Treatment of Plants Abroad in SAP
An introduction to the’ Plants Abroad’ functionality remains a hot topic with the SAP IT community and within Supply Chain and Tax Functions is organisations where SAP is the core back office system . It was and remains the source of many questions with the VAT and SAP community as to whether or not the’ famous’ Plants Abroad functionality should be switched on. A company code within SAP is often regarded as a legal entity with a presence in only one country, however if a company has an indirect tax presence in more than one country, further changes may be needed .
An indirect tax presence abroad can be derived from the following:
• warehouses in several countries–and the associated VAT numbers–leading to the reporting of obligations on the transfer of goods between them.
• Store goods at the location of customers.
• Selling distance over certain thresholds. • Complicated VAT transactions (e.g. Transactions in the chain).
As soon as you have an indirect tax presence in a country other than where you are established, situations such as these can lead to several reporting problems. For example: assigning transactions to a particular country using the correct currency and exchange rate, transferring data for the movement of goods into accounting (without changes in ownership of the goods –movement of intra-company stocks and movement of consignments), etc. The internal disadvantage of failing to correctly address the above situations is the increased cost of tax operations and the reduced reporting accuracy.
From an external point of view, errors or non-compliance in this area can lead to a number of difficulties with tax authorities–from extensive audits that can delay the recovery of VAT inputs in some countries to severe sanctions. For example, incorrect cross-border reporting is often treated as tax evasion. Fortunately, SAP has developed a solution that helps in these situations: the abroad plants functionality. This feature is not the “holy grail” in itself for all –SAP related –European tax compliance problems; however, turning Plant’s abroad gives you essential functionalities.
1. Billing for cross-border stock movements between two EU countries within one company code
2. VAT reporting can be carried out by country reporting
3. Tax base amounts and tax amounts are recorded in national currency
4. Tax codes can be listed by country reporting in different areas of SAP For many organizations, these features make plants abroad worth looking at.
We will therefore share with you how technically you can start and what this can mean for your company. Please note that this is SAP standard functionality and can be used by anyone organisation owning an SAP ERP system.
Initial Set up in SAP
Setting up plants abroad to activate plants abroad sounds as simple as flicking a switch. Unfortunately, in an existing SAP system, it is usually quite a project. It requires the setting up of a project with all the involved to ensure that it can be properly and smoothly implemented. Below you will find more information about some of the high-level steps you need to set up Plants Abroad and its related functionalities in a standard SAP environment.
The following figure shows where Plants Abroad can be activated in the SAP IMG in order to carry out the baseline configuration
Plants Abroad is activated by default using the “Activate Plants Abroad “first node (IMG activity) for all company codes, but there are SAP notes that allow you to disable it for specific company codes. The second node (VAT number for plants abroad) allows you to enter your VAT number in different countries. The ability to deactivate it for specific company codes is important, as it is not currently possible to use jurisdictional tax procedures in company codes for which Plants Abroad is activated. The activation unlocks the following features SAP:
1. Tax Reporting Country:
The field Tax Reporting Country is displayed on tax codes (FTXP). The VAT report (S ALR 87012357) displays this field and lets you create country-specific layouts based on the country of tax reporting. Instead of manually selecting all tax codes belonging to that country and the MIRO transaction code (or other transactions for posting invoices), it makes it easier for AP to select its tax codes by providing acondensed list of the applicable tax codes . The following figure shows where the tax reporting country can be kept in the tax code:
2. Tax Country currency:
This eliminates a large part of the manual effort required by the compliance teams. The additional country tax currency and exchange rate type can now be used in the world parameters of the country. The VAT report (S ALR 87012357) and accounts can now deal with the currency of documents (e.g. USD), local currency of accounting (e.g. EUR), and currency of taxes (e.g. PLN). PLN. This allows you to run VAT reports in a country-specific reporting currency; it is also safer to reconcile accounts with amounts paid or received from the various tax authorities. The figure below shows where you can tick the box to account for the currency.