VAT Exemption Texts and Automated Replacement of VAT Codes in M3

This document describes the M3 solution for printing VAT exemption texts for VAT exempt and zero-rated goods on customer invoices. It also describes how to replace the VAT codes that are normally retrieved by M3 Business Engine automatically according to user-defined rules to comply with EU VAT rules and legislation in complex VAT scenarios.

This information is useful when carrying out the procedure described in Define VAT Exceptions.

Outcome

VAT documents, such as a regular invoice, a credit note, or a corrective invoice, can be created in M3 without VAT being calculated in one of these invoicing processes:

Affected Invoicing Processes in M3

Process

Comment

Customer order invoicing

'CO Invoice. Print' (OIS180), 'CO Invoice. Post-Process' (OIS196)

Service order invoicing

'SO Invoice. Print' (SOS180), 'SO Invoice. Post-Process' (SOS196)

Invoicing of rental order

'Rental Invoice. Display/Credit' (STS350), 'Rental Invoice Proposal. Create' (STS800), 'SO Invoice. Print' (SOS180), 'SO Invoice. Post-Process' (SOS196)

Project order invoicing

'Project Invoice. Print' (POS180), 'Project Invoice. Post-Process' (POS196)

Invoicing of maintenance customer order

'Maintenance Invoice. Print' (COS180), 'Maintenance Invoice. Post-Process' (COS196)

Manual invoicing

'Customer Invoice. Enter Manual' (ARS120)

Sale of fixed assets

'Fixed Asset. Sell' (FAS130)

Time accounting invoicing

'TA Invoice. Create Proposal' (TAS130)

Inter/Intra-division invoicing

'Internal Invoice. Create' (MFS100)

Penalty interest invoicing

'Interest Invoice. Open' (ARS160)

Invoicing for self-billing of supplier

'Supplier Invoice Proposal. Generate for SB' (PPS116)

Customer debit notes

'Payment Received. Record' (ARS110)

Customer credit memos

'Payment Received. Record' (ARS110)

These types of invoices are not affected:

Background

Both global and local legislation regulate the charging of VAT. Within the European Union (EU), VAT is normally collected on business transactions that involve supplies of goods and services within the EU. A supply can be standard-rated, reduced-rated, zero-rated or exempt. The exact rates are locally defined. For example, there is a reduced VAT rate of 5% for installation of energy-saving materials in the United Kingdom.

Note:  VAT Exemption and Zero-Rated Supplies

No tax is payable on VAT-exempted supplies and the party making the supply cannot normally recover any of the VAT on their own expenses. For zero-rated supplies, VAT is not payable either. However, zero-rated supplies are treated as taxable supplies in all other respects and the party making the supply can recover receivable or input VAT on their own business expenditure.

For zero-rated supplies and exempt supplies, global and local legislation may stipulate that a VAT exemption text must be printed on the customer invoice. The text should inform the recipient of the invoice document the reason why VAT has not been added or calculated on a specific invoice line.

The M3 solution

Overview of M3 solution

You define five tables in 'Generic Object Control Table. Open' (CMS017/B), a program accessed from 'Available Object Control Parameters. Open' (CMS016):

Each table consists of up to ten lines. Each line consists of up to four control objects, each one representing different types of values such as Customer or VAT code. Each line has a priority order that determines in which order M3 Business Engine searches for a match. The lines with the highest priority.

From (CMS017) you continue the configuration in 'VAT Exception. Open' (TXS020). There you select exact values for each line in the table in priority order. If the line in (CMS017) contains control objects for customer and VAT code, you enter the IDs of the customer/supplier and VAT code that will trigger an action together with a valid date range. If the line in (CMS017) is part of the table for VAT exemption texts, you also enter an optional text in each applicable language for the line.

In case of an exact match of values for replacement of VAT codes when entering an order, M3 automatically replaces the VAT code with the replacement VAT code you selected. If there is an exact match against your settings for VAT exemption texts, such a text is printed automatically on the invoice.

VAT Exemption Agreements in (TXS020)

Transaction type 5 – VAT exemption agreements – in (TXS020) is based on an Italian requirement and applies to customer orders and service orders in triangular trade only. The intermediary enterprise in triangular trade – the party purchasing goods in order to sell it to end users – can apply to be VAT exempt instead of first having to pay and then reclaim the VAT afterwards. A VAT exemption agreement is valid for a specific period of time, specific customers and items. It also defines a maximum amount, the currency and the exchange rate to use. The company registers each VAT exemption agreement as one line per priority in (TXS020). A VAT exemption agreement always overrules any exact matches against other transaction types in (TXS020). In other words, if there is a match against both a line for replacement VAT code in external sales and a line for a VAT exemption agreement, the latter overrules the former.

When the company invoices an order in 'CO Invoice. Print' (OIS180) or 'SO Invoice. Print' (SOS180), M3 Business Engine matches each order line against the lines in (TXS020). If there is an exact match and the accumulated invoiced amount plus the net amount (minus VAT) is lower than the maximum amount, the replacement VAT code that was selected for the line in (TXS020) to use for VAT exempt goods and services is applied to prevent VAT from being calculated. M3 Business Engine then prints the agreement number and the agreement date on the invoice line. If you want a more detailed exemption text, it is possible to use a unique replacement VAT code to which you connect a VAT exemption text (transaction type 1).

If there is no exact match between the order line and a line in (TXS020), VAT is calculated as normal. The same applies if the accumulated amount exceeds the maximum amount stipulated in the VAT exemption agreement; note, however, that the matching then automatically stops and M3 Business Engine will not continue the search based on VAT exemption agreements with lower priority.

Constraints

Since M3 Business Engine makes the replacement of VAT codes for VAT exemption agreements at order invoicing instead of when placing the order, the original VAT codes remain on the order lines. The reason for this solution is the use of an accumulated value displayed for each line for a VAT exemption agreement in (TXS020/E); changing or deleting order lines would otherwise not be reflected in the accumulated value.

The solution for VAT exemption agreements is not designed to manage charges on order headers or order lines. If the company has a separate agreement for charges, it is possible to set up a line with lower priority in (CMS017) with control objects from the customer master file only, that is, no item-dependent control objects, in order to include charges in the matching. This is work-around solution, though.

General control objects

The table below lists the objects you can select in (CMS017) when you define a table to use as a basis for the VAT exceptions. The objects available depend on the type of table you are defining, for example, a table for internal sales. The 'Applicable' column defines for which purpose you can use the respective control object: for printout of VAT exemption texts, for external and internal sales (both included in the term "sales"), for external purchases, and for VAT exemption agreements.

Object

Description

Selectable Values in (TXS020)

Applicable

&BSCD

Base country

Select among country codes defined in (CRS045) to capture order lines and invoices with these country codes.

Exemption texts, sales, purchases

&CASE

Case

Select among nine main scenarios where at least two parties of the triangular trade – base country, From/To country and third-party country – are located in different states. M3 Business Engine automatically identifies which case applies to each business transaction based on the countries involved. See a specification of each scenario in the table following this table.

The &CASE object was introduced to manage scenarios that include triangular trade involving two EU member states only. &CASE is able to manage all triangular trade scenarios. You can use &CASE in combination with &TRIA so that M3 Business Engine selects a different VAT code for an external sale than if the sale is internal, for example, or replace &TRIA completely with &CASE, if this is in accordance with the local legislation and its definition of triangular trade.

Sales, purchases

&CEXE

Customer exemption agreement exists

Alternatives: 0 =No. 1 = Yes. Select among customers with a contract number for tax exemption in (CRS610/L). For Canadian taxes, the field for tax exemption contract number stores a special registration number (SRN) that indicates that all parts, service and equipment the customer purchases automatically are tax exempt. There could be several reasons for such an exemption, for example, that the customers are resellers who hold their own Provincial Sales Tax registration or that the customers hold a Generic Exemption Certificate.

Sales

&CRED

Type of invoice

Alternatives: 0 = Invoice. 1 = Credit note. 2 = Corrective invoice. – For customer invoices entered manually in 'Customer Invoice. Enter Manual' (ARS120) the invoice type is indicated by FAM function AR20. For customer orders and service orders, the parameters for the order type determine the type of invoice.

Sales

&CUNO

Customer

Alternatives: 0 = Invoice. 1 = Credit note. 2 = Corrective invoice. – For customer invoices entered manually in 'Customer Invoice. Enter Manual' (ARS120) the invoice type is indicated by FAM function AR20. For customer orders and service orders, the parameters for the order type determine the type of invoice.

Sales

&CUNO

Customer

Select among customers registered in 'Customer. Open' (CRS610)

Sales, exemption agreements

&ECAR

Area

Alternatives for sales: Select among states registered in (CRS046). The state captures manually entered customer invoices and customer orders with this state in the address. – Alternatives for purchases: On the purchase side, the state captures purchase orders with this state registered for the suppliers. M3 Business Engine retrieves the state automatically from (CRS620/E) when you register the purchase order. – M3 Business Engine validates the state against the base country.

Exemption texts, sales, purchases

&EEXC

Equipment exemption agreement exists

Alternatives: 0 = Yes. 1 = Yes. Select among order lines with a serialized equipment that has a contract number for tax exemption in (MMS240/G). For Canadian sales tax, the field for tax exemption contract number is used to store information that the piece of equipment is tax exempt under the PM&E legislation ("FIN 453/M") as well as information about the purchase order that indicates that the purchase is tax exempt under the same legislation ("stamped PO"). This control object can be used in combination with &INAP in (CMS017).

Sales

&EUVT

EU VAT

Alternatives: 0 = No EU VAT transactions. 1 = Only EU VAT transactions. – To identify whether an order or a customer/supplier invoice is an EU VAT transaction, M3 Business Engine compares the base country and the To country. The invoice is an EU VAT transaction if both countries are different, belong to the EU and have separate VAT registration numbers.

Exemption texts, sales, purchases

&FISR

Fiscal representation

Alternatives: 0 = No. 1 = Yes. – The value indicates whether there is a fiscal representation in the customer's country, as defined in (TXS030). If so, M3 retrieves the VAT registration number from the fiscal representation.

Sales

&FTCO

From/To country

Select among country codes defined in (CRS045) to capture order lines and invoices with these country codes.

Exemption texts, sales, purchases

&INAP

Industry application

Select among order lines connected to a specific industry application in (MOS295). The industry application refers to the end use of items or equipment.

Sales

&ITNO

Item

Select among items on order lines. – Function program CCHKIFV, the program that checks if VAT is applicable, retrieves the actual values for this object from the order lines, not from the item master table, (MMS001).

Sales, purchases, exemption agreements

&PRNE

PST/QST registration number exists

Select among items on order lines. – Function program CCHKIFV, the program that checks if VAT is applicable, retrieves the actual values for this object from the order lines, not from the item master table, (MMS001).

Sales, purchases, exemption agreements

&PRNE

PST/QST registration number exists

Alternatives: 0 = No. 1 = Yes. – The value indicates whether the supplier has a tax registration number in a specific state defined in 'Supplier Tax Number. Open' (CRS628); the program is accessed from (CRS610). For Canadian sales tax, the state is synonymous to province; PST refers to the Provincial Sales Tax and QST to Quebec Sales Tax. However, you can use the field for any kind of tax registration number.

Purchases

&SUNO

Supplier number

Select among suppliers registered in (CRS620.

Purchases

&TRIA

Triangular trade (third-party trading)

Alternatives: 0 = No triangular trade. 1 = Yes, sale of goods with direct delivery from an external supplier based on a customer order with line type 2. 2 = Yes, triangular trade with inter-division supply via MUC order. 3 = Yes, purchase of goods based on a purchase order by the company acting as intermediary party ("middleman") in triangular trade.

M3 Business Engine automatically identifies a business transaction as being part of a triangular trade, that is, as a &TRIA 1, 2 or 3 transaction, by means of function program CCHKIFVAT Alternatives 1 and 2 are applicable to sales only. For alternative 1, the third party in the triangular trade is the external supplier. For alternative 2, the third party is the delivering warehouse. Alternative 3 is applicable to purchases only. In such a case, the third party of the triangular trade is the customer on the customer order that is connected to the purchase order. When the company owing the original customer order records the supplier invoice and matches it to the purchase order that was created based on the external customer order, CCHKIFVAT identifies the transaction as a &TRIA 3 transaction. – The following requirements apply for alternatives 1– 3: a) There are three parties involved in at least two different EU member states. b) Each party has a VAT registration number in the respective country. The latter requirement applies even when one party is located in a country that is not an EU member state.

For information about triangular trade and the scenarios that M3 Business Engine supports, see VAT Management in M3 Business Engine.

Both

&TXAP

Tax applicable

For sales, select customers with one of the following 'Tax applicable' alternatives selected in (CRS610/J) or in (MFS610/E) or for the customer order: 0 = No VAT is calculated. 1 = VAT is calculated. 2 = No VAT is calculated since the customer has a VAT exemption agreement. – For purchases, select suppliers with one of the following 'Tax applicable' alternatives selected in (CRS624/F) or for the purchase order: 0 = No tax calculated. 1 = The VAT code is retrieved from the combination of item and warehouse in (MMS002). If there is no VAT code there, M3 regards the item as a non-taxable good. If the item itself has no connection to a warehouse in (MMS002), M3 searches for a VAT from the item in (MMS001) instead. 2 = The VAT code is retrieved from the following tables in the following order: the combination of item and warehouse in (MMS002), the item in (MMS001) and the supplier in (CRS624) or (MFS620/E). If there is no VAT code in the first table, the search continues in the following tables.

Exemption texts, sales, purchases

&VRNE

VAT registration number exists

Alternatives: 0 = The customer/supplier has no VAT registration number. 1 = The customer/supplier has a VAT registration number.

Exemption texts, sales, purchases

&VTCD

VAT code

Select among VAT codes defined in (CRS030).

Exemption texts, sales, purchases

IDCFI1

User-defined field 1

Select among items with a specific value in (MMS001/G).

Sales, purchases

IDCFI2

User-defined field 2

As above.

Sales, purchases

IDCFI3

User-defined field 3

As above.

Sales, purchases

IDCFI4

User-defined field 4

As above.

Sales, purchases

IDCFI5

User-defined field 5

As above.

Sales, purchases

IICFI3

Free field 3

Select among suppliers with a specific value entered in company-defined field 3 in (CRS624/G).

Purchases

IICFI4

Free field 4

Select among suppliers with a specific value entered in company-defined field 4 in (CRS624/G).

Purchases

IISERS

Service code

Select among suppliers with a specific service code selected in (CRS624/F).

Purchases

IISUCL

Supplier group

Select among suppliers connected to a specific supplier group in (CRS624/E).

Purchases

MMACRF

User-defined accounting control object

Select among items with a specific accounting control object in (MMS001/E).

Sales, purchases

MMECC

Consumption code – trade statistics

Select among items with a specific consumption code in (MMS001/G).

Sales, purchases

MMEVGR

Environment group

Select among items with a specific environment group in (MMS001/G).

Sales, purchases

MMGRTI

Group technology class

Select among items with a specific group technology class in (MMS001/F).

Sales, purchases

MMGRTS

Distribution group technology

Select among items with a specific distribution group technology in (MMS001/F).

Sales, purchases

MMITCL

Product group

Select among items with a specific product group in (MMS001/E).

Sales, purchases, exemption agreements

MMITGR

Item group

Select among items belonging to a specific item group in (MMS001/E).

Sales, purchases, exemption agreements

MMITTY

Item type

Select among items with a specific item type in (MMS001/E).

Sales, purchases, exemption agreements

MMPRGP

Procurement group

Select among items with a specific procurement group in (MMS001/E).

Sales, purchases

MMSALE

Sales item

Select among items with a specific alternative selected in the 'Sales item' field in (MMS001/G).

Sales, purchases

MMTPCD

Item category

Select among items with a specific item category in (MMS001/G).

Sales, purchases, exemption agreements

OKCFC3

Free field 3

Select among customers with a specific value entered in company-defined field 3 in (CRS610/I).

Sales, exemption agreements

OKCFC4

Free field 4

Select among customers with a specific value entered in company-defined field 4 in (CRS610/I).

Sales, exemption agreements

OKCFC8

Free field 8

Select among customers with a specific value entered in company-defined field 8 in (CRS610/I).

Sales, exemption agreements

OKCFC9

Free field 9

Select among customers with a specific value entered in company-defined field 9 in (CRS610/I).

Sales, exemption agreements

OKCUCL

Customer group

Select among customers with a specific customer group selected in (CRS610/F).

Sales

OKCUTP

Customer type

Select among customers with a specific customer type selected in (CRS610/E).

Sales

OKSDST

OKSDST District

Select among customers with a specific district selected in (CRS610/F).

Sales, exemption agreements

Cases

Below are some cases illustrating the M3 solution.

Related topics