External Tax Calculation in SAP 4.6C Configuration Guide Revised 2

External Tax Calculation in SAP R/3 4.
6C
Configuration Guide
CONTENTS
I INTRODUCTION...........................................................................8
II GENERAL.....................................................................................8
II.1 TYPES OF TAXATION IN SAP...................................................................................8
II.1.1 Taxes at Federal Level.................................................................................8
II.1.2 Taxes Below Federal Level..........................................................................8
II.1.2.1 Interface to External Tax Calculation Programs for Taxes Below
Federal Level........................................................................................................ 8
II.1.3 Combination Types of Taxation....................................................................9
II.2 TAX TYPES IN SAP.................................................................................................9
II.2.1 General.......................................................................................................9
II.2.2 Tax Types...................................................................................................9
II.2.2.1 Tax on Sales and Purchases.............................................................10
II.2.2.2 Sales Tax..........................................................................................10
II.2.2.3 Additional Tax....................................................................................10
II.2.2.4 Withholding Tax.................................................................................10
II.3 TAX CATEGORIES IN SAP.....................................................................................10
II.3.1 Tax Categories in Sales and Distribution.....................................................10
II.4 TAX CODES IN SAP..............................................................................................11
II.4.1 Tax Codes in Sales and Distribution...........................................................11
II.4.2 Tax Codes in MM......................................................................................11
II.5 TAX CLASSIFICATION IN SAP................................................................................11
II.5.1 Tax Classification in SD.............................................................................11
II.5.2 Tax Classification in MM............................................................................11
II.5.3 Tax Classification Indicator for Material.......................................................12
II.5.4 Tax Classification Indicator for Plant...........................................................12
II.5.5 Tax Classification Indicator for Account Assignment....................................12
III TAX CALCULATION PROCESSES IN SAP..............................13
III.1 STANDARD SAP NON-JURISDICTIONAL TAXES ON SALES AND PURCHASES.............13
III.1.1 Tax Calculation Process in SD (for all sales document types)......................13
III.1.1.1 Example: Tax Calculation in a Sales Order.......................................13
III.1.2 Tax Determination Process for Billing Documents in SD..............................16
III.1.3 Tax Calculation Process in MM (for all purchasing document types)............18
III.1.4 Example: Tax Calculation in a Purchasing Order.........................................19
III.1.5 Tax Determination Process in FI.................................................................20
III.1.5.1 Example: Tax Calculation in Logistics Invoice Verification.................20
III.1.5.2 Example: Tax Calculation in Document Entry in Accounting for
Accounts Payable................................................................................................22
III.1.5.3 Example: Tax calculation in Document Entry in Accounting for
Accounts Receivable...........................................................................................23
III.2 STANDARD SAP JURISDICTIONAL SALES & USE TAXES.........................................24
III.2.1 Tax Calculation Process with Jurisdiction Code in SD.................................24
III.2.2 Example: Tax Calculation in a Sales Order.................................................25
III.2.2.1 Tax Determination Process with Jurisdiction Code for Billing
Documents in SD................................................................................................27
III.2.3 Tax Calculation Process in MM (for all purchasing document types)............29
III.2.4 Tax Determination Process with Jurisdiction Code in FI for MM...................30
III.3 STANDARD SAP TAX INTERFACE TO 3RD PARTY EXTERNAL TAX PACKAGES..........31
III.3.1 General.....................................................................................................31
III.3.2 Example of Pricing Procedure for External Tax Calculation:.........................32
III.3.3 External Tax Calculation Process in SD (for all sales document types).........33
III.3.3.1 Example: External tax Calculation in a Sales Order...........................33
III.4 EXTERNAL TAX DETERMINATION PROCESS FOR BILLING DOCUMENTS IN SD..............37
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III.4.1 External Tax Calculation Process in MM (for all purchasing document types)
38
III.4.1.1 Example: External Tax Calculation in a Purchasing Order................40
III.4.2 External Tax Determination Process in FI...................................................41
III.4.2.1 Example: External Tax Calculation in Logistics Invoice Verification...41
Accounts Payable................................................................................................43
Accounts Receivable...........................................................................................45
IV SETTING UP SAP......................................................................46
IV.1 GENERAL..............................................................................................................46
IV.2 REQUIRED CONFIGURATION STEPS........................................................................47
IV.2.1 Configuring the Communication.................................................................47
IV.2.1.1 Testing the RFC Destination and External System Tax Data Retrieval
48
IV.2.2 Defining Access Sequence and Condition Types for Pricing and Tax
Procedures..............................................................................................................49
IV.2.2.1 Defining Simplified Access Sequence for SD Pricing Procedure.......49
IV.2.2.2 Defining Condition Types for SD Pricing Procedure..........................53
IV.2.2.2.1 Defining Condition Type ZDED for SD Pricing Procedure.............................53
IV.2.2.2.2 Defining Condition Type ZDEE for SD Pricing Procedure..............................54
IV.2.2.2.3 Defining Condition Type ZTR1 for SD Pricing Procedure..............................55
IV.2.2.3 Defining Condition Types for MM Pricing Procedure.........................56
IV.2.2.3.1 Defining Condition Types for Tax Calculation Procedure for MM and FI........57
IV.2.2.3.2 Defining Condition Type ZTX1 for Output Tax in Tax Procedure for MM and FI
58
IV.2.2.3.3 Defining Condition Type ZIN1 for Input Tax in Tax Procedure for MM and FI. 59
IV.2.3 Defining Procedures for External Tax Calculation........................................60
IV.2.3.1 Defining SD Pricing Procedure for External Tax Calculation..............60
IV.2.3.2 Defining Tax Procedure (for MM and FI) for External Tax Calculation
61
IV.2.4 Define Pricing/Tax Procedure Determination for External Tax Calculation....62
IV.2.4.1 Define Pricing Procedure Determination for External Tax Calculation
in SD 62
IV.2.4.2 Define Tax Procedure Determination for External Tax Calculation in
MM/FI 63
IV.2.5 Tax Jurisdiction Codes...............................................................................64
IV.2.5.1 Specify Structure for Tax Jurisdiction Code.......................................64
IV.2.5.2 Define Tax Jurisdictions.....................................................................65
IV.2.6 Activating the Tax Interface System............................................................65
IV.2.7 Configuring the External Tax Document......................................................66
IV.2.7.1 Define Number Ranges for External Tax Documents........................66
IV.2.7.2 Activating External Updating..............................................................66
IV.2.8 Customer/Material Master Data Tax Classification Indicators.......................67
IV.2.8.1 Tax Determination Rule (Tax by Country Configuration)...................67
IV.2.8.1.1 Master Data Maintenance / Customer Master Data Configuration.................68
IV.2.8.1.2 Master Data Maintenance / Material Master Data Configuration for SD.........71
IV.2.9 Tax Codes and Condition Records in SD Pricing Procedure........................74
IV.2.9.1 Tax Codes in SD...............................................................................74
IV.2.9.2 Condition records in SD Pricing Procedure........................................75
IV.2.10 Assign Delivering Plants for Tax Determination.......................................76
IV.2.11 Tax Calculation in MM and FI:.................................................................77
IV.2.11.1 FI Condition Records / Tax Codes....................................................77
IV.2.12 Tax Calculation Procedure in MM...........................................................79
IV.2.12.1 Material Master Configuration (MM)..................................................79
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IV.2.12.2 Define Tax Classification Indicators for Plant (MM)...........................79
IV.2.12.3 Assign Tax Classification Indicators to Plant (MM)............................80
IV.2.12.4 Define Tax Classification Indicators for Account Assignment (MM)...80
IV.2.12.5 Assign Tax Classification Indicators for Account Assignments (MM).81
IV.2.13 MM Condition Record Maintenance........................................................82
IV.2.13.1 Condition Record Maintenance.........................................................83
V APPENDIX..................................................................................85
V.1 CREATING AND MAINTAINING SAP TABLE FOR DOCUMENT CREDIT INDICATOR........85
V.2 EXAMPLES FOR EXTERNAL TAX CALCULATION IN OTHER SD DOCUMENTS...............86
V.2.1 Inquiry.......................................................................................................86
V.2.2 Quotation...................................................................................................88
V.2.3 Scheduling Agreement...............................................................................90
V.2.4 Quantity and Value Contracts....................................................................92
V.2.4.1 Quantity Contract...............................................................................92
V.2.4.1.1 Create Sales Order (call off) with reference to Quantity Contract....................93
V.2.4.2 Value Contract...................................................................................95
V.2.4.2.1 Create Sales Order with reference to Value Contract.....................................96
V.2.5 Create Billing...........................................................................................100
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I Introduction
The focus of this document is external Tax Calculation in SAP. This document should give an answer
to the following questions:
 How does standard tax calculation work in SAP?

 How does external tax calculation work in SAP?
 How do you switch tax calculation on in customizing?
 How do you enhance the existing tax interface so that it can be used for External Tax
Calculation?
 What is the External Tax Calculation line and what are the enhancements?
All the relevant customizing transactions for the needed functionality are described, and examples how
the system could be set up are shown.
Furthermore there are many examples in the appendix with screen shots for sales, purchasing and
accounting documents.
II General
II.1 Types of Taxation in SAP
Basically two types of taxation can be processed in the SAP System:
 Taxes at federal level/national level

 Taxes below federal level/at regional level
Combination types of taxation are also possible.
II.1.1 Taxes at Federal Level

In most European states, in South Africa and in Australia, taxes are levied by a federal authority. Tax
percentage rates are defined at federal level and local differences do not exist.
II.1.2 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. Sales taxes are a typical
example of tax below federal level. Since the sales tax usually consists of several levels, it is
processed using a tax jurisdiction code in addition to the tax code.
II.1.2.1 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 67,000 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.
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II.1.3 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 the purchase tax is usually levied at federal level and the 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.
II.2 Tax Types in SAP
II.2.1 General
SAP System can manage various types of tax according to the legal requirements of a country or a
region. The Financial Accounting components Accounts Receivable (FI-AR), Accounts Payable
(FI/AP), and General Ledger provide the following comprehensive tax functions:
 Tax calculation
The system calculates tax amounts with or without cash discount based on the tax base
amount. Tax codes are used to calculate and check the amounts.
 Tax posting
The system posts the tax amounts to defined tax accounts.
 Adjustments
The system corrects tax amounts, in the case of cash discount or other deductions, for example.
 Tax reporting
The system could be used to create tax returns.
II.2.2 Tax Types

The SAP System supports the following tax types for calculating, posting, and correcting tax, as well
as for tax reporting:
 Tax on sales and purchases

 Sales tax
 Additional tax
 Withholding tax
Taxes on sales and purchases, sales taxes and additional taxes are determined and calculated using
condition methods. For the calculation, the system requires details of the calculation procedure, the
tax code, the jurisdiction code if applicable, and so on. These taxes are posted when the documents
are processed.
Withholding tax, by contrast, is not calculated using condition methods, nor is it posted during
document processing. Withholding tax is not considered until the outgoing payment is made.
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II.2.2.1 Tax on Sales and Purchases
Taxes on sales and purchases are levied on every sales transaction in accordance with the principles
of VAT (Value Added Tax). This applies to output and input tax, for example.
 Output tax is calculated using the net price of products and is charged to the customer.
 Input tax is calculated using the net invoice amount and is charged by the vendor.
The input tax can be completely or partially non-deductible. This part cannot be claimed from the tax
office. The amount can be posted to a separate expense account, or it can be distributed to the G/L
account and asset line items.
II.2.2.2 Sales Tax

An example of sales tax is the sales and use tax that exists in the USA. Sales transactions that are
taxed must be kept strictly separate from sales transactions that are not taxed.
In general, goods that are intended for production or for resale to a third party are procured untaxed;
that is, the vendor does not calculate tax on the sale of these goods (sales tax). Procurement
transactions for individual consumption, on the other hand, are taxable (use tax).
The principle of sales tax does not permit the option of offsetting input tax against output tax. The
vendor must pay the taxes to the tax authorities.
The system calculates sales tax based on material and customer location and posts it in Sales and
Distribution (SD) and Materials Management (MM). If customers or vendors are exempt from taxation,
this could be specified in their master records by entering the appropriate indicator.
II.2.2.3 Additional Tax

Additional taxes are taxes that are posted in addition to tax on sales/purchases. They are usually
country-specific, such as investment tax in Norway, or sales equalization tax in Belgium.
II.2.2.4 Withholding Tax

In some countries a portion of the invoice amount must be withheld for certain vendors and paid or
reported directly to the tax authorities.
II.3 Tax Categories in SAP
II.3.1 Tax Categories in Sales and Distribution

The tax category identifies the condition that the system uses to determine country-specific taxes
automatically during pricing.
A tax category has to be defined by departure country. Allowable departure country is the plant’s
country and/or the company code’s country.
In Germany, for example, a tax category for Value Added Tax (MWST) could be defined.
The tax category allows tax classification to be entered in the customer master and material master.
The tax category displayed in the customer master record depends on:
 The customer sales organization’s company code country.
 The country of each plant assigned to that sales organization.
The tax category displayed in the material master record depends on:
 The material sales organization’s company code country.
 The country of each plant assigned to that sales organization.
II.4 Tax Codes in SAP
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Tax code is a two-digit code and is used to:
 Check the tax on sales/purchases amount in the document

 Calculate the amount of tax on sales/purchases automatically on request
 Calculate the non-deductible input tax portion
 Check if a tax account with tax type (input or output tax) can be posted to
 Determine the tax account.
Important! Tax codes are the link between pricing procedure and tax procedure.
II.4.1 Tax Codes in Sales and Distribution

Tax codes contain properties that are relevant for correct tax calculation for example within the
external tax system. First, the tax category needs to be defined for the country, followed by the
configuration of possible tax classifications for customer and material master files. Finally, the allowed
tax classifications can be entered in the master files themselves.
II.4.2 Tax Codes in MM

Tax codes can be automatically derived from material, plant and account assignment for purchasing
transactions. Tax classification must be maintained to determine the tax codes. The tax code can be
overwritten within the purchase order (item details) and the invoice verification document.
II.5 Tax Classification in SAP
II.5.1 Tax Classification in SD

Specifies the tax liability of the customer based on the tax structure of the customer's country.
You can use the tax classification to specify, for example, whether a customer is liable for sales taxes,
such as VAT or state sales taxes.
During sales order processing, the system copies the tax classification from the tax information stored
in the
 customer master record of the payer, if the payer is different from the sold-to party and the
sales tax identification number is maintained for the payer.
 ship-to party, if the sales tax identification number of the ship-to party is maintained.
 sold-to party, if none of the criteria for the payer or the ship-to party are met.
During pricing, the system calculates any relevant taxes by taking the following factors into account:
 The tax classification of the customer and the material.

 The country keys of the customer and the delivering plant.
II.5.2 Tax Classification in MM

For the purposes of automatic tax code determination, tax indicators derived from the material master
record, customizing, or the purchasing document are used. The system determines the tax code on
the basis of the combination of these tax indicators.
There are tax indicators at the levels "material", "plant" and "account assignment category".
In addition, there are two tax indicators that are derived from the purchasing document:
 Country of origin and country of destination differ.
 Region of origin and region of destination differ.
II.5.3 Tax Classification Indicator for Material

The tax classification indicator for material with which the system determines output tax for the
material when processing sales and distribution-specific documents.
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II.5.4 Tax Classification Indicator for Plant
The tax indicator is used in the automatic determination of the tax code in purchasing. If you have
some plants that are liable to tax and others that are not, you can define two tax indicators with the aid
of which different tax codes can be determined.
II.5.5 Tax Classification Indicator for Account Assignment

The tax indicator is used in the automatic determination of the tax indicator in Purchasing.
If you have taxable and non-taxable account assignments, you can define two tax indicators with the
aid of which different tax codes can be determined.
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III Tax Calculation Processes in SAP
SAP offers three standard methods to compute taxes on sales and purchases or sales and use taxes.
 Standard SAP Non-Jurisdictional taxes on sales and purchases

 Standard SAP Jurisdictional Sales & Use Taxes
 Standard SAP Tax Interface to 3rd party external tax packages.
III.1 Standard SAP Non-Jurisdictional Taxes on Sales and Purchases
III.1.1 Tax Calculation Process in SD (for all sales document types)
SD requires that sales documents (Inquiries, Quotations, Sales Orders, Delivery Agreements and
Contracts) and invoices reflect the tax applicability of each item and compute the total tax due on each
line item within the sales document. Appropriate tax amounts and tax rates are determined for sales
documents and invoices.
Several parameters influence the tax amounts and tax rates determination. The most important ones
are: the delivering country (origin), the tax classification of the ship-to partner, the tax classification of
the material being shipped, the tax calculation date and if necessary the jurisdiction codes from the
ship-to party (customer), ship-from address (plant), point of order acceptance and point of order origin.
Please note that SAP defaults the ship-from maintained on the plant as the point of order acceptance,
and defaults the ship-to maintained on the customer as the point of order origin.
III.1.1.1 Example: Tax Calculation in a Sales Order

As an example the following will show how tax calculation is performed within a Sales Order in
Standard SAP.
Menu Path: Logistics > Sales and Distribution > Sales > Order > Create/Change
Transaction : VA01 create/ VA02 change
Header & Item data of sales order:
aterial TAXTEST_001 are ordered by the customer 1 who is in the same country as the delivery plant.
The tax in SD is calculated in the pricing procedures of sales documents.

A pricing procedure might consist of several condition types. If a condition type is activated during the
pricing procedure execution, the condition type might return an amount back, i.e. material price,
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discount, surcharge, freight, tax amount, etc. which in turn, might be part of the total item sales price
depending on the condition type customizing set up.
There are several ways to activate a condition type within a pricing procedure. One approach is using
condition records. The parameters of a condition record are defined in the access sequence for the
condition type. When the condition record is being read, it usually returns a value for its condition type
in the pricing procedure. This value can be defined during the condition record maintenance or
determined using condition value formula configured in the pricing procedure.
ondition type for tax (MWST). The condition table to this condition type defines the tax rate for the document.
condition type MWST defined. The actual tax rate for a document is determined via a condition record for that condition type.
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Evaluated conditions for condition record MWST
condition record found for condition type MWST.

mined from the country, customer and material tax classification indicator.
on record carries a tax rate and a tax key – which controls the accounting.
Condition record for condition type MWST
ndition record was shown how it could be seen from the sales order.
nition of the condition record can be seen.
e tax code and the account key assigned to that condition record can be seen.
A1
The definition of the tax code contains the FI condition records that control the accounting.
Below the definition of the tax code A1 can be seen.
Definition of tax code A1
This means that when the FI document is created 16% of the base amount will be posted to the account assigned to MWS.
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III.1.2 Tax Determination Process for Billing Documents in SD
Billing represents the final processing stage for a business transaction in Sales and Distribution.
Invoices, credit memos, debit memos, pro forma invoices and cancellation will be created, changed or
deleted during billing processing.
Deliveries and services which are carried out on the basis of sales orders have to be invoiced to the
customer. The most frequently used billing document, Invoice, is normally created with reference to
either a sales order or a delivery.
During billing processing the tax is calculated in the same pricing procedure of the referred sales
document.
s that the same pricing procedure RVAA01 as has been used for sales order creating also is used for billings.
When creating a billing document, the billing data is forwarded to Financial Accounting and the
corresponding accounts will be posted automatically.
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Menu Path: Logistics > Sales and Distribution > Billing > Billing Document > Create/Change
Transaction: VF01 create/VF02 change
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III.1.3 Tax Calculation Process in MM (for all purchasing document types)
During the purchasing document creation process (purchase order, contract, scheduling agreement)
a price determination process (e.g. standard calculation schema RM0000) is executed.
This calculation schema has no tax condition types for deductible input taxes but for non-deductible
taxes NAVS and NAVM. Non-deductible tax portions are displayed in the conditions and taken into
account in material valuation.
For purchasing (and FI) transactions tax determination for deductible taxes makes use of a tax
calculation procedure instead of a pricing procedure. Tax procedure also uses the condition
techniques.
Tax procedure also determines the G/L (tax liability) accounts to which the tax amounts are to be
posted to accounting.
The relevant tax rate is taken into consideration in the PO automatically. The tax rate is derived from
the key in the Taxes field in the relevant PO item.
The tax code is suggested at the time of invoice verification. You can thus check the vendor’s net price
when the invoice is received.
How the tax amount was calculated in the item conditions from within a PO, a quotation, or an outline
agreement could be determined as follows (this function can only be performed in the case of items
having a valid tax key.):
 Select an item on the item overview screen.

 Choose the Tabstrip Invoice.
The system lists all amounts and condition types included in the calculation of the tax amount. The
condition types and their amounts are determined from the tax calculation schema defined for your
country in Customizing.
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III.1.4 Example: Tax Calculation in a Purchasing Order
The following example will show how tax calculation is performed within a Purchasing Order in
Standard SAP.
Menu Path: Logistics > Materials Management > Purchasing > Purchase Order > Create/Change
Transaction: ME21N create/ ME22N change (old: ME21 create/ ME22 change)
Header & Item data of purchase order:
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III.1.5 Tax Determination Process in FI
As mentioned before for FI transactions (Accounts Receivable Document Entry, Accounts Payable
Document Entry, Logistics Invoice Verification) tax calculation makes use of a tax calculation
procedure (e.g. standard tax calculation procedure TAXD for Germany).
III.1.5.1 Example: Tax Calculation in Logistics Invoice Verification

The following example with reference to a purchasing order will show how tax calculation is performed
within a Logistics Invoice Verification in Standard SAP.
Menu Path: Logistics > Materials Management > Logistics Invoice Verification > Document Entry
> Enter Invoice
Transaction: MIRO
With selecting the Tabstrip Tax respectively G/L account Tabstrip we can see the tax or account data.
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The item conditions (pricing) could be shown with double click on line item.
ws that the same pricing procedure RM0000 as has been used for purchase order creating also is used here.
The tax calculation however is based on standard tax calculation procedure TAXD for Germany.
III.1.5.2 Example: Tax Calculation in Document Entry in Accounting for Accounts Payable
An incoming invoice (an invoice or a credit memo), a document from an invoicing party containing the
payments to be made based on business transactions performed in Purchasing and Inventory
Management could be entered as follows:
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Menu Path: Accounting > Financial Accounting > Accounts payable > Document Entry > Invoice
Transaction: FB60
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III.1.5.3 Example: Tax calculation in Document Entry in Accounting for Accounts Receivable
Analogous to the document entry in Accounting with Transaction FB60 for Accounts Payable is the
document entry for Accounts Receivable (Invoice to the customer for outbound deliveries due to sales
order, Billing).
Menu Path: Accounting > Financial Accounting > Accounts Receivable > Document Entry >
Invoice
Transaction: FB70
abstrip Tax the tax data can be seen.
n this example is based on standard tax calculation procedure TAXD for Germany.
III.2 Standard SAP Jurisdictional Sales & Use Taxes
In the USA, Brazil and some other countries, taxes are sometimes calculated using jurisdiction codes.
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A jurisdiction code is a key that in conjunction with the tax code, determines the amount of tax and the
breakdown of the total tax amount among the different tax authorities.
Due to the jurisdiction code structure a tax jurisdiction code contains several different components.
It can be subdivided into a maximum of four levels (for example, state/county/city/district). This way
the tax rate is defined per level and the tax value is calculated individually per level.
Example: Tax jurisdiction code with three levels 250221105

25 = State Code
022 = County Code
1105 = City Code
III.2.1 Tax Calculation Process with Jurisdiction Code in SD

The decisive difference between the standard SAP non-jurisdictional tax calculation on sales (Taxes at
Federal Level) and the standard SAP jurisdictional sales & use taxes sales (Taxes Below Federal
Level) is that up to four different tax amounts could be calculated individually per each level of
jurisdiction codes unlike one amount in non-jurisdictional tax calculation .
So the pricing procedure must have further condition types for these tax amounts.
A look on the standard pricing procedure with jurisdiction code for USA, RVAJUS, shows this clearly.
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III.2.2 Example: Tax Calculation in a Sales Order
As an example the following will show how tax calculation with jurisdiction codes is performed within a
Sales Order in Standard SAP.
Transaction: VA01 create/ VA02 change
Pricing for Item 10:
Due to the jurisdiction code structure (3 levels) and settings in our example the pricing procedure of
the document contains three condition type for tax (JR1, JR2 and JR3).
The pricing procedure used in this case is RVAJUS.
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For comparison here the Standard SAP Non-Jurisdictional tax calculation in SD:
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III.2.2.1 Tax Determination Process with Jurisdiction Code for Billing Documents in SD
Creating , changing or deleting of invoices, credit memos, debit memos, pro forma invoices and
cancellation will be processed during billing processing.
The tax is calculated in the same pricing procedure of the referred sales document.
In the following example it is RVAJUS.
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III.2.3 Tax Calculation Process in MM (for all purchasing document types)
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During the purchasing document creation process the price determination process RM0000) is
executed.
Unlike the tax calculation in SD the tax in MM is not calculated with the pricing procedure but with tax
calculation procedure, in this example with TAXUSJ.
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III.2.4 Tax Determination Process with Jurisdiction Code in FI for MM
As mentioned in III.1.4 for FI transactions (Accounts Receivable Document Entry, Accounts Payable
procedure (e.g. tax calculation procedure with jurisdiction TAXUSJ for US).
Tax calculation in Logistics Invoice Verification (Transaction MIRO) or Tax calculation in document
entry in Accounting for Accounts payable (Transaction FB60) is similar to 1.3.1. or 1.3.2.
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III.3 Standard SAP Tax Interface to 3rd Party External Tax Packages
III.3.1 General
SAP provides a Standard Tax Interface System, which is capable of passing all needed
data to an external tax system which calculates taxes and then returns these calculated results back to
SAP. This occurs during order and invoice processing out of SD, MM, and FI, to retrieve tax rates and
tax amounts.
As already shown in 1.1.1. the tax is calculated using a tax condition type MWST in the pricing
procedure.
In the following diagram can be seen how tax is calculated using external tax calculation.
During pricing a special conditions type is found that triggers a call to the external tax system. The
data for that item is then sent to the tax system – there the tax is calculated and finally the calculated
value is transferred back to the pricing procedure.
CreateSales
Create SalesOrder
Order
Additem
Add itemdata
data
(material no, quantity)
(material no, quantity)
Performpricing
Perform pricingfor
for
item.
item.
Callexternal
Call external
tax system.
tax system. Tax System
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Transfer calculated Last Updated 8/19/2006 10:59:00 AM
tax back to pricing.
tax back to pricing.
As of SAP R/3 release 4.6A, the Tax Per Document method is available. This method is important to
allow Max Tax calculation rules across multiple items to be applied for a SD document. Tax Per
Document is also important for performance reason: The RFC call made to the external tax system
happens only once for the entire document instead of for each line item.
Using the external tax calculation per document capability at least two condition types are needed
within the pricing procedure. In “plain” tax calculation the tax condition type fetches the actual tax rate
from a condition table.
III.3.2 Example of Pricing Procedure for External Tax Calculation:
The difference between the standard pricing procedure and the procedure for external tax calculation
is that the procedure for pricing with external tax calculation has three condition types assigned to the
calculation formulas 500, 501 and 301.
The pricing procedure ZTTAX for Germany is an example for external tax calculation.
During condition value formula 500, all document items will be collected and stored.
A pricing procedure that has this formula must also have formula 501 (as mentioned in documentation
in SAP include program FV64ANNN > FV64A500) and at least formula 301 for one tax amount or
formulas 301 to 306 for jurisdiction levels 1 to 6 if these are needed.
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After the tax relevant data is stored for all items, it will be passed to the external tax system for tax
calculation. The tax results from the external system will be distributed back to the corresponding item
through the condition value formula 501.
The condition value formulas 500 and 501 are able to operate accordingly because ZDED and ZDEE
in this example for pricing procedure ZTTAX are group conditions.
III.3.3 External Tax Calculation Process in SD (for all sales document types)
SD requires that sales documents (Inquiries, Quotations, Sales Orders, Delivery Agreements and
Contracts) and invoices reflect the tax applicability of each item and compute the total tax due on each
line item within the sales document. Appropriate tax amounts and tax rates are determined for sales
documents and invoices.
III.3.3.1 Example: External tax Calculation in a Sales Order

As an example the following will show how external tax calculation is performed within a Sales Order
in SAP.
Transaction: VA01 create/ VA02 change
In item 10 of this sales order 5000 pieces of material 1 are ordered by the customer 1 who is in the
same country as the delivery plant.
Selecting the item 10 and item conditions the price calculation for this item will be shown.
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Pricing for Item 10:
As explained in previous chapters the tax in SD is calculated in the pricing procedures of sales
documents. This is the case also here.
The pricing procedure of the document contains three condition types for external tax calculation.
NOTICE: During the Sales Order creating no tax calculation will be executed!
Due to this the fields “Tax Amount 1 Rate” and “Tax Amount Condition Value”
have not data yet.
The external tax calculation takes place when the sales order will be posted.
The pricing procedure used in this case is ZTTAX.
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dure of the document contains three condition types for external tax calculation.
As seen in III.1 (Standard SAP Non-Jurisdictional taxes on sales and purchases) the tax rate that is
determined in a pricing procedure depends on the condition record for the tax condition type in the
pricing procedure that is assigned to a document.
With external tax calculation the condition record is only needed to trigger external calculation
therefore the tax rate has to be 100%.
The tax rates will be than determined in the external tax system appropriately.
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The definition of the tax code, here DX, contains the FI condition records that control the accounting.
The tax code DX is assigned to the accounting key MWS. This means that when the FI document is
created 100% of the 16% (tax rate for example set for Germany in the external tax system) of the base
amount will be posted to the account assigned to MWS
Condition type ZDEE is not determined using condition records.
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III.4 External tax determination process for billing documents in SD
Creating , changing or deleting of invoices, credit memos, debit memos, pro forma invoices and
cancellation will be processed during billing processing.
The tax is calculated in the same pricing

procedure of the referred sales
document.
In this example it is ZTTAX.
I
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III.4.1 External Tax Calculation Process in MM (for all purchasing document types)
During the purchasing document creation process a price determination process e.g. standard
calculation schema RM0000 is executed.
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For purchasing (and FI) transactions tax determination for deductible taxes makes use of a tax
calculation procedure instead of a pricing procedure. Tax procedure also uses the condition
techniques.
Tax procedure also determines the G/L (tax liability) accounts to which the tax amounts are to be
posted to accounting.
The relevant tax rate is taken into consideration in the PO automatically. The tax rate is derived from
the key in the taxes field in the relevant PO item.
The tax code is suggested at the time of invoice verification. You can thus check the vendor’s net price
when the invoice is received.
How the tax amount was calculated in the item conditions from within a PO, a quotation, or an outline
agreement could be determined as follows (this function can only be performed in the case of items
having a valid tax key.):
 Select an item on the item overview screen (transaction ME22N or ME23N)

 Choose the Tabstrip Invoice.
The system lists all amounts and condition types included in the calculation of the tax amount. The
condition types and their amounts are determined from the tax calculation schema defined for your
country in Customizing.
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III.4.1.1 Example: External Tax Calculation in a Purchasing Order
The following example will show how tax calculation is performed within a Purchasing Order in
Standard SAP.
Menu Path: Logistics > Materials Management > Purchasing > Purchase Order > Create/Change
Transaction: ME21N create/ ME22N change (old: ME21 create/ ME22 change)
Header & Item data of purchase order:
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III.4.2 External Tax Determination Process in FI
As mentioned in III.1.5 for FI transactions (Accounts Receivable Document Entry, Accounts Payable
procedure (e.g. standard tax calculation procedure TAXD or external tax calculation procedure
TAXDEX for Germany).
III.4.2.1 Example: External Tax Calculation in Logistics Invoice Verification

The following example with reference to a purchasing order will show how tax calculation is performed
within a Logistics Invoice Verification with external tax system.
Menu Path: Logistics > Materials Management > Logistics Invoice Verification >
Document Entry > Enter Invoice/Display Invoice
Transaction: MIRO / MIR4
With selecting the Tabstrip Tax respectively G/L account Tabstrip we can see the tax or account data.
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The item conditions (pricing) could be shown with double click on line item
The analysis of the pricing shows that the

same pricing procedure RM0000 as has
been used for purchase order creating
also is used here.
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The tax calculation however is based on tax procedure TAXDEX for external tax calculation for
Germany.
III.4.2.2 Example: Tax Calculation in Document Entry in Accounting for Accounts Payable
An incoming invoice (an invoice or a credit memo), a document from an invoicing party containing the
payments to be made based on business transactions performed in Purchasing and Inventory
Management could be entered as follows:
Menu Path: Accounting > Financial Accounting > Accounts payable > Document Entry > Invoice
Transaction: FB60
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III.4.2.3 Example: Tax Calculation in Document Entry in Accounting for Accounts Receivable
Analogous to the document entry in Accounting with Transaction FB60 for Accounts Payable is the
document entry for Accounts Receivable (Invoice to the customer for outbound deliveries due to sales
order, Billing).
Menu Path: Accounting > Financial Accounting > Accounts Receivable > Document Entry Invoice
Transaction: FB70
e Tabstrip Tax the tax data can be seen.
on in this example is based on tax calculation procedure TAXDEX for Germany.
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IV Setting up SAP
IV.1 General
SAP will communicate with the external tax system using SAP RFC (Remote Function Calls) and
SAP tRFC (Transactional RFC). The RFC interface enables function calls between two SAP systems
(R/3 or R/2), or between a SAP system and an external one. This allows executing functions on
remote systems.
The remote system need not be available at the time when the RFC client program is executing a
tRFC. In R/3 Systems, the tRFC component stores the called RFC function together with the
corresponding data in the database, including a unique transaction identifier (TID). This ensures that
the called function module executed exactly once in the RFC server system.
In the system landscape provided at company level for external tax calculation tRFCs will be executed
between SAP and WAS.
SAP
SD 11
SAP
Connectivity
DATA WH
RF
SAP
SD 22
C
R
FC
SAP
SD 33 RFC WAS 6.20 HTTP TAXI
.
.
.
C
RF
Tax Calculation
Engine
C
SAP
FI1 4
RF
SAP
US15
In order for SAP Tax Interface System to work with an external tax package via WAS (Web Application
Server) and TAXI, the appropriate version of SAP’s certified tax partner’s API (Application
Programming Interface) must be installed at WAS. The current SAP-API interface version is
TAXDOC00.
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IV.2 Required Configuration Steps
In SAP a number of settings have to be maintained for external tax calculation. Some of these settings
are technical settings (like setup of the connection to the tax system), some of these are application
specific settings. The steps should be performed sequentially:
IV.2.1 Configuring the Communication
A RFC destination must be created which specifies the type of communication and the directory of the
executable program.
Menue Path: Tools > Administration > Network > RFC destinations
Transaction: SM59
In the example below the external tax package resides on a different server (WAS).
In the field program a script is specified that starts the RFC server (and sets some environment
variables before).
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IV.2.1.1 Testing the RFC Destination and External System Tax Data Retrieval
Using the button Test connection in the definition screen of the RFC destination the connection to the
external system could be tested.
If the test succeeded the result should
look like this:
If the first test succeeded then it should be tested if the RFC server can call the external tax system.
Calling the function modules e.g. RFC_CALCULATE_TAXES (transaction SE37) with the defined
destination and setting the relevant fields manually can do this.
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IV.2.2 Defining Access Sequence and Condition Types for Pricing and Tax Procedures
PRICE ELEMENTS ARE REPRESENTED IN THE SAP SYSTEM BY
CONDITION TYPES. PRICE ELEMENTS CAN BE, FOR EXAMPLE,
PRICES, SURCHARGES, DISCOUNTS, TAXES OR, FREIGHT, AND
ARE STORED IN THE SYSTEM IN CONDITION RECORDS. AN
ACCESS SEQUENCE IS A SEARCH STRATEGY BY MEANS OF
WHICH THE SYSTEM SEARCHES FOR VALID RECORDS IN
VARIOUS CONDITION TABLES.
IV.2.2.1 Defining Simplified Access Sequence for SD Pricing Procedure

As explained before tax calculation in SD document transactions, is processed within the pricing
procedure. A pricing procedure might consist of several condition types.
If a condition type is activated during the pricing procedure execution, the condition type might return
an amount back, i.e. material price, discount, surcharge, freight, tax amount, etc. which in turn, might
be part of the total item sales price depending on the condition type customizing set up.
There are several ways to activate a condition type within a pricing procedure.
One approach is using condition records. The parameters of a condition record are defined in the
access sequence for the condition type. When the condition record is being read, it usually returns a
value for its condition type in the pricing procedure. This value can be defined during the condition
record maintenance or determined using condition value formula configured in the pricing procedure.
A frequently used SAP standard access sequence for tax condition types is MWST. It is delivered with
3 access numbers:
IMG Path : Sales and Distribution > Basic functions > Pricing > Pricing control > Define
access sequences
Transaction: V/07
1. Access number 8 with the following access (defined in condition table 78 = A078):
Departure Country / Destination Country
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Country/ Customer Classif.1/ Material Classification 1
Country/ Destination Country/ Customer Classif.1/ Material Classification 1
Using this access sequence require a lot of different condition types to be maintained.
The first key field in all 3 condition tables (78, 2 and 11) is ALAND.
Here is a proposal how to simplify the access sequence so that only very few condition records are
needed:
For this purpose a new Condition Table, e.g. 501 (between 501 and 999), should be created first.
The new condition table could be copied from existing condition tables e.g. table 078 or 002.
Condition Tables ( > Create condition tables)
Transaction: V/03
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Select the last 2 key fields and delete.
With the help of “other description” button the key field will be shown as ALAND.
Maintain Conditions in created Condition Table 501:
Activate (generate) the table.
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access sequences
Transaction: V/07
In the following create a new access sequence for example ZEXT enter the appropriate Data and
save:
Select ZEXT and double click Accesses;
Double click new entries, edit (select AcNo, double klick Fields etc.) and save;
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The access sequence still consists of three accesses. However all these accesses go to the same
table. All access only depend from one field: the delivering country. This means they need to be
one condition record per country (see also 4.2.11.).
IV.2.2.2 Defining Condition Types for SD Pricing Procedure
IMG Path: Sales and Distribution > Basic functions > Pricing > Basic settings > Pricing control >
Define condition types > Maintain condition types > (New entries)
Transaction: V/06
AS SEEN IN III.3.2 THE SD PRICING PROCEDURE WITH EXTERNAL

TAX CALCULATION NEEDS THREE CONDITION TYPES ASSIGNED
TO THE CALCULATION FORMULAS 500, 501 AND 301.
The key for the new (customer) condition types should start with the letter Z since SAP reserves this
letter for that purpose in the standard system.
As an example these could be ZDED, ZDEE and ZTR1 to be assigned in pricing procedure to
calculation formulas 500, 501 and 301
IV.2.2.2.1 Defining Condition Type ZDED for SD Pricing Procedure
Define condition types > Maintain condition types
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Transaction: V/06
IV.2.2.2.2 Defining Condition Type ZDEE for SD Pricing Procedure
Transaction: V/06
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The condition type ZDEE has no access sequence, it will always be active in the pricing procedure
during SD document transactions.
IV.2.2.2.3 Defining Condition Type ZTR1 for SD Pricing Procedure
Transaction: V/06
For tax amount calculated and returned by external tax system condition types are needed.
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In our example with only one (dummy) jurisdiction level this would be for one tax amount.
The ZTR1 defined below is such a condition type.
IV.2.2.3 Defining Condition Types for MM Pricing Procedure
IMG Path: Materials Management > Purchasing > Conditions > Define Price Determination
Process > Define Condition Types
Transaction: M/06
As mentioned in III.1.3 a price determination process (e.g. standard calculation schema RM0000) is
executed during the purchasing document creation process.
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taxes NAVS and NAVM.
Tax determination during the purchasing document creation process for deductible taxes takes place
in a tax calculation procedure which is used also in FI.
Because of this no further condition types than the existing SAP standard types NAVS and NAVM are
needed for MM pricing procedure.
IV.2.2.3.1 Defining Condition Types for Tax Calculation Procedure for MM and FI
IMG Path: Financial accounting > Financial accounting global settings > Tax on Sales/Purchases
> Basic Settings > Check Calculation Procedure > Define Condition Types
Transaction:
A tax calculation procedure is used for determining of deductible taxes in MM and FI in common.
A standard SAP tax procedure for non jurisdictional tax calculation e.g. TAXD contains among others
the condition types MWAS for output tax and MWVS for Input tax.
For tax amount calculated and returned by external tax system comparable condition types are
needed.
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IV.2.2.3.2 Defining Condition Type ZTX1 for Output Tax in Tax Procedure for MM and FI
Output tax is charged to the customer and should be set up like the example below.
IMG Path: Financial accounting > Financial accounting global settings > Tax on Sales/Purchases >
Basic Settings > Check Calculation Procedure > Define Condition Types
Transaction:
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IV.2.2.3.3 Defining Condition Type ZIN1 for Input Tax in Tax Procedure for MM and FI
For calculating of tax which is charged by the vendor a condition type for input tax like ZIN1 is needed.
IMG Path: Financial accounting > Financial accounting global settings > Tax on Sales/Purchases
> Basic Settings > Check Calculation Procedure > Define Condition Types
Transaction:
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IV.2.3 Defining Procedures for External Tax Calculation
Two important procedures are used as the base for tax calculation in R/3:
1. Pricing procedure: for SD

2. Tax Procedure: for SD, MM and FI
IV.2.3.1 Defining SD Pricing Procedure for External Tax Calculation

In SD document transactions, tax calculation is processed within the pricing procedure.
For what is minimum necessary to make full use of the Tax Per Document method is obvious in the
following example.
Define And Assign Pricing Procedures > (Maintain pricing procedures)
Transaction: V/08
After selecting for example the SAP standard pricing procedure RVAA01 and coping it to procedure
that has to be created for external tax calculation, e.g. ZTTAX this new tax procedure must be
modified/extended appropriately with condition types and condition formula for axternal tax calculation.
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AS AN EXAMPLE THE PRICING PROCEDURE ZTTAX BELOW IS
SET UP FOR FEDERAL TAX DETERMINING (= ONE DUMMY
JURISDICTION LEVEL AS IT WILL BE DESCRIBED IN 4.2.6. LATER).
IV.2.3.2 Defining Tax Procedure (for MM and FI) for External Tax Calculation
IMG Path: Financial accounting > Financial accounting global settings > Tax on Sales/Purchases >
Basic Settings > Check Calculation Procedure > Define Procedures
Transaction:
After selecting for example the procedure TAXD and coping it to tax procedure which has to be
created for external tax calculation, e.g. TAXDEX.
This new tax procedure must be modified appropriately with condition types and condition formula.
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IV.2.4 Define Pricing/Tax Procedure Determination for External Tax Calculation
During pricing, the SAP System automatically has to determine which pricing procedure is valid for a
business transaction dependent on it, which customer, sales area, sales document type etc. are
effective.
Similar is the automatic determination of tax procedure during billing, purchase order generating,
invoice verification ect.
To guarantee this automatism pricing/tax procedure determination has to be defined.
IV.2.4.1 Define Pricing Procedure Determination for External Tax Calculation in SD

When setting up external tax calculation a new pricing procedure has to be created and assigned to as
combination of sales organisation, distribution channel, division and document procedure.
In the example below is the pricing procedure ZTTAX assigned to the sales organization DE00,
distribution channel CH, division 8C and document procedure A.
Define And Assign Pricing Procedures > (Define Pricing Procedure Determination)
Transaction: OVKK
IV.2.4.2 Define Tax Procedure Determination for External Tax Calculation in MM/FI
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IMG Path: Financial accounting > Financial accounting global settings >Tax on Sales/Purchases >
Basic settings > Assign country to calculation procedure
Transaction: OBBG
As it can be seen in the screen below it is possible to assign a different tax calculation procedure for
every country.
x calculation procedure to country is 1:N. One calculation procedure can assigned to various countries.
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IV.2.5 Tax Jurisdiction Codes
The tax jurisdiction code structure has to be defined for tax calculation procedures. This must be set
– otherwise external tax calculation can’t be activated for a tax calculation procedure.
For this purpose a two-character dummy jurisdiction code has to be defined for Germany and all other
countries without a real existing jurisdiction code (e.g. USA). The value of this dummy jurisdiction code
should be equal to the country code.
To return the country code for any address in such countries the RFC_DETERMINE_JURISDICTION
function module has to be implemented on the Web Application Server (WAS).
IV.2.5.1 Specify Structure for Tax Jurisdiction Code
IMG Path: Financial accounting > Financial accounting global settings >Tax on Sales/Purchases
> Basic settings > Define tax jurisdiction code structure
Transaction: OBCO
Table: TTXD
This configuration data is stored in table TTXD; the external tax calculation is an additional field in that
table - if there is no entry in this table for a certain tax calculation procedure then this flag can’t be set.
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IV.2.5.2 Define Tax Jurisdictions
For dummy jurisdiction codes the value should be equal to the country code.
IMG Path: Financial accounting > Financial accounting global settings >Tax on Sales/Purchases
> Basic settings > Define tax jurisdictions
Transaction: OBCP
Table: TTXJ
IV.2.6 Activating the Tax Interface System
IMG Path: Financial accounting > Financial accounting global settings >Tax on Sales/Purchases >
Basic Settings > External Tax calculation > Activate External Tax calculation
Table: TTXD
In this step external tax calculation can be enabled for a calculation procedure with a defined
jurisdiction code structure. Assigning a logical system (communication configuration) to a tax
calculation procedure does this.
In this example external tax calculation is switched on for the tax calculation procedures TAXDEX,
using the logical destination S.
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IV.2.7 Configuring the External Tax Document
The External Tax Document is the entity name for tax relevant information for one particular
document. This information is to be updated into the external audit register file for legal reporting
purposes.
An External Tax Document is created when a SD, MM or FI document is successfully posted to
accounting. The following configuration steps have to be set up:
IV.2.7.1 Define Number Ranges for External Tax Documents

IMG Path : Financial accounting > Financial accounting global settings >Tax on Sales/Purchases
> Basic settings > External tax calculation > Define number ranges for external tax
documents
Transaction: OBETX
The number range ‘01’ should be internal. DO NOT SET the External number range flag.
Note: The numbers are buffered. Therefore, gaps can occur.
IV.2.7.2 Activating External Updating

IMG Path : Financial accounting > Financial accounting global settings >Tax on Sales/Purchases
> Basic settings > External tax calculation > Activate external updating
Transaction:
Table: TRWCA
Setting this flag will activate the updating

facility for the external tax system.
The data is sent to the external system

when the relevant items are posted to
Financial Accounting.
The current data could be displayed

using the RFYTXDISPLAY report.
IV.2.8 Customer/Material Master Data Tax Classification Indicators
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The tax condition record depends on a customer and on a material tax classification indicator (and on
other fields depending on the access sequence and the type of transaction).
These tax classification indicators depend on the tax configuration for a country (for each tax
determination rule a number of different customer and material tax indicators can be defined).
The illustration on the Customer Material

right shows the
relationship between the
tax determination rule SD tax determination
and the master data tax rule
indicators. Based on a 0 MWST 0
certain tax determination 1 1
rule (= condition record)
a number of master data 2 Material
tax classification Customer
tax indicators
indicators can be tax indicators MWST 0 0
defined. For MWST 0 1
combinations of these Possible condition
indicators (+ other fields records MWST 1 0
like country) the tax MWST 1 1
condition records can be MWST 2 0
defined.
MWST 2 1
IV.2.8.1 Tax Determination Rule (Tax by Country Configuration)
The tax category identifies the condition that the system uses to determine country-specific taxes
automatically during pricing.
One or more tax categories could be defined for each country. When more than one tax category
applies in a particular country the sequence of possible taxes for each country defines the sequence in
which the system accesses tax condition records.
Note: No more than one tax category should be maintained for each country for which the use of
external tax calculation is determined.
A tax category has to be defined by departure country. Allowable departure country is the plant’s
country and/or the company code’s country. It allows tax classification to be entered in the customer
master and material master.
During sales order processing, the system applies the tax category according to
 the geographical location of the delivering plant and the location of the customer receiving the
goods
 tax classifications in the customer master record and the material master record.
SAP delivers several standard tax categories among others MWST. This should be used as copy
pattern for defining new tax categories.
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IV.2.8.1.1 Master Data Maintenance / Customer Master Data Configuration
The tax category displayed in the customer master record depends on:
1. The customer sales organization’s company code country.

2. The country of each plant assigned to that sales organization.
IMG Path : Sales and Distribution > Basic Functions > Taxes > Define tax relevancy of master
records > (Customer Taxes)
Transaction: OVK3
Table: TSKD
This configuration defines the possible values for the field tax category in the customer master-billing
screen. As it can be seen in the screenshot above this transaction allows maintaining a set of tax
classification values for each tax rule (the rule is a condition type).
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IV.2.8.1.1.1 The Effect of Customer Master Data Configuration
A look in the customer master record with transaction VD03 or VD02 (billing document Tabstrip)
shows where this tax indicator can be set (the allowed tax indicators depend on the country of the
customer and of the tax condition type that is assigned to this country).
Besides the tax indicator that controls which condition record is found for a certain combination
customer – material the customer master record still contains other data fields that are relevant for
taxation. These are among others:
 Jurisdiction code
Important: Even though the field jurisdiction code may not be needed it has to be filled.
An appropriate implementation of the function module
RFC_DETERMINE_JURISDICTION on the Web Application Server (WAS)
ensures the return of the country code for any address automatically.
If this field is not filled then external tax calculation will not work (see IV.2.5).
 VAT registration numbers

For every customer in an EU country who carries out business transactions with other EU
member states, the VAT registration numbers (VAT reg.no.) has to be specified.
 Tax Code 1 (Tax number)

Tax number of the customer which is to be used for reporting to the tax authorities in some
countries
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IV.2.8.1.2 Master Data Maintenance / Material Master Data Configuration for SD
The material tax classification indicator is also used as a key in automatically determining the tax code
within SD.
Multiple tax classifications may need to be set up for special tax rules and regulations based on
material. These tax classification indicators are user defined, and point to user defined tax codes.
The tax category displayed in the material master record depends on:
1. The material sales organization’s company code country.

2. The country of each plant assigned to that sales organization.
IMG Path: Sales and Distribution > Basic functions>Taxes > Define tax relevancy of master
records > (Material Taxes)
Transaction: OVK4
Table: TSKM
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IV.2.8.1.2.1 The Effect of Material Master Data Configuration for SD
A look in the material master record with transaction MM03 or MM02 shows where this tax indicator
can be set. The tax classification is assigned to the material in the Sales: sales org. 1-Tabstrip.
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Besides the tax indicator that controls which condition record is found for a certain combination
customer – material the material master record still contains other data fields that are relevant for
taxation. The Foreign trade/export is one among others:
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IV.2.9 Tax Codes and Condition Records in SD Pricing Procedure
As seen in IV.2.8 master data tax indicators will refer to the tax rule that is set for a certain country.
The tax conditions that can be created in SD master data will refer to the tax rule that was defined
here per country.
The condition type that is assigned here to a certain country defines for which tax condition type
conditions can be maintained in SD > Master Data > Conditions > Taxes. The master data indicators
are also defined in reference to this condition type.
Tax codes can be automatically derived from material and customer master file – tax classifications.
IV.2.9.1 Tax Codes in SD

IMG Path : Financial Accounting > Financial Accounting global settings > Tax on
Sales/Purchases > Calculation > Define Tax Codes for Sales and Purchases
Transaction: FTXP
Table: T007A
Tax codes are created for a combination of country and tax calculation procedure. Tax codes define
the values for all condition types that are defined in a tax calculation procedure.
Example: Definition of output tax code DX for Germany
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When using external tax calculation the tax codes does not carry information about the actual tax rate.
They must be set so that the tax that is determined via the FI condition is distributed to the correct
accounts. Tax rate in the FI condition record is 100% for external tax calculation.
IV.2.9.2 Condition records in SD Pricing Procedure

Menu Path : Logistics > Sales/Distribution > Master data > Pricing > Taxes
Transaction: VK11/VK12
In this transaction the condition records can be created for a condition that is assigned to a country via
the tax calculation rule.
In our case of a simplified access sequence it would be possible to enter tax rates on a country level
only.
IV.2.10 Assign Delivering Plants for Tax Determination
IMG Path : Sales and Distribution > Basic Functions > Taxes > Assign delivering plants for tax
determination
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Transaction: OVK6
At creation of a SD document a tax calculation procedure is determined from the country of the
delivery plant – this country can be defined in this customizing transaction.
In this menu option, the plants are allocated to a country, and if appropriate to a geographical region, a
county/state code as well as a city codes. The allocation always depends on the countries in which
you are using the SAP System.
Using the country key, the SAP System recognizes which tax type is valid for a plant and thus which
taxes are relevant when creating a SD document.
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IV.2.11 Tax Calculation in MM and FI:
For MM and FI transactions, tax calculation makes use of a tax procedure instead of a pricing
procedure. Tax procedure also uses the condition techniques.
The peculiar aspects of tax procedures:
• Every condition type in a tax procedure has the same access sequence MWST.
• Access sequence MWST has 2 parameters: country and tax code.
• The tax condition records for each condition type is created through the FI condition record
maintenance.
• The FI tax condition records are based on the tax code and are created in central configuration for
tax code condition records. The tax codes are used in accounts receivable sales and use tax,
accounts payable sales tax and accounts payable self assessment / use tax.
• For MM and FI document transactions, the company code’s country and the tax code entered will
form the FI tax condition records for the country tax procedure.
• For MM, if the tax code is not entered manually, an automatic tax code determination is
necessary. Configuration set up for automatic tax code determination in MM is described later.
• Tax procedure also determines the G/L (tax liability) accounts to which the tax amounts are to be
posted to accounting. A correct configuration set up is required for automatic G/L account
determination. The configuration set up is described in Setting up tax codes.
IV.2.11.1 FI Condition Records / Tax Codes
IMG Path : Financial Accounting > Financial Accounting global settings > Tax on
Sales/Purchases > Calculation > Define Tax Codes for Sales and Purchases
Transaction: FTXP
Table: T007A
Tax codes are created for a combination of country and tax calculation procedure. Tax codes define
the values for all condition types that are defined in a tax calculation procedure.
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Example: Definition of Input tax code D1 for Germany
When using external tax calculation the tax codes does not carry information about the actual tax rate.
They must be set so that the tax that is determined via the FI condition is distributed to the correct
accounts. Tax rate in the FI condition record is 100% for external tax calculation.
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IV.2.12 Tax Calculation Procedure in MM
Tax codes can be automatically derived from material, plant and account assignment for purchasing
transactions. As with SD master data configuration, tax classification indicators must be maintained to
determine the tax codes.
The tax code can be overwritten within the purchase order (item details) and the invoice verification
document.
IV.2.12.1 Material Master Configuration (MM)
IMG Path: Materials Management > Purchasing > Taxes > Set tax indicator for material
Transaction: OMKK
Table: TMKM1
The material tax classification indicator is used as a key to automatically determine the tax code within
purchasing. Multiple tax classifications may need to be set up for special tax rules and regulations
based on material. These tax classification indicators are user defined, and point to user defined tax
codes (see IV.2.8.1.2).
For example, tax classification 0 could represent an exempt material or service which points to a tax
code D1.
IV.2.12.2 Define Tax Classification Indicators for Plant (MM)
IMG Path: Materials Management > Purchasing > Taxes > Set tax indicator for plant
Transaction: OMKM
Table: TMKW1
Define the MM plant tax classification indicators.
IV.2.12.3 Assign Tax Classification Indicators to Plant (MM)
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IMG Path: Materials Management > Purchasing > Taxes > Assign tax indicators for plants
Transaction: OMKN
Table: T001W
Assign for example Germany plants a tax classification indicator.
Notice: This step is not mandatory. This step is only necessary if plant will be used to automatically
determine the tax code on MM documents.
IV.2.12.4 Define Tax Classification Indicators for Account Assignment (MM)
IMG Path: Materials Management >Purchasing > Taxes > Set tax indicator for account
assignment
Transaction: OMKL
Table: TMKK1
Define the MM account assignment tax classification indicators.
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IV.2.12.5 Assign Tax Classification Indicators for Account Assignments (MM)
IMG Path: Materials Management > Purchasing > Taxes > Assign tax indicators for account
assignments
Transaction: OMKO
Table: T163KS
Assign account assignments a tax classification indicator.
Notice: This step is not mandatory. This step is only necessary if account assignments will be used
to automatically determine the tax code on MM documents.
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IV.2.13 MM Condition Record Maintenance
A tax condition record can also be created within the MM module. This is not required, but is
necessary to automatically determine the tax code.
The MM tax condition record is based on the condition type NAVS and access sequence 0003.
IMG Path: Materials Management > Purchasing > Conditions > Define Price Determination Process
> Define condition types
Transaction: M/06
Select condition type NAVS and assign access sequence 0003 to it. This step is only necessary to
automatically determine the tax code. Tax codes can be entered or changed manually in MM
processing.
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IV.2.13.1 Condition Record Maintenance
Menu Path: Logistics > Materials management >Purchasing > Master data>Taxes >
Create/Change
Transaction: MEK1 create/ MEK2 change
Select the condition type NAVS and choose the desired Key Combination. Input the appropriate
indicator(s), depending on the Key Combination chosen and associate them with the corresponding
tax code created in FI.
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V Appendix
V.1 Creating and Maintaining SAP Table for Document Credit Indicator
In addition to the described set ups another requirement must be fulfilled for TAXI.
Document credit indicator indicates that the transaction is a credit transaction as distinguished from a
normal transaction. A credit indicator will invoke credit processing.
The standard value ranges in SAP are:
 H for Credit
 S for Debit
TAXI expects a value of Y or N.

To be able to map the SAP values to the from TAXI expected values a customer created SAP table,
e.g. ZTAX_CREDIT_IND, has to be created and maintained.
The structure of the table is:
This table must contain for every document type the appropriate indicator, for example:
MANDT FKART SHKZG
001 BK1 S
001 F1 H
001 F2 H etc.
It is recommendable to generate a table maintenance view to use with SM30.
Note: This step must be executed in SAP parallel to program code modifikations.
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V.2 Examples for External Tax Calculation in other SD Documents
V.2.1 Inquiry
Menue Path: Logistic > Sales and Distribution > Sales > Inquiry > Create
Transaction: VA11 create/ VA12 change/ VA13 display
Conditions view of item 10:
The tax amounts will be calculate externally as soon the created document is posted.
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V.2.2 Quotation
Menue Path: Logistic > Sales and Distribution > Sales > Quotation > Create
Creating a quotation with reference to an existing inquiry (e.g. above created 10000001).
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Position 20 and 30 are similar.
After saving the quotation document the taxes for each item will be externally calculated:
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V.2.3 Scheduling Agreement
Menue Path: Logistic > Sales and Distribution > Sales > Scheduling Agreement > Create
The delivery schedule is:
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After saving the quotation document the taxes for each item will be externally calculated:
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V.2.4 Quantity and Value Contracts
V.2.4.1 Quantity Contract
Menue Path: Logistic > Sales and Distribution > Sales > Contract > Create
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V.2.4.1.1 Create Sales Order (call off) with reference to Quantity Contract
Menue Path: Logistic > Sales and Distribution > Sales > Contract > Subsequent Functions > Order
Transaction: V-01 create
Creating a sales order with reference to an existing quantity contract (e.g. above created 40000000).
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After saving the sales order the tax amount for item 10 will be externally calculated:
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V.2.4.2 Value Contract
Menue Path: Logistic > Sales and Distribution > Sales > Contract > Create
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Conditions view after posting of the Value Contract:
V.2.4.2.1 Create Sales Order with reference to Value Contract
Menue Path: Logistic > Sales and Distribution > Sales > Contract > Subsequent Functions > Order
Transaction: V-01 create
Creating a sales order with reference to an existing value contract (e.g. above created 40000004).
Overview of item 10 of value contract:
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Detail view of item 10 of value contract:
Overview of created sales order with reference to value contract 40000004:
Conditions view of item 10 of the created sales order before posting:
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The condition views of the other items are similar.
The created sales order after posting can be seen as a standard sales order:
Menue Path: Logistic > Sales and Distribution > Sales > Order
Transaction: VA02 change/ VA03 display
Conditions view of item 10 with calculated tax amount after posting of the created sales order:
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The condition views of the other items are similar.
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V.2.5 Create Billing
In the following example the billing document (creating invoice in sales and distribution) is shown.
Billing document is not a sales document but this activity is a component of sales and distribution.
After total delivery (e.g. delivery 80000029) of all items of the above created sales order (SO 47) the
billing document can be created:
Menue Path: Logistic > Sales and Distribution > Billing > Billing Document
Transaction: VF01 create / VF02 codify / VF03 display
After posting of the created invoice (document number 90000026):
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The condition view of item 10 with calculated tax is:
The conditions of the other items are similar.
The billing document overview isshown belove:
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External Tax Calculation in SAP 4.6C Configuration Guide Revised 2

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External Tax Calculation in SAP R/3 4.

 How does standard tax calculation work in SAP?

Basically two types of taxation can be processed in the SAP System:

 Taxes at federal level/national level

Combination types of taxation are also possible.

II.1.1 Taxes at Federal Level

II.1.2 Taxes Below Federal Level

II.2 Tax Types in SAP

II.2.2 Tax Types

 Tax on sales and purchases

II.2.2.2 Sales Tax

II.2.2.3 Additional Tax

II.2.2.4 Withholding Tax

II.3 Tax Categories in SAP

II.3.1 Tax Categories in Sales and Distribution

II.4 Tax Codes in SAP

 Check the tax on sales/purchases amount in the document

II.4.1 Tax Codes in Sales and Distribution

II.4.2 Tax Codes in MM

II.5 Tax Classification in SAP

II.5.1 Tax Classification in SD

 The tax classification of the customer and the material.

II.5.2 Tax Classification in MM

II.5.3 Tax Classification Indicator for Material

II.5.5 Tax Classification Indicator for Account Assignment

 Standard SAP Non-Jurisdictional taxes on sales and purchases

III.1 Standard SAP Non-Jurisdictional Taxes on Sales and Purchases

III.1.1 Tax Calculation Process in SD (for all sales document types)

III.1.1.1 Example: Tax Calculation in a Sales Order

Transaction : VA01 create/ VA02 change

Header & Item data of sales order:

The tax in SD is calculated in the pricing procedures of sales documents.

condition record found for condition type MWST.

Condition record for condition type MWST

Definition of tax code A1

Transaction: VF01 create/VF02 change

 Select an item on the item overview screen.

Header & Item data of purchase order:

III.1.5.1 Example: Tax Calculation in Logistics Invoice Verification

abstrip Tax the tax data can be seen.

III.2 Standard SAP Jurisdictional Sales & Use Taxes

Example: Tax jurisdiction code with three levels 250221105

III.2.1 Tax Calculation Process with Jurisdiction Code in SD

Transaction: VA01 create/ VA02 change

Header & Item data of sales order:

Pricing for Item 10:

The pricing procedure used in this case is RVAJUS.

Transaction: VF01 create/VF02 change

III.2.3 Tax Calculation Process in MM (for all purchasing document types)

III.3.2 Example of Pricing Procedure for External Tax Calculation:

III.3.3.1 Example: External tax Calculation in a Sales Order

Transaction: VA01 create/ VA02 change

Header & Item data of sales order:

The pricing procedure used in this case is ZTTAX.

Condition type ZDEE is not determined using condition records.

Transaction: VF01 create/VF02 change

The tax is calculated in the same pricing

 Select an item on the item overview screen (transaction ME22N or ME23N)

Header & Item data of purchase order:

III.4.2.1 Example: External Tax Calculation in Logistics Invoice Verification

Transaction: MIRO / MIR4

The analysis of the pricing shows that the

e Tabstrip Tax the tax data can be seen.