It is often said that Value Added Tax (VAT) is a transitory item. What people who emphasize this really want to say is the following: that VAT is something that has no influence on the company's P&L or income and is thus "neutral" ...
... and that much is true.
But only ... if you do it right! If you handle VAT incorrectly or if you are simply unable to show the tax authorities certain documentation, you may find yourself sitting on considerable of amounts VAT – and that definitely has an impact on profit.
So how about an example of a non-compliant invoice?
M operates a photographic shop in Saarbrücken. A Frenchman comes into the shop looking to buy an expensive digital camera. At the checkout, the Frenchman says that he is a registered trader in France and that he wants to buy the camera for his business in France. He asks M. to issue the invoice without VAT as the delivery of the camera in this case is tax-free in Germany. M. vaguely recalls that this is probably correct. He inspects the man’s ID card to make sure that he really is a French citizen and sells him the camera without VAT, issuing a corresponding invoice. The Frenchman takes the camera to France and actually uses it in his company.
Was M. right to issue an invoice without VAT?
What are the legal foundations for selling without VAT?
Ok, but not so fast. Let’s now see how the law applies to such a case in accordance with the German VAT Act (Umsatzsteuergesetz – UStG).
- The sale of the camera, according to Section 3 (1) of the German VAT Act, is a delivery, because M. is making an object available to the Frenchman.
- The place of delivery is Germany according to Section 3 (6) of the German VAT Act, because the transport of the camera starts in Saarbrücken (= Germany).
- Because the place of delivery is in Germany, the delivery is also taxable in Germany (Section 1 Para. 1 No. 1 of the German VAT Act).
- So far, things looks pretty bad for M., but fortunately Section 6a (1) of the German VAT Act says that it is an intra-Community delivery, because the Frenchman is a registered trader and the camera is being brought to France and is to be used in a French business.
- Finally, Section 4 (1b) of the German VAT Act states that intra-Community supplies are tax-exempt.
So in fact M. acted quite correctly, luckily for him!
But, unfortunately, he must also be able to prove that the legal requirements have been fulfilled. This includes meeting the following requirements:
M. must check whether the Frenchman is a registered trader.
He does this by checking the VAT identification number (VAT ID). But unfortunately he has not made any note of it.
M. thus cannot formally prove that the delivery is materially tax-exempt.
So what happens now?
In the event of a tax audit, the tax authorities may subsequently claim the VAT from M. He must then calculate the amount of VAT due based on the net amount invoiced. Now that was bad business!
And one more thing:
The so-called recapitulative VAT statement according to Section 18a of the German VAT Act , which is obligatory in such cases, is probably also wrong!
The moral of the story:
It is best to record the VAT ID along with the details of each customer in the customer master record. The reason why it is so important to do this should by now be crystal clear!
Why do you need the VAT ID in customer master data?
For example, the VAT ID is required:
- For tax exempt deliveries or other services to companies in other EU Member States.
- For the summary report to the tax authorities.
How do I recognize customers without a VAT ID in SAP?
In SAP, the VAT ID is in the customer's master record. There is a general master record and an additional master record for each company code in the SAP system. The VAT ID is part of the general customer master record.
By simply filtering data to display only empty VAT IDs, you can identify the corresponding customers.
How to obtain data for an analysis of customer master records without a VAT ID?
If you want to analyze the customer master data for customers without VAT IDs in your SAP, you need the necessary data structures and data from your SAP system. With the help of our zap Audit software, the data from your SAP system is downloaded automatically. zap Audit can be downloaded free of charge from our webshop:
How do you actually perform an analysis to identify missing VAT IDs in the customer master data in SAP?
I have prepared a step-by-step guide with the SQL queries you need to perform such an analysis in SAP. If you would like to find out more about how to perform such an analysis, and have access to the corresponding SQL statements, you can download the instructions for free below:
The results of such an analysis will look something like this:
If you have any questions or suggestions relating to the topic of missing VAT IDs in SAP, then please leave a comment below!