Author: Claire Neale, Solution Architect, itelligence UK.
Over the course of the next few weeks, we will be delivering a number of blogs to you in order to highlight the key Brexit considerations from an SAP S/4HANA perspective, so that you know the changes which are required to remain ‘compliant’.
Please note we are not tax advisors, so any specific tax query should be addressed to your tax advisors.
What we know so far
Whilst the trade deal outcome is tariff-free trade, which brings a level of simplification to what was previously in place for trade between UK & EU, the effort for businesses to adjust to the new rules and regulations should not be underestimated. The new rules affect every UK business who trades with the EU.
Trade and tariffs
The highlight of the trade agreement was that there will be no tariffs on goods transited between the UK and EU, and there will be no limit on the quantity of goods traded. Whilst this seems very similar to what was in place prior to Brexit, the following points should be observed:
• The tariff-free deal covers those goods that are produced within the UK or EU;
• Any goods which are manufactured in China, Brazil, America etc. and then onward traded between UK and EU, or goods sourced with a non-UK/EU origin, which constitute more than 40% of a product semi-finished value, could face tariffs. Capturing the country of origin of goods is key;
• New customs rules and rules of origin checks will mean goods will be slower to enter the UK as a result of potential supply chain glitches. There are additional paperwork and declarations which need to be navigated as part of the changes.
- All UK Companies (excl. Northern Ireland) importing goods in England, Scotland and Wales from the EU will require an EORI number (Economic Operators Registration and Identification number). If the company already has one but it does not start with ‘GB’ then they will have to apply for a new one.
- HMRC suggest using an agent to support imports on your behalf
- Goods imported from the EU will need to be accounted for in the same way as goods imported previously from non-EU countries
- The responsibility for completing declarations, paying any tariffs and import VAT is dictated in the international commercial ‘INCOTERMS’ contained within the terms and conditions of the contract. Typically, it is the seller who settles the border paperwork and import taxes – ‘customs formalities’. Common INCOTERMS are: Delivered Duty Paid (DDP) and Delivered at Place (DAP). The supplier settles customs and VAT in the former; the customer in the latter.
- There is no change to commodity codes;
- From a VAT code perspective, as mentioned in our previous blog which should be used for all goods from the EU will be:
Input VAT Goods Non EU = 0%
Output VAT Goods Non EU = 0%
• Tax rules relating to the provision of services will vary by country, please refer to the following link for specific rules based on the country the services are being provided to
Additional Tax Codes
Due to changes to the Parent Subsidiary Directive and Interest and Royalties Directive, Withholding Tax may be due on dividends, and on interest & royalty payments for licenses – please speak to your tax advisors on this matter and create relevant Withholding Tax codes as relevant.
Northern Ireland Protocol
Any goods traded between EU & Northern Ireland are still treated as an ‘intra-community’ supply, i.e. still treated as though they are part of the EU. This rule is referred to as the Northern Ireland Protocol and is valid until 31.12.2024.
• Intrastat and EC Sales List reports are still required for Imports / Exports and Sale of Goods to EU till 31.12.2024
• For Northern Ireland Customers / Vendors / Business Partners need to additionally populate the region field so that they can be identified as being based in Northern Ireland. The respective regions are:
These need to be manually created via OVK2 in Development and then transported into Production, once they have been transported to production the respective master records can be updated.
• New Northern Ireland VAT registration numbers needs to be maintained for Customers/Vendors/ Business Partners/Company Codes all based in Northern Ireland. This will be composed of digits from the GB VAT registration number but will be prefixed with ‘XI’ as opposed to GB – this will be held on the customer/vendor/business partner/company code in a new field (detailed below)
• For Customers/Vendors and Business Partners, the new VAT Number will be created in a new field Tax Number 6 (STCD6) (SAP ECC) or Tax Category GB6 (SAP S/4HANA)– these fields are only available once the OSS notes detailed at the end of this blog have been implemented
• For a Company Code based in Northern Ireland, a new parameter field should be populated with the new VAT registration number in OBY6 – Additional Data (parameter value field XIVATN) – this field is only available once the OSS notes detailed at the end of this blog have been implemented
• Intercompany tax code determination (Transaction – OBCD):
- Update the tax determination for transactions between EU / GB so that correct tax code is determined for transfer of goods between an EU based company code and UK based company code or vice versa (i.e. update the Tax code for EU Company Code to GB Company Code for goods to be ‘Input VAT Non-EU – 0%’ and vice-versa)
- In relation to services, refer to the link for the specific country guidelines provided above, or seek guidance from your tax advisors
- Update for goods between EU / GB + NI Region(note that the OSS note indicated at the end of the blog provides additional consideration of region for NI) to determine ‘Input VAT EU Goods – 0%’)
• Check the tax classification for materials so that the material is accurately classified as either goods or services
• Note that SAP recommends that invoices for goods and services are separated where they fall under the NI protocol (i.e. where Country Code = ‘GB’ and Region is one of the NI ones specified above)
Check the output forms and EDI formats and perform the required changes, if there are any and also adapt legal texts for “Intra-Community Supply (§4 Nr. 1b UStG)” and “Intra-Community Triangulation (§ 25b UstG.)”, if needed
• Plants Abroad – Please refer to OSS note 3000315 – BREXIT – Consequences for Plants Abroad / WIA (SD) and also consult with your tax advisors
Key SAP OSS notes
• For the new Tax Number 6 / Tax Category field apply OSS notes 2998790, 2998897, 2999507, 2999508
• Note OSS note 3001331 required if either DEBMAS/CREMAS idocs are used for customer/vendor master data updates – note that this can only be implemented if at minimum SAP_BASIS 740 SP 12 is implemented since it relies on basis features delivered within SAP Note 2138450
• Additionally follow by OSS notes 2998910, 2999119, 3006827, 3000100 & 3002377
• For Logistics Invoice Verification apply OSS note 2999833 + 2999842 + 3002533 (DDIC Objects for 2999842)
• For Sales apply OSS note 3004088 + 3005147 (OSS Note 3000100 is a pre-requisite) Note: Service delivery between the EU and Northern Ireland will be treated as taxable, and a VAT registration number should not be determined
• Plants Abroad – Please refer to OSS note 3000315
If any of the recommendations listed above has given you something to consider, or you’re considering the impact of Brexit on your SAP system, then itelligence can help.
Please raise a ticket initially via the portal so we can capture that question or request.
Remember to check back regularly for the next in our Blog series on Brexit and your SAP system.