How is Tax Calculated in SAP?
SAP uses a technique called Condition Method to calculate taxes (except Withholding Tax) in the system. The system makes use of Tax (Calculation) Procedures defined in the system together with the Tax Codes for calculating the quantity of tax.
The Tax Code is the starting point in the tax calculation. The tax code is country specific, with every country having a country specific Tax Procedure defined in the standard system, which is used as the template for defining various tax codes. The system uses the tax code to verify the following:
- Tax type
- Amount of tax calculated/entered
- GL account for tax posting
- Calculation of additional tax portion, if any
Tax Rates are defined for each of the tax codes. The tax rates are then associated with Tax Types, which are included in the tax procedures. (Because of this relationship, it is technically possible that a single tax code can have multiple tax rates for various tax types.)
The tax code is assigned to a Tax Procedure, which is tagged to a GL master record. A particular tax procedure is accessed whenever that GL account is used in document processing.
A Tax Procedure contains the following:
- Stepsâ€” To determine the sequence of lines within the procedure.
- Condition Typesâ€” Indicates how the tax calculation model will work (whether the records are for fixed amount or percentages and whether the records can be processed automatically, etc.)
- Reference Stepsâ€” Where the system obtains the amount/value it uses in its calculation (for example, the base amount)
- Account/Process Keysâ€” Provide the link between the tax procedure and the GL accounts to which tax data is posted. This helps in automatic tax account assignments. To enable that these keys have the necessary information for automatic assignment, you need to define the following:
- Posting keys (unless you have a specific requirement, it will be sufficient to use the GL posting keys: Debit: 40, Credit: 50)
- Rules to determine on which fields the account determination is to be based (such as the tax code or country key)
- Tax accounts to which the postings need to be made