The VAT risk of using cross-company postings in SAP

Background:
The ‘Cross company postings’ functionality in SAP is used to create a journal-posting across 2 different company codes, via 1 transaction / document. This is a relatively quick and useful method to post amounts from one company code into another company code.

If the nature of the transaction being posted falls outside the scope of VAT – or where both company codes are part of the same legal entity or within the same VAT group – then the functionality works as intended.

The issue:
In many cases the underlying transaction is indeed within the scope of VAT, and the 2 company codes are not within the same legal entity or VAT group. The resulting postings are therefore relevant for VAT purposes. Examples may include cost sharing charges, management fee recharges, etc.
However, SAP’s ‘cross company posting’ functionality doesn’t generate a VAT invoice nor does it automate the correct determination of both output and input tax codes.

The cause:
In many cases we see that companies tend to misuse the ‘cross company postings’ functionality within SAP, to transfer taxable transactions between 2 different legal entities.

The solution:
If the true nature of these ‘transfers’ are taxable transactions, from one legal entity to another legal entity, then the ‘cross company postings’ functionality in SAP should not be used.

Instead, a “debit memo request” should be created within the sales module (SD). From this debit memo, one can then facilitate:

  • an automated, compliant tax code determination using SD condition techniques;
  • creation of a (correct) invoice which can be used for VAT purposes

Via The VAT risk of using cross-company postings in SAP | Meridian.

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