VAT Calculations for EC Members

Because VAT needs to be calculated for transactions between EC member states, you must define any customers located in other EC countries as home customers.  Vendors located in other EC countries should be defined as home vendors.  The rest of this section describes how you should set up information for your customers and vendors to ensure that the calculations are performed appropriately for EC transactions.

The following rules apply for goods transported between countries that are both members of the European Community:

·      If the customer importing the goods is registered in its home country, the customer does not generally pay the VAT to the vendor.  Instead, any tax due on the goods is offset by VAT recoverable from the customer's government.  Nonrecoverable VAT is paid directly to the government, rather than to the vendor.

·      If the customer importing the goods is NOT registered in its home country, normal VAT must be paid to the vendor's home country.

Specifying whether the Customer is Registered (AR)

When a customer is registered in its home country, you should use an exonerated VAT type within OP/AR.  Because the VAT is exonerated, it will not be included in the invoiced amount for the customer.  However, the VAT amount will be calculated and placed on the VAT History File.

The VAT registration number under which a customer is registered in the country where the goods are shipped will appear on the ESL/SSD reports for EC countries.  The VAT registration of a customer in his own country will be defined on the Customer Master File under the Taxpayer ID field.

Since customers may want goods to be shipped to other European Community countries where they may have subsidiaries and where they are registered, you may need to enter more than one VAT registration number for this customer.  On the Customer Master Maintenance Credit Information screen, you can display an EC VAT Information window to enter as many VAT registration numbers for the Bill-to Customer as there are existing EC countries.

The VAT registration number will be validated as follows:

1)  The first two characters of the VAT registration number should match the first two characters of the ship-to country ID prefix.  The ID prefix is located on Reference File category 007.

For example, if the ship-to country code is BEL (Belgium), then the first two characters of the VAT registration number would be ‘BE’.

2)  VAT registration numbers are not free-format.  They will be validated against a country specific algorithm, such as ‘module 97’ for Belgium.  The VAT Registration Validation programs will be maintained on Reference File category 007; however, the Validation Program field will be optional.  Each EC country will be responsible for developing a VAT Registration Validation program.

For consolidated invoices, you will be able to select only pending invoices relating to goods shipped to a specific country if ESL/SSD processing is used.  This processing will allow you to retrieve the correct VAT registration number for the bill-to customer in the selected ship-to country

When a customer is not registered in its home country, you should use the normal VAT code for the customer's home country.  VAT will be calculated for the sale and included in the invoice amount.

When exonerated VAT is used, the VAT code and authorization number are defined on the Customer Master File.  The authorization number is only required if the customer is not located in an EC country.  If the taxpayer ID (VAT registration) is entered, it will be validated by Reference File category 007.  When VAT is not exonerated, the default VAT code is defined on the Reference File or Warehouse Balance File.  For more information about how VAT codes default in Order Processing, refer to the Hierarchy for Defaulting VAT Codes on Sales Orders section.

The following figure summarizes how the Customer Master File fields should be set for customers located in EC member states. 

         Customer Master File Values

The Customer VAT Identification List (AR350) can be used to report which customers are registered and which are not in their home country.  This report lists information about how VAT is calculated for each customer in the system.

Specifying whether a Receiving Warehouse is Registered (AP)

For any inter-EC transaction, the registration status of the customer determines whether VAT is paid directly to the government or through the vendor.  For purchase orders/vendor invoices, the customer is the receiving warehouse in MAC-PAC.  The total liability due to the vendor will depend on whether or not this warehouse is registered. 

When the receiving company/warehouse is registered, the customer will not pay VAT to the vendor.  Instead, the VAT due will be offset by VAT to be recovered from the government.  Postponed VAT is used to handle this situation. 

When the vendor invoice is received, each line should be entered with a postponed VAT code.  Accounts Payable calculates VAT for the appropriate lines and generates two transactions on the VAT History File:  an "output" transaction for the VAT that is due to the government, and an "input" transaction from the VAT that will be recovered from the government.  The VAT amount is not included in the invoice total, and is not remitted to the vendor. 

If the VAT is not 100% recoverable, the nonrecoverable portion is paid directly to the home government.  The non-recoverable amount is entered manually on a separate invoice line.  The amount is posted to an expense account and is not included in the total due to the vendor.

When the receiving company/warehouse is not registered,  normal VAT processing is used.  VAT is calculated when the invoice is entered, and the invoice total includes the VAT liability. 

The vendor type and default VAT code are defined on the Vendor Master File.  The VAT registration number, which proves that the receiving company/warehouse is registered, is recorded on the Warehouse Description File.  The following figure summarizes how these fields should be set:

   Vendor Master File and Warehouse Description File Values

Specifying Recoverable Percentages for Postponed VAT (AP)

Postponed VAT can be completely recoverable (the usual case), partially recoverable, or not recoverable.  For partially recoverable VAT, the percent recoverable is specified when the VAT code is defined on Reference File category 230.  Note that the system uses the percent recoverable field ONLY for VAT that is partially recoverable.  For both normal VAT and not recoverable VAT, the field should be left at its default value of 0%.  The following figure illustrates how the recoverable percentage should be specified:

       Setting Up Postponed VAT Information on Category 230

Note that the rate for non-recoverable postponed VAT is set to zero in the system, even though an actual tax rate is associated with this type of tax.  This is because the system does not calculate VAT that cannot be recovered:  non-recoverable VAT must be entered manually as a separate line item on an invoice.  When the VAT is partially recoverable, the amount that cannot be recovered also needs to be entered manually.