Types of Taxation
There are basically two types of taxation that can be processed in the SAP System:
Combination types or taxation are also possible.
Taxes at Federal Level
In most European states, in South Africa, and in Australia, for example, taxes are levied by a federal authority. Tax percentage rates are defined at federal level and local differences do not exist.
Taxes Below Federal Level
In other countries, taxes are levied at local level when goods are sold (USA and Brazil, for example). The local tax authorities can exist at state level, county level, or town level. Taxes can be levied at lower levels again, such as fire department district, school district, local traffic area. Such taxes are then paid directly to these tax authorities. In some cases, however, these taxes are also payable to higher-level tax authorities, in which case they are apportioned between the two levels.
Sales taxes are a typical example of tax below federal level. Since sales tax usually consists of several levels, it is processed using a tax jurisdiction code in addition to the tax code.
Interface to External Tax Calculation Programs for Taxes Below Federal Level
Taxes below federal level are usually made up of several levels. In the USA in particular, up to six different taxes are possible in parallel resulting in tax scenarios with more than 50,000 tax jurisdictions for which time-dependent tax percentage rates must be maintained, taxes paid periodically, and to which tax revenues must be reported. These factors make maintaining tax percentage rates manually or communicating with tax authorities very time-consuming, since formats can vary from authority to authority. However, software products are available that are tailored to these scenarios, allowing taxes to be calculated, reported, and paid where such special rules apply. In addition, the companies that provide these products keep their customers up-to-date concerning changes to percentage rates and calculation types, thereby reducing manual maintenance time considerably, especially for companies that offer direct sales or have a large number of organizational units in different locations. For these reasons, SAP supports generic interfaces to such systems. These interfaces provide all the necessary data at the appropriate points. Data transfers that are tailored to individual taxation systems must however be created within a particular project. These interfaces enable both the jurisdiction code for an organizational unit and the taxes to be determined externally and with reference to the transaction.
Combination Types of Taxation
In some countries, such as Canada, India, and Brazil, taxes are levied both at and below federal level. In these countries, purchase tax is usually levied at federal level and sales tax at local level.
In Canada, for example, GST is a tax on sales and purchases at federal level, whereas PST or QST is a province tax, the percentage rate and basis of calculation varying from province to province.
These different international requirements can be handled by the Accounts Payable (FI-AP), Accounts Receivable (FI-AR), and General Ledger (FI-GL) application components. You customize your system to meet the relevant legal requirements of a country using the Implementation Guide, and you will normally be able to copy most of the specifications in the standard system.
For information on handling tax on sales/purchases within the European single market, seeEuropean Single Market and VAT Processing.
The document FI - Closing Operations and Reporting contains information on making tax returns and on creating the tax overview of withholding tax that must be sent to vendors.