Why is there a lack of trust in the SAP system?
From my perspective, a central issue is the disconnect between the tax department and the SAP system, or rather the relevant processes. It is not uncommon for a company's tax managers to only see the VAT data that arrives in financial accounting (SAP FI). The origins of this data - specifically the underlying transactions in procurement (MM) and sales (SD) - remain obscured. In my experience, there is a lack of transparency and the ability to drill down into the information underlying the tax reporting data. Consequently, the submission of tax returns to the tax authorities is often accompanied by significant unease.
Another problem lies in the technical implementation: VAT rules, such as automated tax code determination, are configured by IT and may only be signed off once by the tax department. When it comes to maintaining or extending the tax logic (which is continuously required due to the ever-changing processes in daily sales operations), tax managers are frequently not involved. This leads to a situation where the tax department perceives the system as a "black box," making it difficult to understand exactly how specific VAT scenarios are being treated.
Operational flexibility at the expense of the tax department
Often, sales and purchasing operate with extensive authorizations in the system without being aware of the underlying tax implications. Since SAP provides few hard validations by default, users can easily initiate supplies of goods that are critical from a tax perspective. This ranges from the use of specific Incoterms that trigger unintended tax liabilities, to inactive supplies in countries where the company is not VAT-registered. The result is a classic misalignment of responsibility: while the business generates revenue, the substantial effort for correction and risk mitigation ends up almost exclusively on the desk of the tax department.
Manual Interventions in SAP SD Tax Determination
In the SAP sales module "Sales and Distribution" (SAP SD), the VAT assessment of transactions is generally automated (Tax Determination). From a functional perspective, I believe that ownership of the tax determination rules must reside within the Tax Department. Consequently, the sales team does not need to make day-to-day decisions regarding the VAT treatment of individual business transactions. However, tax managers should be aware that during sales order creation, it is possible to manually intervene in the tax determination process. The Sales Order provides a range of fields at both the header and item level that allow values to be set manually; these values take precedence over the information automatically determined by the system during the tax determination process. At the header level (within the"Billing Document" tab), both the automatically determined departure country and destination country can be overwritten. This allows a cross-border transaction, for example, to be modified into a domestic transaction for tax determination purposes. Furthermore, the "Customer Tax Classification" parameter can be manipulated. This means a customer maintained as a business entity in the Master Data can be classified as a private individual for a specific business transaction, leading the tax determination to treat the case differently in many scenarios.
Figure 1: Manual override of VAT parameters in the sales order header.
At item level of an SAP sales order (within the 'Billing Document' tab), the material tax classification can be overridden in addition to the service rendered date, which serves as the tax determination date for identifying the valid tax rules. This allows a material, which is maintained in the master data as a taxable supply, to be declared as a tax-exempt supply by the user on a case-by-case basis.
Figure 2: Manual override of VAT parameters in the sales order item.
The Risks of insufficient integration
The concerns of the tax department are entirely justified. If tax stakeholders are not sufficiently integrated into the processes, it can lead to significant consequences. Incorrect configurations, master data, and automation rules within the SAP system can result in tax amounts being posted and reported incorrectly (either over- or under-calculated). Without a clear overview of the decision rules (tax determination logic) within the system, there is a lack of traceable documentation required for tax audits. In the worst-case scenario, weaknesses in the configuration and data processing within the SAP system can lead to tax back-payments, penalties, or even legal consequences.
How can the tax department build more trust?
From my experience, there are several approaches that the tax department can use to exert more influence on SAP system design and gain greater control.
- System check by external consultants: A targeted audit of the SAP system can reveal where tax risks exist and where adjustments are necessary. This should be performed - or at least accompanied - by a person who is familiar with the typical weaknesses in the mapping of VAT processes in SAP.
- Regular plausibility checks: Regular, systematic controls allow inconsistencies to be detected at an early stage. A solution well-tailored to the company's requirements, which automatically scrutinizes master data and transactional data, can provide valuable support here.
- Automation of tax determination: Transparent rule sets for automated tax determination can prevent errors caused by manual entries. "Transparent" in this context means that the rule set is configured not only on paper but also within the system in such a way that it can be fully understood by the tax department. Regarding the readability of the rules, some third-party solutions are superior to the tools provided by SAP standard (condition technique).
- Active participation in IT projects: Especially in migration projects, such as the SAP S/4HANA conversion, the tax department should be involved early on to ensure that all VAT requirements are taken into account.
- Improved communication with IT: A regular dialogue between the tax and IT departments can help bridge understanding gaps and help both parties find a common language.
Pressure from the "digital tax authorities"
The tax department is increasingly under pressure to act. While struggling internally for resources and visibility, external pressure is mounting from tax authorities that are becoming more technologically sophisticated and are identifying errors within the ERP landscape much faster. The days when tax auditors primarily relied on random sampling of paper-based documents are coming to an end. Today, auditors utilize powerful data analytics tools to fully scrutinize ERP data streams and uncover anomalies in mass data processing. Current drivers of this development include:
- Mandatory e-invoicing: With the introduction of the obligatory e-invoice in the B2B sector (implemented in phases in Germany since 2025), the focus is shifting toward structured data. Manual corrections on paper documents are no longer an option - the SAP system must deliver correct XML data from the very beginning.
- VAT in the Digital Age (ViDA): Through the ViDA initiative, the EU Commission plans to introduce digital reporting requirements (DRR) in near real-time.
- Digital interfaces: Standards such as the Electronic Financial Statements (XBRL filing) or international SAF-T (Standard Audit File for Tax) requirements force companies to provide their SAP data in an audit-compliant format at all times.
Conclusion: Security through transparent processes
The tax department does not have to rely blindly on IT - it can play an active role in establishing transparency. Through regular audits, the elimination of manual processes via automation, and deeper involvement in IT workflows, confidence in the SAP system can be sustainably improved. One thing is certain: as tax authorities gain more direct insight into a company’s digital landscape, vulnerabilities within the SAP system will be exposed faster and more clearly than ever before. Reliability in one’s own system is therefore no longer a "nice-to-have," but a mandatory requirement for risk mitigation. Those who address technical foundations early or seek support from experienced consultants minimize risks and ensure long-term legal compliance.
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 Lars Bohn Partner |
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