SAP Financials Tax and Correspondence

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This Document relates to Tax and Correspondence. These are the final set of FI global settings that need to be configured, you can use the SAP FI application (both FI-A/R and FI-A/P) for end-to-end …

This Document relates to Tax and Correspondence. These are the final set of FI global settings that need to be configured, you can use the SAP FI application (both FI-A/R and FI-A/P) for end-to-end tax management (calculation, posting, adjustment and reporting) at the national level (as in Europe or South Africa), the regional and jurisdictional level (USA), or at combined national and regional levels (as in Canada and India). SAP supports a range of taxation types :Sales tax, Withholding tax, Tax on sales and purchases.

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  • 1. SAP FINANCIALS TAX AND CORRESPONDENCE SAP KNOWLEDGE SHARING DOCUMENTS SAP IDES DEMO SOLUTION – ERP6 EHP5 Pramila Nagaraj SAP Certified Candidate @ Source One Management Services Pvt. Ltd Bangalore 2014 Copy Rights © SourceOne Management Services Pvt. Ltd Bangalore
  • 2. Tax and Correspondence This section is long and takes some time to understand, the problem is that many countries have different tax rules and laws, in this section I will cover mainly the US with some additional information on UK and Japan as this is the basis on my model company Data disk Mobile. When you properly setup a SAP system you will need help for a number of sources, business analysts, tax experts, etc. These are the final set of FI global settings that need to be configured, you can use the SAP FI application (both FI-A/R and FI-A/P) for end-to-end tax management (calculation, posting, adjustment and reporting) at the national level (as in Europe or South Africa), the regional and jurisdictional level (USA), or at combined national and regional levels (as in Canada and India). SAP supports a range of taxation types  Sales tax  Withholding tax  Tax on sales and purchases. Sales tax is the sales and use tax that exists in the US. Generally the vendor does not calculate tax on the sale of the goods (sales tax) that are intended for production or resale to a third party. The procurement transactions for individual consumption on the other hand, are (use tax). Because the sales tax principle does not allow the option to offset input tax against output tax, the vendor must pay the taxes to the tax authorities. A portion of the invoice amount that is withheld for certain vendors and paid or reported directly to the tax authorities is known as the withholding tax. You have two options  Classic withholding tax  Extended withholding tax (EWT) If you are not using EWT you can change over, but if you plan to implement withholding tax for the first, choose EWT functionality. Levied on every sales transactions in accordance with the principles of VAT (Value Added Tax), the tax on sales and purchases involves input tax, additional tax and acquisition. Tax on Sales and Purchases The FI-A/R, FI-A/P and G/L application components support the calculation and posting of tax on sales and purchases which can take any of the following forms  While the input tax is calculated using the net invoice amount and is charged by the vendor, the output tax is calculated using the net price of products and is charged to the customer. You can offset input tax against output tax for your company and pay only the balance to the tax authorities.  Usually country-specific (such as investment tax in Norway, or sales equalization tax in Belgium), the additional taxes are taxes that are levied in additional to taxes on sales and purchases.  An acquisition tax applied by the receiving party at the local rate, is due on the cross-border movement of goods and services within the European Union. This can also be posted as input tax. All the taxes are determined by using condition methods for which the system requires a tax calculation procedure (also known as tax procedure or calculation procedure), tax codes and any jurisdiction codes. The tax is posted when the documents are processed. Withholding tax by contrast is neither calculated using condition methods nor posted during document processing it is not considered until the outgoing payment is made. In the condition method technique the system makes use of the tax procedures that are country-specific for calculating the quantity of tax through tax codes. In fact you will be using the tax procedures as a template to define the tax codes, you then define the tax rates for each of the tax codes and associate them with the tax types in a tax procedure. Because the tax procedure is tagged to a G/L account master record, a particular tax procedure is accessed whenever that G/L account is used in document processing. The tax (calculation) procedure contains the necessary access sequence of the condition records (from the condition tables) for actual calculation of the tax. The tax amount is then calculated and is usually posted to the same side of the G/L posting containing the tax code. When exchange rate differences occur (due to tax adjustments in foreign currencies), the differences are normally posted to the specific account(s) for exchange rate differences. You can however specify (per company code) that the exchange rates for tax items can also be entered manually or determined by the posting (or document) date, and the resulting differences posted to a special account. All the settings required on sales and purchases can be grouped into three areas  Basic Setting  Calculation  Posting The basic settings are the global settings required for configuring tax on sales and purchases, the important settings include  Check calculation procedure
  • 3.  Assign country to calculation procedure  Check and change settings for tax processing  Specify structure for tax jurisdiction code  Mechanics of external tax calculation in SAP (we will use Vertex)  Define number ranges for external tax returns  Define physical destination  Define logical destination  Activate external tax calculation  Activate external updating The country-specific tax calculation procedures contain the necessary specifications for calculation and posting of tax on sales and purchases. Each calculation procedure groups several tax types into a condition type (for example, output tax) and determines calculation rules for it, the system defaults condition types when you define a tax code. The condition type (such as input tax) specifies the base amount on which the tax is calculated and the account key that is used to post the tax. The specifications necessary for calculating and posting tax have been defined for the condition type and account key. To configure/check the calculation procedures we will use transaction code OBYZ, on the initial popup screen select procedures You should then see two procedures (out on the many configured) called TAXUSJ and TAXUSX, because Data disk Mobile wants to use a external application to manage taxes at the jurisdiction level for all the US-based company codes, we will use TAXUSX (but if you don't have access to an external application to manage the taxes then use TAXUSJ), you can also use transaction code OBQ3 to directly go to this screen If you highlight TAXUSX and select the control folder you will see the below screenshot  Step - determines the sequence of conditions within a procedure  Counter - determines the access sequence within a condition  CTyp - condition types differentiates for example different kinds of discount in pricing and between different strategies types in batch determination. The condition type BASB represents the tax base, MWAS the output tax and so on  Description - self explaining  Fro and To - represents the reference steps from where the system will obtain the value (for example the base amount) for calculation  Manual, Required and Statistical- indicate if a condition is to be included for calculation when it is entered manually, whether the condition is mandatory when the system carries out pricing, or if the discount or surcharge calculated is only for statistics and should not be included in pricing.  Print - represents the print ID for condition lines, X - print condition lines at item level, S - print them in totals block. Leave them blank if you don't want them to be printed  SuTot - denotes whether and in which field the condition amounts or subtotals (for example, a customer discount or the cost of a material) are stored. Blank means no sub-totals are stored.  Reqt -  CalType - represents the alternative formula to the standard formula in the system that determines a condition, for example "300" means tax calculation from the external system  BasType - is the formula for determining the condition basis as an alternative to the standard
  • 4.  AccKey - denotes the account key (also known as the process key) that is used to identify the G/L account. The key ERL is for output tax, VS1 for purchase tax and so on.  Accruals Denotes - the account key that is used to identify various types of G/L accounts for accrual or provisioning. You should use SAP's pre-defined account or process keys that are already defined, they will provide the correct link between the procedure and the G/L accounts through automatic tax account assignments. the following elements are to be placed for each of the keys for automatic assignment.  Posting keys - use SAP-supplied default G/L posting keys DR - 40 and CR - 50  Rules - determine the fields (tax code/country key) on which the account determination is to be based  Tax Accounts - identify the G/L accounts that are to be posted with the tax amounts calculated Now lets take a look at the condition types, you can use the popup-screen from before to view the condition types or use transactions OBQ1, on the change/view conditions: condition types view screen you can double-click on any of the condition types to see more details, in the screenshot below I am displaying details of XP1E, you can see that this refers to the access sequence MWST (tax classification), the control data contains information such as  Whether the condition class is discount/surcharge (A) or taxes (D), etc.  Whether the calculation type will be fixed amount (B), percentage (A), or Formula (G).  Whether the condition category relates to delivery costs (B), insurance (A), or cash discount (E).  What the rounding rules will be  you will also see settings relating to changes you can make to the condition type, validity, etc. You will also see interpretations on price scaling, text determination and more control information (control data2), etc. To understand about the access sequence again you can use the popup-screen earlier, or use transaction code OBQ2, on the resulting screen select any of the access sequences (AS) and double-click the accesses folder on the left-hand side, you will see an overview of the access with the condition table(s) select for each access sequence, select any of these and double-click the fields folder on the left-hand side and you will see the field overview on the resulting screen, as per the below screenshot.  Condition - the name of the condition record  I/O - represents the symbols that are used to display how the document data is used in the condition access and also how the data is determined in the access is transferred back to the document. Arrows indicate the direction of the data transfer, the "=" sign stands for an access with a direct value.
  • 5.  Init - this indicator has two functions when you customize access sequences, firstly it restricts the system from accessing the condition if the field document header/item is blank or 0, secondly it allows an initial value to be returned during automatic return transfer of data were determined by the access.  ATyp - represents the processing type in access, the processing type determines how the corresponding field is used for condition access. You can mark a field as belonging to the fixed or free key part or as not relevant for the access. All the fields that are defined as data fields for the definition of condition tables are automatically marked with an access type.  Prio - the valuation entered in this column describes a priority for the characteristics which can be used as fields when you create condition tables or document fields for pricing, the more fields that are filled with a high priority in the key of a condition record, the more likely the document will use that record. If no two fields have the same value, then the access is guaranteed to determine exactly one condition record. You can enter values from 01 (very high) to 99 (very low). To assign a country to a calculation procedure we use transaction code OBBG, we can see that the US is assigned to the procedure TAXUSJ, you can change if you wish as per the Data disk Mobile configuration. You can also do this when configuring the country global parameters using transaction code OY01. Now we will check and adjust the default settings in the processing keys, we will check that each process keys of indicators like tax type and non-deductibility of tax amounts. We will use transaction code OBCN  Tax Type - you can specify whether this field is for output tax (1), input tax (2), additional taxes (3) or not tax- relevent (4)  Not Deductible - select this if the tax amounts are to be marked as not deductible  Posting Indic - select the appropriate posting indicator, no posting is required (1), to be posted as a separate line item (2) or distributed to relevant expense/revenue items (3)  Not Discnt Rel - if you select this system does not take into account the corresponding tax amount when determining the tax base. The settings of the tax jurisdiction code structure will influence the relevant input data passed on to the tax interface system (for example Vertex) for tax calculation and postings you also need to configure the tax jurisdiction at the federal level. This code can be subdivided into a maximum of four levels  State  County  City  District We will use transaction code OBCO,  Schema - the schema refers to the conditions that are permitted per document and their sequence in the document  Name - self explaining
  • 6.  LG - All four columns are used to determine the length of the jurisdiction code which is automatically divided into several parts to help determine tax percentage per tax authority per tax authority, in each of the fields you need to specify 2, 3, 4 and 1 for Vertex.  Tx Ln - this is for if taxes are to be calculated on a line-by-line basis within the MM and FI, this is necessary to pass on material-specific data (such as material number and quantity) and to make sure these taxes can be reported on a line-item basis The tax on sales and purchases is called sales & use tax in the US, the sales tax is imposed on sales of goods with the buyer (customer) bearing the tax while the seller (vendor) acts only as the collection agent for the area (jurisdiction). The sales tax is levied on the sale of taxable goods on the transactions occurring within a state. The use tax on the other hand is imposed on the purchaser of sales, originating from another state, the seller is not liable for this tax. The purchaser pays the use tax on all the goods and services consumed (used) by him/her, and the tax is remitted to the local tax authority (jurisdiction) where the goods and services have been consumed. You can configure the SAP system to mange the sales and use taxes in the US either as a manual or an external calculation using commercial 3rd party applications such as Vertex. The SAP system will use built in tax interfaces for external tax processing (Vertex or Taxware) and will use a number of steps, there must be a connection between the SAP system and the commercial tax application using SAP RFC and tRFC. 1. an interface will determine the appropriate jurisdiction code 2. during order and processing in FI, MM and SD the system applies the relevant tax rates and processes tax amounts 3. the interface updates the 3rd party tax software with the tax information for legal reporting The mechanics of external tax calculation is as follows MM, FI In MM and FI the sales tax or use tax is computed by the system for each line item of the purchase order or invoice, for this to happen a ship-to tax jurisdiction code must be maintained because the system requires information on where the taxes are being charged, the tax calculation process can be outlined as 1. The system looks for the ship-to tax jurisdiction code on the plant, cost center, asset master, internal order or project (WBS), if no jurisdiction code is maintained on the asset, order or project, then the jurisdiction code of the responsible cost center maintained on the asset, order or project defaults into the purchase order or invoice verification document at the time of document creation. This jurisdiction code is then used as the ship-to destination 2. In addition to the ship-to destination the system looks for the ship-from location, since taxability is also influenced by the ship-from destination. A jurisdiction code maintained in the vendor master record can be used as the ship-from tax destination 3. The external tax package retrieves the jurisdiction code automatically when you enter or change the address information while creating or changing the master data of a plant, cost center or vendor master record. 4. In MM and FI the system uses country and tax code to read the tax condition records, the tax calculation procedure TAXUSX contains condition formulas (300-306, 311-316) which invoke the tax interface system 5. once the tax interface system is invoked the system populates a communication structure with the necessary data needed by your partners tax packages to calculate the taxes 6. This communication structure is passed to your partners API through RFC. 7. The partners API passes this data to its calculation package which in return passes the tax data back to its API 8. The tax partners API then passes this information back to the tax interface system and onward to MM and FI. Tax amounts and statistical rates apply to each levels of jurisdiction (up to six levels maximum) denoted by the condition types: XP1E-XP6E, XP11-XP6I and XP1U-XP6U SD In SD the tax calculation process applies appropriate tax rates and amounts to line items during creation of invoices and sales orders, these rates and amounts are generated by the external tax application as per the below 1. When you enter the address information during creation or when changing a (ship-to) customer (or plant) master record, the jurisdiction codes are automatically retrieved from the external tax package 2. The system uses country customer tax indicator and material tax indicator to read the tax condition records. During pricing execution in sales- order processing, the system exits the normal pricing upon recognizing a condition type 1 (UTXJ) 3. Tax condition records are read using country and tax code maintained in the pricing condition record. The tax procedure TAXUSX and the SD pricing procedure RVAXUS contain condition formulas (300-306 or 500, 510, 301-306) which invoke the tax interface system 4. Once the tax interface application is invoked a communication structure with header and item data is filled with the necessary information needed by your partners tax package to calculate taxes. This communication structure is then passed to your partners API via an RFC 5. The partners API passes this data to its tax-calculation package. The appropriate tax is then calculated and returned back to the partners API and then to the tax interface system. 6. These tax amounts and rates are applied to the SD document items pricing at each level of jurisdiction denoted by the condition types XR1-XR6 An external tax document is created when a SD, MM or FI document is successfully posted to accounting. The external tax document is the entry name for tax-relevant information for one particular document. This information is to be updated into the external audit register file. First we will start by defining the number ranges for external tax returns, you should setup a wide range, we will use transaction code OBETX, on the initial screen select intervals (glasses)
  • 7. Then create the below number range, use to green cross icon to add Now we will complete the definition of the physical interface destination (using transaction code SM59), note the RFC destination name we will use this later, note that you will need an account at Vertex Now we define the logical destination, this can be configure by using the below IMG path For each combination of EX (external system indicator) and the event, enter the functional module and RFC destinations. Use V (for Vertex) for EX, and JUR (determining jurisdiction), TAX (calculating taxes) and UPD (transmits to the external system for updating) as the business events in the event field. Enter physical destination you have defined in the earlier configuration steps, you should have something looking like below Now we activate the access to the external tax system depending on the tax calculation procedure, you can use the IMG path as above to activate it, we enter V for vertex as the external system (A for Taxware), in the tax interface vers we leave blank because we want the tax processing to happen at the line-item level in the external system, enter "TAXDOC00" if external tax processing should happen at the document level. Enter the RFC destination and Update RFC destination we defined earlier, select the TC field if the tax jurisdiction code field is empty, the system will attempt to determine a tax jurisdiction code. If the tax jurisdiction code contains a value the system checks this tax jurisdiction
  • 8. code against the respective address, if this check fails the tax jurisdiction code for the respective address will be determined automatically. We also have to active the external updating as well, again use the IMG path above, fill in the details below and save the configuration. Calculation You have to complete the following to enable the system to calculate the tax  Maintain tax codes for sales and purchases  Assign company code to document date for tax determination  Specify the base amount  Change foreign currency translation You can to maintain separate tax code for each of the countries, SAP already comes with pre-delivered tax codes, you try and use these if possible. If not then copy the original and only make changes to the copies. We will use transaction FTXP, first enter US on the popup screen, then enter the details on the initial maintain screen (I1 denotes input or purchase tax codes) The next screen has the properties of the tax code, selecting properties we have the following  Tax type - select V for A/P purchases or input tax or Select A for output (sales, A/R)  CheckID - leave this field blank if you want the system to issue a warning (instead of an error) when calculated and entered tax amounts differ  Eu Code - This field classifies the output tax codes, which are to be taken into consideration in the EU sales list, because this is not relevant for US external tax calculation you can leave this field blank  Target tax code - this field is relevant for deferred tax codes used in countries such as France and Italy  Tol per rate - this is the tolerance percentage between the tax amount calculated by the system and the manually entered amount. When the difference is less without any warning the system will post the document, leave blank if you want a warning when there is a difference
  • 9. Then select the levels and configured as per the Data disk Mobile We will next specify whether the document date or posting date is to be the baseline date for tax determination for each of the company codes, we already know that data disk mobile wants this settings to be the posting date which is the default setting. We will use transaction code OBCK, make sure we have not selected the checkbox in the tax determine with doc date column The next step is to decide whether a cash discount is to be deducted from the tax base amount for each of the company codes (this can also be done using transaction code OBY6 - tax based net value parameter) , in general if you maintain the tax base as net, then you also need to have the discount base at net, however in the case of tax calculation using jurisdiction codes, as in the US, you may have the tax base as net and the discount base as gross. In this case you will not be able to make any tax adjustments for payments with discount deductions, use transaction code OB69 It is possible to use a separate exchange rate per company code for translating the tax amounts, you can configure the system to use the exchange rate that was entered manually or determined by the posting date or document date. We will use transaction code OBC8, you will specify the indicator for the tx crcy tr field, if you leave it blank then you can see that it will use the exchange rate according to document header which is the default. You can see all the options in the below screenshot. If you plan to use a different exchange rate other than the header exchange rate (default), make sure that you create an account for the purpose of handling exchange rate differences that may occur during posting. Posting When configuring posting which includes  Defining of tax accounts  accounts for posting exchange rate differences
  • 10.  assignment of tax codes for non-taxable transactions  setting for transfer postings To define tax accounts we will use transaction code OB40, double-click on a procedure and enter the chart of accounts in this case CAUS Now for each tax code enter an account, as per below The next step I will cover later as we have not completed the G/L account creation yet, so lets move on to assigning the tax code for non-taxable transaction, we will assign input and output tax codes that are to be used for all the non- taxable transactions (such as goods issue, delivery, goods receipt, etc) to tax-relevant accounts for each of the company codes. We will use transaction code OBCL, on the overview screen enter the input taxfor each of the company codes, you will also need to enter a default jurisdiction if the tax is calculated using jurisdiction codes. Normally the entries tax arising out of cross-company code transactions is posted and displayed in the first company code, which ignores the taxes for the other company codes. However you can use this step to customize (for countries like Japan and Denmark) if you want to show the tax amounts in both the company codes. The system creates a list of tax transfer posting to be made and automatically transfers them later. Withholding Tax Withholding tax (applicable in countries as the UK, US, India, Argentina, Brazil and Korea) refers to the tax that is deducted (withheld) at the beginning of the revenue flow from the party who is subject to the tax, but is paid by the party who is authorized to deduct the tax to the tax authorities. For example when you (as a customer) receive goods or services from a vendor who is subject to withholding tax, you make the payment to the vendor after deducting the application withholding tax and you pay the deducted tax directly to the tax authorities. In the UK for example this is known as the income tax wherein the employer (customer) deducts the tax-at-source (TDS) from the salary of the employee (vendor). This occurs at the time of salary payment for the services rendered by the employee or vendor and the employer pays this withheld tax to the tax authorities at periodic intervals as prescribed. The employees get the tax remittance details from the employer at the end of the fiscal year (in the UK this is known as a P60). You will come across two types of withholding tax Classic withholding tax (WT) was in common use before release 4.0 of SAP R/3 supporting such a tax for A/P. It allows withholding tax code per vendor line item and supports the tax calculation during payment Extended withholding tax (EWT) released 4.0 and adds additional support assignment of more than one withholding type to a business partner and also allows tax calculation for partial payments, it also supports both customer (A/R) and vendor (A/P) views  A/P point of view - your vendor is subject to withholding tax and your company code (as the customer) is liable to deduct and pay tax  A/R point of view - your company code (vendor) is subject to the withholding tax and your customers deduct the withholding tax for all the transactions you do with them.
  • 11. Withhold tax is generally posted at the same time you post a payment that is reduced by the withholding tax amount during outgoing payment (A/P) or incoming payment (A/R). The entire process of EWT is controlled by withholding tax type and withholding tax code. While the withholding tax types represents basic calculation rules and the time of posting of withholding tax, the withholding tax code represents the percentage rate of tax to be applied. You can define several withholding tax codes for a given withholding tax type. When entering a line item you can enter the appropriate withholding tax data for each withholding tax types. We will only configure EWT for the US, you can activate as a first step or after you can do it when you have completed all other settings, use the IMG as per the below screenshot Make sure the checkboxes for all the company codes are selected, you will get a warning regarding that you are activating the EWT, once you have activated EWT you will not be able to move back to Classic withholding tax. Basic Settings The basic settings include checking and defining the following  withholding tax countries  withholding tax keys  recipient types  reasons for tax exemption  message control We need to define the withholding tax country for printing withholding tax forms, You obtain a list of the countries ID's from the tax authorities and compare with the SAP default settings, you can make any changes that are required, for this we use transaction code S_ALR_87003283 Withholding tax keys are the official descriptions of withholding tax codes as defined by a countries national tax authorities, you will assign these keys to each of the withholding tax codes that you will be defining later, these keys help you to prepare the tax returns, SAP already delivers standard keys for some countries, we will use S_ALR_87003284, the Nattaxcode is used to select the official National Tax Code that belongs to each tax type regulated by the federal tax office (for example AFIP in Argentina), for use in some of the legal reports.
  • 12. It helps to to configure the reasons for withholding tax exemption, we can use transaction code S_ALR_87003287, you can enter a two character exemption code which can be used. You can set the system messages for both the online and batch input modes, maintain what kind of messages (warning, informational) should be output for each of the default messages numbers, the message is displayed in the footer or as a dialog box. We will use the IMG Create the following entries as per the below screenshot Calculation We will cover the following  Withholding tax types (both for invoice and payment postings)  Exchange rate type for withholding types if you plan to use exchange rate other than that of payment  Rounding rules  Mapping of SD condition types with withholding tax types when you implement both FI and SD The withholding tax type governs the way in which EWT is defined (at the country level) and calculated, because you may require more than one withholding tax to be withheld for a single business transaction you can define several withholding types. Based on the time of posting you can group withholding tax into two different categories withholding tax type for posting at the time of invoice and withholding tax type for posting at the time of payment. The withholding tax type for posting is used when you enter an invoice and will not affect the payment, we will configure a number of withholding tax types as per the Data disk Mobile configuration. For this we will use transaction code S_ALR_87003264,  withld tax type - this is a two character identifier  base amount - the different base amount types, net, modify net (line item net amount plus a number of specific tax amounts configured separately), gross, tax amount and modify tax amount  inherit base - select if the system is to inherit the tax calculation base from another withholding tax tax type of the same sequence number  base amnt reductn - select this if the withholding is to be reduced from the withholding tax base, for example this is applicable in Columbia  post w/tax amount - the system calculates and posts withholding tax (like India), this procedure is not required in places like France or Belgium
  • 13.  rounding rule - select to activate commercial rounding. The other options include always rounding up, (like India) and always round down.  accumulation type - when accumulated, the accumulated withholding tax base amount in the current period is added to the withholding tax base amount of the line item for which the withholding tax amount is to be calculated.  acc w/tax to max - set this so that withholding tax is not withheld when accumulated withholding tax tax exceeds the maximum amount, only use this option in conjunction with accumulation.  control - set whether w/tax base manual and manual w/tax amt fields are ready for manual input and whether you want the system to number the standard certificate generated in the system.  region - this is used by countries USA, Canada, Italy, Brazil, Australia and Great Britain to print the relevant state, region and county as a part of the address, using the automatic address formatting function  w/tax code level & type level (base amount) - select w/tax code level so that the minimum and maximum base amounts are defined either at the tax code or tax type level  w/tax code level & type level (withholding tax amount) - select w/tax code level or type level so as to control the minimum or maximum tax amounts at tax code or type level You should end up with something like below The withholding tax type for payment posting is used at the time when you actually make a payment, for this we will use transaction code S_ALR_87003266, this is the similar to that used to define the withholding tax for invoice posting, except that there are some additional fields to take care of  For country, select the c/disc pre w/tx radio button to ensure that the withholding tax deduction is the net discounts (that is, the cash discount is calculated and deducted from the withholding tax base amount before the withholding tax is calculated), select the w/tax pre c/dis radio button if you want withholding tax to be calculated before cash discount is calculated and deducted  Under the control data block you have additional checkboxes to enable self-withholding (self-w/holding), allowing you to enter the amount when you post the invoice (w/tax alrdy w/hd) and permitting entry of withholding amount both from incoming and outgoing payments  under the central invoice block select the first radio button (no centr invoice) to indicate that no central invoice is used  under the minimum check block select the minimum check at item level radio button so that withholding tax is calculated and posted only when the withholding tax base amount exceeds the minimum base amount defined, and the withholding tax amount exceeds the minimum withholding tax amount set in customizing for each of the line items.  the customizing step define exchange rate type for withholding type is required only when you use an exchange rate other that that of the payment, for foreign currency translation of withholding tax amounts.
  • 14. Now we will define our rounding rules for withholding tax type, we will use the IMG as per the screenshot below On the initial screen we will select the new entries button, in the screen enter the company code, the withholding tax type that we created earlier (G1, GT), the currency and the unit, the unit is the desired rounding, for the US we will use 1. The rounding definition only applies to the posting of the withholding tax for that specific company code. If you implement both FI and SD together you can map the withholding tax condition types in SD in order to convert them to the withholding tax types We will now check the recipient types to categorize vendors for example for US form 1042 reporting. These types must be printed in the withholding tax form. We will use transaction code S_ALR_87003269, See Data disk Mobile for full configuration, the below screenshot is what you should end up with We now assign the withholding tax types to the company codes, we will use transaction code S_ALR_87003423, on the resulting screen select the new entries button and fill in the details below,  company code - self explaining  withhld tax type - we select 42 (1042 compensation) from the drop down list which we defined earlier  recipient type - we select 02 (Corporation) from the drop down list which we defined earlier
  • 15.  with/tax agent - select if company code is entitled to withhold tax on behalf of a vendor for withholding tax type  w/tax obligated frm - enter the date which the company code is obligated to withhold tax for this withholding tax type  w/tax until - similar to above but you hold it until this date  w/tax number - enter the tax identification number (TIN), SSN-social security number or Employer identification (EIN) issued by the tax authorities per withholding tax type. You will maintain this either as a part of withholding tax information of the company code or as part of the withholding tax information of the customer or vendor master.  subject to w/tax - select if the company code itself is subject to withholding tax of this withholding tax type.  self-withhldg agent - select if the company code can withhold tax on its own behalf for this withholding tax type You can also fill in the exemption details under the exemption block if withholding tax is exempted. Next we will define withholding tax codes, these are used to determine the withholding tax amount, which is made up of two components the base and the surcharge. SAP allows you to maintain them in either a single or in two different codes, remember that when you use the template for the US, the system sets up withholding tax codes used in form 1099 Misc reporting (but not for forms 1042, 1099G, 1099 INT or 1099 DIV reporting). You need to manually create withholding tax codes for reporting other than 1099 Misc. We will use transactions code S_ALR_87003617  withhld tax type - we will select FE (federal withholding tax type for 1099 Misc reporting)  w/tax code - a two digit code (See Data disk mobile for codes)  off w/tax key - we will select the 1099 key  description - self explaining  percentage subject to tax - the portion of the invoice that is subject to tax , in our case 100%  post indic - we select 1 so that withholding tax amount is deducted from the customer and vendor line item amount or blank line item and a withholding tax line line is automatically created  with/tax rate - enter the current tax rate, in our case 31%  with/tax rate (fraction) - used in Italy this is also known as the withholding tax rate counter, you will use this to enter non-truncated rational number, if the rate can be entered as a fraction  w/tax form - used if the withholding tax is to be calculated according to certain special formula as in the case of withholding tax code for a foreign vendor for form 1042 in the US.  Reporting information - use this if the tax code related to withholding taxes that are withheld at the state level. Hopefully you should end up with something like below
  • 16. Now repeat the whole process for the 1099G reporting excluding (G1) and 1099G reporting including WT (GT), details can be found from Data disk Mobile Now we will define the formulas for calculating withholding tax, for withholding tax from a foreign vendor for reporting under form 1042 you will need to have a formula defined for calculating the withholding tax. First we create the withholding tax code and then we define the formula. We will use transaction code S_ALR_87003617 to create the tax code as we did earlier Now we use transaction codeS_ALR_87003618 to define the formula using the above withholding tax code, first we create the header Then we create the formula  to base amnt - maximum amount for deduction  whldtax - withholding percentage  amt - amount by which base amount is reduced if exemption authorization exists on the vendor master record Withholding Tax Posting You can define different accounts for posting of withholding tax to be paid for self-withholding tax, and for withholding tax offsetting entries. When defining the accounts you may further differentiate the accounts based on a combination of
  • 17. withholding tax type and withholding tax code or you may define a single account for specific tax type, note that you must maintain the G/L accounts defined for posting the EWT on open item basis to enable clearing. We will create the accounts required by Data disk Mobile, we will use transaction OBWW, use the CAUS as the chart of accounts, first we select the withholding tax type checkbox as we are maintaining accounts separately for each of the withholding tax codes, if you plan to have separate debit/credit accounts select the debit/credit checkbox. Now select the accounts button and enter the G/L accounts that will be used for each withholding tax type as per the below screenshot, if the accounts have not already been created you will receive a warning, just select the green tick and continue and the data will be saved, we can create the G/L later If you plan to use your own posting keys you can enter them on the posting keys screen, otherwise leave them as the SAP default We then do the same for self-withholding tax as below, use transaction code OBWS You can update withholding tax postings retroactively, what I mean is that you only find out that a vendor is liable for withholding tax after invoices and payments have been made to this account, in this case you need to know how to subsequently create withholding tax data after invoices and payments have been processed, First you need to update the vendors master data withholding tax section (transaction code FK02), then update the vendors control section and enter the tax information, you can run two programs which can create tax withholding information (use transaction code SE38), you have the option to test before the actual run, once run the data will be available in the withholding tax reports (transaction code S_PL0_09000314)  RFWT0010 - used to adjust withholding tax data where extended withholding tax is activated within your company code  RFWT0020 - used to adjust withholding tax data where the withholding tax rate is 0% (screenshot below).
  • 18. Certificate Numbering It is important that you number the withholding tax certificates as exactly as possible this proves to the vendor and tax authorities that tax was withheld. In SAP the numbering of the certificate is based on numbering groupsand numbering classes, which can be assigned to organizational units (company code) and to withholding tax categories (such as withholding tax types). The numbering groups are simple groups of numbers from one or more number ranges, a numbering class is a group of numbering groups. With these defined the system can determine a certificate number, sequentially from the corresponding numbering group. You can choose from the following options called concepts for correct numbering  K001 - assigning numbering class to company code(s)  K002 - assigning numbering class to combinations of withholding tax category or company code  K003 - assigning numbering class to combinations of withholding tax category, branch or company code. Select the appropriate concept, assign the same concept to the company code country and configure the system accordingly, defining numbering classes and assigning numbering groups to numbering classes. We configure the certificates as per the Datadisk Mobility, for this we will use the IMG, notice the numbering concept options  Option 1 - company code only  Option 2 - company code and withholding tax type  Option 3 - company code, branch and withholding tax type First we will the certificate classes as per the below screenshot Now we create the numbering groups we will add the number ranges to these group in a moment Next we will create the number ranges for each number group, the initial screen ask you to select the number group
  • 19. Then you can enter the details of the number range, as per the screenshot below Now we assign the company code, numbering class and the number groups, when you select the new entries screen you can fill in the details below You should end up with something like below You can also assign the numbering concept to a company code as I have done in the below screenshot, here you can see that I have assign concept K002 to GB Lastly we can assign a numbering class (K002) to a combination of company code and withholding tax type (option 2), in the below screenshot you can see that I have assigned company code DD13 with a withholding tax type of 10 to the concept K002 Reporting It is import to send the correct tax forms to the tax authorities, it is also important that the data in the report is correct, the import settings include defining forms for withholding tax, assigning forms for withholding tax certificates and maintaining minimum amounts for US form 1099 reporting. SAP does come with standard forms, these forms are available both as SAPscript forms and Smart Forms. The naming convention of a standard smart form (IDWTCERT_XX*, where XX is the country code) so for example form
  • 20. IDWTCERT_US_1042S would be a smart form for US 1042S reporting. You can define your own smart form using the below from the IMG or you can use transaction code SMARTFORMS You then can select what smart form you would like to change, etc, the screenshot below is the IDWTCERT_US_1042S smart form SAPscript forms can be accessed via transaction code SE71, the screenshot below lists the US form 1042a Once you have defined your form (or you can use a SAP supplied one) you then assign it to the withholding tax certificate for each withholding tax type using the below IMG
  • 21. Here you can see that I have assigned withholding tax type 42 to the SAPscript form "US form 1042a reporting" You can define output groups that are used to prepare the withholding tax returns as DME (Data Medium Exchange) files and also used to specify what lists, printouts and files they cover and from which accounting documents (accounts payable, accounts receivable or both) the program is to read the withholding tax items. Several output groups are already supplied by SAP for most of the countries, for example output group US1 is used for various process types such as US_1099 and US1099G in the US, use the IMG to define additional output groups You can see the SAP supplied output group US1 (1099G reporting) Double-clicking on the report you can see the details
  • 22. You can define the DME file format for your withholding tax return, SAP has supplied standard formats for each country and withholding tax type, when you execute the generic withholding report it generates a DME file with all the withholding tax data that you have selected and it formats the data according to the DME format that you have defined here, you can use transaction code DMEE1, on the initial screen select the WTRE (withholding tax reporting) then select the format tree parameter either using the drop down list or typing the name of the format tree In the below screenshot you can see the details that will be included in the DME file, I will leave you to dive deeper into this subject Next we will define the minimum amounts for the 1099 report, we will use the IMG
  • 23. The screenshot below displays the overview screen, the 1099 reporting type can be miscellaneous, G-Certain Govt Payments, for the different regions. Remember not to select the no K rec, if no K record is to created for a 1099 report (when filed directly with a particular state), otherwise a K record will be created Now we have completed the customizing required for withholding tax reporting you can use the standard report RFIDYYWT and generate all outputs, such as withholding tax certificates for your vendors and creating a DME file for the tax authorities with information about the tax that you have withheld, use transaction code SE38, type the name of the report RFIDYYWT and then execute Correspondence The standard correspondence functionality in SAP is only for mailing letters related to payment notifications, account statements, balance confirmations, internal documents, etc. Representing the type of letter in the system, a correspondence type determines what data is required for creating a letter that can be entered, that is manually or determined automatically by the system. To view the standard correspondence you can use transaction code OB77, the screenshot on the left is section of all the correspondence types, the screenshot on the right details (by double-clicking on the correspondence type) correspondence SAP09 internal document, You need to assign the print program and selection variants (either SAP supplied or your own using transaction code SA38) to each correspondence types, we will use transaction code OB78, the screenshot on the right is were you can assign a company code to a correspondence type, the correspondence types with no company codes will be used by the company codes that have not be assigned to a correspondence type. The screenshot on the right details the print program associated with the correspondence type.
  • 24. You can define the sender details for the correspondence form, you can define the text and signature line for each of your company codes which will apply to the header, footer and sender's address of a letter, for this we can use transaction code OBB1, you can assign a program to a company code as the left screenshot (you can see that I assigned company code DD11 to RFKORD10), you can then define the sender details by double-clicking on the program and filling in the details as per the screenshot on the right. If you want to specify the correspondence types that can be selected online within the functions such as document entry (DOCENT), payment settlement (PMNT), document display or change (DOCDSP) and account editing (ACCDSP) then make the changes to the checkboxes in transaction code OB79, in the below screenshot you can see that I have created new entries for each company code for the correspondence type SAP10 and selected all the checkboxes. However there are a number of correspondence types that don't have a company code and this will be used by all company codes that do not have a correspondence type assign. Lastly if you want to work with automatic correspondence (for example email) use the SAP supplied enhancement RFKORIEX and modify the source code by adding your own elements, use transaction code CMOD, first I created a new project Then I added the SAP enhancement RFKORIEX
  • 25. You can then edit the source code, by selecting the components and then selecting the source code icon Declaration: This is related to my Practice in Demo System ERP6 EHP5 since after my SAP Certification. I have taken guidance from SAP Expert of UK who had given me full instructions on how to go about with certain configurations in Financials. I have successfully completed one Configuration Cycle.