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Amanda_Zhong
Product and Topic Expert
Product and Topic Expert
9,710
What is External Sales & Use Tax Calculation in S/4HANA Cloud ?

S/4HANA Cloud differentiates between internal and external tax calculation for the United States. External Sales & Use Tax Calculation would be for example via a tax partner like Sovos, Thomson Reuters, Vertex, Wolters Kluwer, or other Tax partners.

The External Sales and Use Tax Calculation solution in SAP S/4HANA Cloud uses 0TXUSX as its US tax procedure for the United States. SAP provides a standard tax interface system that can pass all necessary data on to an external tax system. This external system determines tax jurisdictions, calculates taxes, and returns these calculated results to SAP. This data transfer occurs during master data address maintenance to retrieve the appropriate tax jurisdiction codes. It also occurs during order and invoice processing out of finance, materials management, and sales and distribution, when tax rates and tax amounts are retrieved. The tax interface system also updates third party tax files with the appropriate tax information for legal reporting purposes.



Basically, External Sales & Use Tax Calculation in S/4HANA Cloud includes 3 parts:

1. External Tax Communication Scenario (SAP_COM_0177)

2. Manage External Tax Postings (Fiori App: F3085)

3. Business Add-Ins (Cloud BAdI) (To be implement by tax solution provider)

 

In general, you begin by assigning the country to the tax calculation procedure and ensuring that your configurations are correct so you can connect to your external tax partner system. These steps and other important information about the external tax solution can be found in the About the US External Sales and Use Tax Solution topic.

 

Once these initial steps have been taken, you can initialize the External Sales and Use Tax Communication Scenario and use the business add-ins (BAdIs) for external tax calculation to specify what information you want to have passed during tax calculation. With that set up, you can use the SAP Application Integration Framework (AIF) to enable functional message monitoring for the external tax solution. You can also use the Manage External Tax Postings app to display the status of all transactions calling external tax update and force update functions. This app also provides you a simple way to check for data inconsistencies between your SAP S/4HANA Cloud system and the tax calculation engine.



How It Works: The Tax Calculation Process in Sales (Example)


Sales requires that sales orders and invoices reflect the tax applicability of each item and compute the total due on each item within the sales document. Appropriate tax amounts and tax rates are determined for both orders and invoices.

Several parameters influence the tax amount and tax rate determinations. The most important parameters influencing these determinations are:

  • The ship-from jurisdiction (origin)

  • The tax jurisdiction codes of the ship-from address (plant)

  • The tax class of the material being shipped

  • The tax jurisdiction codes of the ship-to party (customer)

  • The tax class of the ship-to partner

  • The tax calculation date

  • The tax jurisdiction codes of the point-of-order acceptance and the point-of-order origin


Please note that SAP S/4HANA uses the ship-from jurisdiction maintained on the plant as the point-of-order acceptance, and defaults the ship-to jurisdiction maintained on the customer as the point-of-order origin. Order acceptance jurisdiction and order origin jurisdiction can be changed using the FOT_EXT_TAX_CALC_FIELDS_CHANGE Cloud BAdI. For more information, please see SAP Note 2614414 Information published on SAP site.

Sales uses the country, customer tax classification indicator, and material tax classification indicator to read the tax condition records. In sales order processing, the system exits the "normal' pricing procedure during pricing execution when it recognizes the external tax calculation condition. It then calls external sales and use tax communication scenario SAP_COM_0177.

Once SAP_COM_0177 is called, a SOAP message with header and item data is populated with the information the partner's tax solution needs to calculate the taxes. This information is then passed to partner’s integration flow (iFlow).

The partner’s iFlow passes the information to its tax solution. The appropriate tax is calculated and returned to the partner’s iFlow, and then onto the SAP_COM_0177. These tax amounts and rates are applied to the Sales document item’s pricing at each of up to six levels of jurisdiction.



How It Works: The Tax Calculation Process Finance and in Sourcing and Procurement (Example)


In Sourcing and Procurement and Finance, the system can compute the sales or use tax for each line of a purchase order or an invoice. For this to happen, however, the system needs to know where taxes are being charged. This means that you must maintain a ship-to tax jurisdiction code. This ship-to tax jurisdiction code can correspond to the plant, cost center, asset master, .etc. If no jurisdiction code is maintained on the asset, order, or project, then the jurisdiction code of the responsible cost center maintained on the asset, order, or project will be used for the purchase order or invoice verification document by default during document creation. This jurisdiction code then is used as the ship-to tax destination.

In addition to the ship-to destination, the ship-from jurisdiction also influences taxability. A jurisdiction code can be maintained within the supplier’s master record. This jurisdiction code is used as the ship-from tax destination.

Sourcing and Procurement and Finance use country and tax codes to read tax condition records. The external tax procedure (0TXUSX) for the US calls External Sales & Use Tax communication scenario SAP_COM_0177. Once SAP_COM_0177 is called, a SOAP message with header and item data is populated with the information the partner's tax solution need to calculate the taxes. This information is then passed to partner’s iFlow and then its tax solution. This solution in turn passes the tax data back to the iFlow and then back to SAP_COM_0177.


More Links


External Sales and Use Tax Calculation Solution: FAQ
15 Comments
Nadja_Medeiros
Advisor
Advisor
0 Kudos

Great information amanda.zhong Thanks for sharing!


Amanda_Zhong
Product and Topic Expert
Product and Topic Expert
0 Kudos

Thanks 🙂

Lucian
Product and Topic Expert
Product and Topic Expert

Excellent blog. Thank you for sharing !


This should be referenced in the SAP Activate Roadmap too :


https://go.support.sap.com/roadmapviewer/#/group//roadmap/IMPS4HANACLDENMGMT/node/901B0E6D3F441ED78D...


Sandeep_Kumar
Product and Topic Expert
Product and Topic Expert
0 Kudos

amanda.zhong Great blog, thanks for sharing!

Norbert_Birtala
Product and Topic Expert
Product and Topic Expert
0 Kudos

Useful blog, thanks for sharing!

Amanda_Zhong
Product and Topic Expert
Product and Topic Expert
0 Kudos

Hi Lucian,



How to reference it in the SAP Activate Roadmap? Who can do that? Do you know any contact person?



B. R. Amanda

Lucian
Product and Topic Expert
Product and Topic Expert

HI Amanda,


I think daniel.ciecko or lbettuzzi could support here.


Regards,


Lucian

OwenLiu
Product and Topic Expert
Product and Topic Expert
0 Kudos

Nice one. Thanks!

Amith_Nair
Product and Topic Expert
Product and Topic Expert
0 Kudos

Just cannot stop myself from commenting on this subject, I was looking for information on this topic in the open platform and I found this blog(from our own community), Excellent reference and such a hot topic in the go-to market! Thanks again for detailing this out! amanda.zhong

Amanda_Zhong
Product and Topic Expert
Product and Topic Expert
0 Kudos

Glad you like it, hope it helps, please do not hesitate to let us know in case of questions or comments.‎

Shakeel_Ahmed
Product and Topic Expert
Product and Topic Expert
0 Kudos

Thanks for sharing this. It is detailed.

szhanden
Explorer
0 Kudos
Great post!

Can I ask is it still necessary to create a sales tax code?
AliaksandrDrozd
Explorer

Thanks for article, But you've mentioned internal orders in S/4HANA Cloud. It seems that there is no internal orders in S/4HANA Cloud. Am I correct?

Amanda_Zhong
Product and Topic Expert
Product and Topic Expert
0 Kudos

@AliaksandrDrozd  you are absolutely right, there is no internal order in S/4HANA Cloud anymore. Let me update the blog. Thanks for mentioning this.

IBSabrina
Explorer
0 Kudos

Hi,

great post - thank you!

@Amanda_Zhong Can this interface only be used for US? Our customer uses external tax calculation for US and for Canada.

Thanks in advance for answering!

Sabrina