Many SAP clients have multiple VAT registrations. Due to principal structures, centralized functions, complex business models for sales of goods, cross-border and drop shipment transactions, these companies often use more than 900 SAP tax codes. These organizations will face difficulties regarding the standard SAP tax code design which will cause not only tax compliance, but commercial issues as well.
As a Standard SAP tax code consists of only 2 characters, the number of possible tax codes is limited. Numerous companies use a considerable amount of tax codes and risk facing a “shortage” of the necessary tax codes. Multinationals have asked SAP for a solution over the last couple of years, but to date SAP has not provided a proper solution.
To our knowledge, SAP has developed a solution with a 4-digit tax code for one company. However, we understand that this SAP 4-digit tax code solution will not be expanded to other customers because of risks concerning the stability and robustness of the solution. This means that multinational companies still have insufficient options when facing issues with the limited number of available tax codes.
In many countries around the world, the VAT revenues make up an important part of the total revenues of the governments. Combined with the financial crisis and the need to reduce the budget deficit, VAT rates are changed frequently.
The change of a VAT rate has a significant impact on a SAP system. Due to the standard set-up in SAP, for every new VAT rate multiple new tax codes must be created. As a consequence, a significant amount of additional changes are required to get the new tax code up and running for all SAP transactions.
Alternative market solutions
The following alternative solutions are available in the market. However, all have considerable drawbacks.
- Use the special characters ($,/,\,& etc.) for the tax code – even with the extended number of tax codes some companies will be running out of available tax codes and tax codes with these special characters are not user friendly to work with
- Purchase external tax engine – besides high purchase and maintenance costs external interfaces have to be used, which for certain clients is in conflict with their own IT policy, as the use of standard SAP is preferred
- Renaming of tax codes (SAP’s System Landscape Optimization projects: SLO) where the existing tax codes are archived and a new tax code design could be created. Such restructuring will however not avoid creating multiple new tax codes in the future when the VAT rate is changed. Companies will face shortages again in the future.