European VAT 2010
Introduction
During July 2009, Wartsila Finland’s Corporate Tax department were informed that as of 01.01.2010, the place of supply (when determining and reporting VAT) for service related materials would no longer be where the work physically took place, but from the customers fixed place of establishment. This was refering to the EU Directive, (article 44) and was targeted at the Business to Business (B2B) scenarios. There were also notes relating to Business to Customer (B2C) where a distinction had to be made between the two scenarios. These details were provided via SAP note 1371729. However, the B2C section was not applicable, as Wartsila at the time did not supply to consumers.
As with standard SAP solutions, the ‘ship to party partner’s country key’ was always the key field used to determine the tax destination country. This of course meant that for service materials, the tax destination country would now need to be determined from the sold to party partner, (customer address).
Secondly, service related billing documents also needed to be reported separately on the EC Sales List. There were other OSS notes recommended to be implemented by the FI module for the report to make this possible, including new entries to the tax code configuration.
To summarise, a distinction between spare part and service materials would be required, and invoiced dependent on the tax destination country for the particular material type.
Key Challenges
Wartsila was the first customer of SAP to realise that a solution for cases where spare part and service materials were invoiced on the same billing document (in effect, two tax destination countries) would be needed if all business transactions were to continue as normal . At the time, there was no available solution from SAP for mixed cases, and after raising a message via the on line portal, it suddenly became apparent to SAP that Wartsila would be the first of many customers that would require some answers for mixed cases, and quickly!
I was subsequently asked to attend The Grosvenor Hotel in London to explain how Wartsila overcame this problem, and the experiences / lessons learnt from that complicated phase in the project. Unfortunately I had to decline, due to other commitments at the time.
During the kick off meetings with multiple Business Controllers accross Europe, it was also clear that there would be many country specific requirements throughout the project, namely Greece and Cyprus.
Solution
To begin with, we first looked at the original OSS note and how SAP recommended the split of spare parts and service materials. However, Wartsila’s SAP system already had an existing solution in place to do this via the MWST condition record, where material tax classification was a field previously selected from the field catalogue and applied to most tables (where required) on the MWST access sequence.
The MWST condition records would be maintained with material tax classification 1 or 0 (taxable and non taxable spare parts) and 6 or 5 (non taxable and taxable service materials). However, both material types (1 and 6 or 0 and 5) on the condition record within nearly all MWST tables shared the same tax code, making it impossible to split the material types when running the EC Sales List. This meant that for every EU company within Wartsila, (fifteen) there would need to be new tax codes created and applied to new MWST condition records, valid from 01.01.2010. After checking with SAP if this solution would be acceptable (and more importantly – supported after any further OSS notes or upgrades) Wartsila agreed to continue with this solution.
Regarding the resetting of tax destination country, USEREXIT_PRICING_PREPARE_TKOMK was updated with the Include ZSD_EU_VAT_SERVICES_MV within MV45AFZZ (Sales Document) and RV60AFZZ (Billing Document) meaning for service items, the system would set the destination country according to the Sold-to country (whereas for goods the destination country would remain the Ship-to country). This would lead to the correct VAT (condition type MWST) determination and the corresponding VAT codes.
There were many other unexpected issues that also needed to be resolved before 01.01.2010. One of them relating to the correct VAT number being determined, (also issues affecting the EC Sales List incorrectly showing domestic VAT numbers when clearly only non domestic VAT numbers should be reported).The Wartsila rule to determine the VAT Registration number followed the logic that the number should always be determined from the Sold-to party partner. So In cases where there was a mixed scenario (goods and services on one Sales Document) and either the Sold-to or the Ship-to were in a non-EU country, but the other partner was in a EU-country, the system would determine a VAT number for the EU items, but none for the items going to the non-EU member.
As the customer VAT number is a header field, the system needed to split such cases into two separate Billing Documents. In order to achieve this, the relevant Copy Routines also had to be adapted to meet this requirement. SAP were again contacted over this matter, and they confirmed that our solution was the correct way to proceed.
Finally, (not related to the SAP Note or directly related to the VAT Package), another important requirement related to tax determination was also to be implemented. If the customers (Sold-to party) VAT number was from the same country as the selling Sales Organization, domestic taxes should apply (as if the VAT number field on table KNA1 was blank). This however, should only be active, if no further EU VAT numbers were maintained for the EU customer on table KNAS.
For this, the standard SAP Requirement 007 (as assigned to the Access Sequence MWST) was to be enhanced, in order to check the format of the number, (first two characters). A new requirement, (607) was created and assigned to the MWST access sequence. It was also required that for Greece, whose VAT number began with ‘EL’ but country code was GR required some additional ABAP code in order to recognise the VAT number.
Solution
As you can read from the solution section, the whole logic of VAT determination within SAP for EU companies was changed for Wartsila. A basic appreciation of VAT determination should have been mandatory, prior to asking any of the End Users to participate in the project. However, as more and more legal requirements were added to the project scope, nobody could have anticipated the complexity of forthcoming changes. After the project was closed, I was asked to document the technical changes that had been implemented. The document was thirty seven pages long.
The requirements and design from a system side were clear, but business was never fully aware of what was expected from them, even during the validation phases. Many countries did not have the resources or experience to contribute to the UVT, meaning that I had to do many (unanticipated) hours of training, testing (on behalf of business) and documentation, explaining what would happen from 2010, and how any problems could be prevented when the new logic was implemented, namely the relationship between differing services rendered date (sales document type dependent) and validity dates for MWST condition records.
The project expected to be close February 2010, but did not until June, as not only were the training issues delaying us, but many other requirements were added to the project as mentioned above. Many were known issues from the original SAP roll out, which included VAT number determination, master data clean ups, plants abroad and ICB / drop shipment scenarios etc – which we also fully resolved for Wartsila by the end of the project. The project was a great success, and all members of the development team gained a large amount of cross modular experience.
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