Setting Up Tax Codes

Max is now looking at the impact on the tax accounting of the new travel expense procedure.

Let's talk about taxes, a basic legal requirement in tax reporting. We need to tell the difference between 'input tax' and 'output tax'. Simply put, input tax usually means the taxes we pay to our suppliers. On the other hand, output tax refers to the taxes we collect from our customers.

In the master data of the general ledger account, you can define tax accounts or accounts to which tax items are posted. You can do this in the Tax Category field by using the 'less than' and 'more than' symbols.

During the accounting journal entry process, the properties of the tax code used will define the tax posted as an input tax or an output tax.

All other G/L accounts may have one of the following entries in the Tax Category field:

The tax procedure of SAP S/4HANA supports the accounting of taxes in several ways:

• The tax amount can be determined upon request.

• The tax amount is verified by the system at the document level.

• The tax accounting postings are generated automatically to the tax accounts.

• Taxes can be adjusted automatically for cash discounts and other deductions if required.

• The tax reporting is supported.

To enter the tax in a journal entry and calculate it automatically, you need a tax code.

When an accounting document is posted, depending on the G/L accounts used, the system checks if it's necessary to enter tax codes. The tax code connects the document to the tax calculation. In addition to other information, the tax code also contains tax rates. Tax rates are assigned to the tax types used in the calculation procedure.

Usually, each tax code requires just one tax rate. However, for more complex cases, it’s possible to set up a tax code with several tax rates for different tax types.

For example, let's say there's a tax code calculation of 10% input tax on an item, where 40% of the tax amount is non-deductible. In this situation, the tax code will have 6% standard input tax rate and 4% non-deductible input tax rate.

SAP S/4HANA provides several pre-delivered tax codes. You can check the relevant Accelerators in the Best Practice Explorer at:

 SAP Best Practices for SAP S/4HANA Cloud

In certain countries or regions, time-dependent tax calculation (TDT) is available. When you turn on this feature, certain tax rates are applied during defined periods. This method helps to easily accommodate any current or upcoming tax rate changes.

Usually, adjusting tax rates involves creating new tax codes and managing multiple tables. However, in countries where time-dependent tax calculation is available, the process is made simpler and only involves maintaining existing tax rates.

When you get notifications about rate changes, you can add a new validity period to your current tax codes. As soon as the revised tax rate becomes effective, all line-item-related tax calculations will automatically use the correct rate. TDT not only reduces your tax rate maintenance efforts but also lowers the risk of discrepancies between your sales and finance documents.

You can find the current list of countries and regions where time-dependent-taxes are enabled in the SAP Help portal: Countries/Regions Where Time-Dependent Taxes is Enabled - SAP Help Portal

Once time-dependent taxes (TDT) are active for a target country or region, you should consider using the Maintain Tax Box Mapping for Advanced Tax Return configuration activity. This will help you manage the box mappings, tax groups, and tax box structures. This step may not be necessary or available, depending on the local tax requirements. Ensure you determine whether this step is indeed necessary for your unique situation.