codes does not carry information about the actual tax rate. They must be set so that the tax that is determined via the FI condition is distributed to the correct accounts. Tax rate in the FI condition record is 100% for external tax calculation.

IV.2.9.2 Condition records in SD Pricing Procedure

Menu Path : Logistics > Sales/Distribution > Master data > Pricing > Taxes

Transaction: VK11/VK12

In this transaction the condition records can be created for a condition that is assigned to a country via the tax calculation rule.In our case of a simplified access sequence it would be possible to enter tax rates on a country level only.

IV.2.10Assign Delivering Plants for Tax Determination

IMG Path : Sales and Distribution > Basic Functions > Taxes > Assign delivering plants for tax determination


Transaction: OVK6

At creation of a SD document a tax calculation procedure is determined from the country of the delivery plant – this country can be defined in this customizing transaction.

In this menu option, the plants are allocated to a country, and if appropriate to a geographical region, a county/state code as well as a city codes. The allocation always depends on the countries in which you are using the SAP System.Using the country key, the SAP System recognizes which tax type is valid for a plant and thus which taxes are relevant when creating a SD document.


IV.2.11Tax Calculation in MM and FI:

For MM and FI transactions, tax calculation makes use of a tax procedure instead of a pricing procedure. Tax procedure also uses the condition techniques.

The peculiar aspects of tax procedures:

• Every condition type in a tax procedure has the same access sequence MWST.• Access sequence MWST has 2 parameters: country and tax code.• The tax condition records for each condition type is created through the FI condition record

maintenance.• The FI tax condition records are based on the tax code and are created in central configuration for

tax code condition records. The tax codes are used in accounts receivable sales and use tax, accounts payable sales tax and accounts payable self assessment / use tax.

• For MM and FI document transactions, the company code’s country and the tax code entered will form the FI tax condition records for the country tax procedure.

• For MM, if the tax code is not entered manually, an automatic tax code determination is necessary. Configuration set up for automatic tax code determination in MM is described later.

• Tax procedure also determines the G/L (tax liability) accounts to which the tax amounts are to be posted to accounting. A correct configuration set up is required for automatic G/L account determination. The configuration set up is described in Setting up tax codes.

IV.2.11.1 FI Condition Records / Tax Codes

IMG Path : Financial Accounting > Financial Accounting global settings > Tax on Sales/Purchases > Calculation > Define Tax Codes for Sales and Purchases

Transaction: FTXP

Table: T007A

Tax codes are created for a combination of country and tax calculation procedure. Tax codes define the values for all condition types that are defined in a tax calculation procedure.


Example: Definition of Input tax code D1 for Germany

When using external tax calculation the tax codes does not carry information about the actual tax rate. They must be set so that the tax that is determined via the FI condition is distributed to the correct accounts. Tax rate in the FI condition record is 100% for external tax calculation.


IV.2.12Tax Calculation Procedure in MM

Tax codes can be automatically derived from material, plant and account assignment for purchasing transactions. As with SD master data configuration, tax classification indicators must be maintained to determine the tax codes.The tax code can be overwritten within the purchase order (item details) and the invoice verification document.

IV.2.12.1 Material Master Configuration (MM)

IMG Path: Materials Management > Purchasing > Taxes > Set tax indicator for material

Transaction: OMKK

Table: TMKM1

The material tax classification indicator is used as a key to automatically determine the tax code within purchasing. Multiple tax classifications may need to be set up for special tax rules and regulations based on material. These tax classification indicators are user defined, and point to user defined tax codes (see IV.2.8.1.2). For example, tax classification 0 could represent an exempt material or service which points to a tax code D1.

IV.2.12.2 Define Tax Classification Indicators for Plant (MM)

IMG Path: Materials Management > Purchasing > Taxes > Set tax indicator for plant

Transaction: OMKM

Table: TMKW1

Define the MM plant tax classification indicators.

IV.2.12.3 Assign Tax Classification Indicators to Plant (MM)


IMG Path: Materials Management > Purchasing > Taxes > Assign tax indicators for plants

Transaction: OMKN

Table: T001W

Assign for example Germany plants a tax classification indicator.

Notice: This step is not mandatory. This step is only necessary if plant will be used to automatically determine the tax code on MM documents.

IV.2.12.4 Define Tax Classification Indicators for Account Assignment (MM)

IMG Path: Materials Management >Purchasing > Taxes > Set tax indicator for account assignment

Transaction: OMKL

Table: TMKK1

Define the MM account assignment tax classification indicators.


IV.2.12.5 Assign Tax Classification Indicators for Account Assignments (MM)

IMG Path: Materials Management > Purchasing > Taxes > Assign tax indicators for account assignments

Transaction: OMKO

Table: T163KS

Assign account assignments a tax classification indicator.

Notice: This step is not mandatory. This step is only necessary if account assignments will be used to automatically determine the tax code on MM documents.


IV.2.13MM Condition Record Maintenance

A tax condition record can also be created within the MM module. This is not required, but is necessary to automatically determine the tax code.The MM tax condition record is based on the condition type NAVS and access sequence 0003.

IMG Path: Materials Management > Purchasing > Conditions > Define Price Determination Process > Define condition types

Transaction: M/06

Select condition type NAVS and assign access sequence 0003 to it. This step is only necessary to automatically determine the tax code. Tax codes can be entered or changed manually in MM processing.


IV.2.13.1 Condition Record Maintenance

Menu Path: Logistics > Materials management >Purchasing > Master data>Taxes > Create/Change

Transaction: MEK1 create/ MEK2 change

Select the condition type NAVS and choose the desired Key Combination. Input the appropriate indicator(s), depending on the Key Combination chosen and associate them with the corresponding tax code created in FI.


V Appendix

V.1 Creating and Maintaining SAP Table for Document Credit Indicator

In addition to the described set ups another requirement must be fulfilled for TAXI.Document credit indicator indicates that the transaction is a credit transaction as distinguished from a normal transaction. A credit indicator will invoke credit processing.

The standard value ranges in SAP are:

H for Credit S for Debit

TAXI expects a value of Y or N.To be able to map the SAP values to the from TAXI expected values a customer created SAP table, e.g. ZTAX_CREDIT_IND, has to be created and maintained.

The structure of the table is:

This table must contain for every document type the appropriate indicator, for example:

MANDT FKART SHKZG 001 BK1 S 001 F1 H 001 F2 H etc.

It is recommendable to generate a table maintenance view to use with SM30. Note: This step must be executed in SAP parallel to program code modifikations.


V.2 Examples for External Tax Calculation in other SD Documents

V.2.1 Inquiry

Menue Path: Logistic > Sales and Distribution > Sales > Inquiry > Create

Transaction: VA11 create/ VA12 change/ VA13 display

Conditions view of item 10:

The tax amounts will be calculate externally as soon the created document is posted.


V.2.2 Quotation

Menue Path: Logistic > Sales and Distribution > Sales > Quotation > Create


Creating a quotation with reference to an existing inquiry (e.g. above created 10000001).



Position 20 and 30 are similar.

After saving the quotation document the taxes for each item will be externally calculated:


V.2.3 Scheduling Agreement

Menue Path: Logistic > Sales and Distribution > Sales > Scheduling Agreement > Create


The delivery schedule is:



After saving the quotation document the taxes for each item will be externally calculated:


V.2.4 Quantity and Value Contracts

V.2.4.1 Quantity Contract

Menue Path: Logistic > Sales and Distribution > Sales > Contract > Create




V.2.4.1.1 Create Sales Order (call off) with reference to Quantity Contract

Menue Path: Logistic > Sales and Distribution > Sales > Contract > Subsequent Functions > Order

Transaction: V-01 create

Creating a sales order with reference to an existing quantity contract (e.g. above created 40000000).


After saving the sales order the tax amount for item 10 will be externally calculated:


V.2.4.2 Value Contract

Menue Path: Logistic > Sales and Distribution > Sales > Contract > Create



Conditions view after posting of the Value Contract:

V.2.4.2.1 Create Sales Order with reference to Value Contract

Menue Path: Logistic > Sales and Distribution > Sales > Contract > Subsequent Functions > Order

Transaction: V-01 create

Creating a sales order with reference to an existing value contract (e.g. above created 40000004).

Overview of item 10 of value contract:


Detail view of item 10 of value contract:

Overview of created sales order with reference to value contract 40000004:

Conditions view of item 10 of the created sales order before posting:


The condition views of the other items are similar.

The created sales order after posting can be seen as a standard sales order:

Menue Path: Logistic > Sales and Distribution > Sales > Order

Transaction: VA02 change/ VA03 display

Conditions view of item 10 with calculated tax amount after posting of the created sales order:


The condition views of the other items are similar.


V.2.5 Create Billing

In the following example the billing document (creating invoice in sales and distribution) is shown. Billing document is not a sales document but this activity is a component of sales and distribution.After total delivery (e.g. delivery 80000029) of all items of the above created sales order (SO 47) the billing document can be created: Menue Path: Logistic > Sales and Distribution > Billing > Billing Document

Transaction: VF01 create / VF02 codify / VF03 display

After posting of the created invoice (document number 90000026):


The condition view of item 10 with calculated tax is:

The conditions of the other items are similar.

The billing document overview isshown belove:
