Creating Custom Tax Classifications for Customers and Materials in Sales

Objectives

After completing this lesson, you will be able to:

  • Create new tax classifications

Custom Tax Classifications for Customers and Materials in Sales

Business Example

John is a business process configuration expert who takes care of the sales tax configuration for his company. Until now, changes in tax relevance for customers and materials (for example, due to fiscal legal changes) required John to request expert configuration from SAP. SAP experts then made the required changes by creating new tax classifications in the system.

With the current release, the following configuration activities have been enhanced to enable John to create custom tax classifications for customers and materials by himself:

  • Maintain Tax Relevance for Customers (ID: 106589)
  • Maintain Tax Relevance for Materials (ID: 106590)

If you are using SAP Central Business Configuration as your configuration environment, this change empowers your company to maintain this important aspect of tax configuration yourself whenever it is required, without relying on SAP for updated configuration.

You use tax classifications in customer and material (that is, product) master data to classify the tax relevance of the corresponding customers and materials. Tax classifications are always defined for specific tax condition types representing tax regulations in various countries. For example,

  • Customer tax classification 1 for tax condition type TTX1 (representing tax regulations in Germany) indicates that a customer is liable for taxes.
  • Material tax classification 2 for tax condition type TTX1 indicates that the material is subject to reduced tax.

The system typically uses these classifications to determine the tax rates that must be applied for business transactions involving the customers and materials to which the tax classifications are assigned in master data.

Note that other variables also affect tax determination. These typically include the tax classification of the sold material, the tax departure country/region, and the tax destination country/region of the business transaction.

Configuration Environment

Note
You can only use the enhanced configuration activities to create custom tax classifications if your configuration environment is SAP Central Business Configuration.

If you are using the Manage Your Solution app as your configuration environment, you can only change the textual descriptions of existing tax classifications. This is the same functional scope as in previous releases.

For more information about your configuration environment, see Configuration Environment of SAP S/4HANA Cloud.

System Scoping

During system scoping, SAP loads your system with predefined pairs of tax condition types and customer tax classifications. This predefined configuration content should cover the most common tax requirements in the countries/regions that are scoped for your system.

You should only create new tax classifications if the standard tax configuration content for your scoped countries/regions doesn't fulfill your business requirements.

You can only create new tax classifications for tax condition types representing tax regulations in countries/regions that have been scoped for your system. The list of available tax condition types is restricted accordingly. For example, the TTX1 condition type represents tax regulations in Germany. You can only create tax classifications for the TTX1 condition type if Germany has been scoped for your system. If Germany has not been scoped for your system, the TTX1 condition type is not available.

Creating new tax classifications for customers and materials - how to find the configuration activities:

  1. In the Project Experience within SAP Central Business Configuration, go to Configuration Activities.
  2. Search for maintain tax relevance.
  3. The system will find the two activities that you can see in the screenshot above.
  4. From here you can open the documentation and launch the configuration activities.

How to use the configuration activities

Both configuration activities are structured identically, but one is for managing tax classifications for customers, and one for materials (that is, products).

Each row in the table maps a tax classification to a tax condition type. Tax condition types represent tax regulations in countries/regions that have been scoped for your system.

When a business transaction is initiated from a given country/region, the system uses the corresponding tax condition type to determine the correct taxes within the related sales documents and billing documents during pricing.

If the standard tax configuration content for your scoped countries/regions doesn't fulfill your business requirements, you can do the following to create new material tax classifications for the tax condition types in your system:

  1. You can create new entries from scratch by entering the relevant tax condition type, material tax classification, and a corresponding description in the newly created row.
  2. You can copy existing entries and adapt them as needed.

How to create a new tax classification

When you create a new entry, you must enter the three pieces of data indicated in the screenshot:

  1. Select the tax condition type for which you want the tax classification to be valid. The list of available tax condition types is restricted according to the countries/regions that have been scoped for your system.
  2. Enter the tax classification indicator that you want to use for your new tax classification. It must be a single alphanumeric character, for example, "1", "A", or "X".
  3. Enter a textual description for the new tax classification, for example, "Tax Exempt".
  4. Save your changes.

You can then define the tax relevance of a specific customer or material (that is, product) by assigning the required tax classification to the corresponding tax condition type within the relevant master record.

You can do this in the Maintain Business Partner and Manage Product Master Data apps, respectively.

During system scoping, SAP loads your system with predefined pairs of tax condition types and tax classifications. This predefined configuration content should cover the most common tax requirements in the countries/regions that are scoped for your system.

However, it's your company's responsibility to continually ensure legal compliance with the tax regulations in the scoped countries/regions.

This includes updating your tax configuration (including tax classifications) when it becomes necessary.

In previous releases, SAP regularly provided up-to-date tax configuration as part of its reference configuration content. As of SAP S/4HANA Cloud 2402, SAP will no longer provide such updates.

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