SAP and VAT simplified triangular

Triangulation is used to describe a ABC chain transaction, which involves three different parties where the products are shipped directly by party A to party C. Party B acts as intermediary, never physically receiving the products.

A cross-border triangulation sale with three parties in three different EU countries has the following VAT consequences. Without any special rules party B would be considered to take legal title either in the EU country of dispatch of the products or in the EU country of arrival. If party B is not VAT registered in these countries it will need to register for VAT purposes in one of these two EU countries.

2 VAT simplified triangular

In order to apply the simplified triangulation measures, the following requirements are set by the EU VAT Directive:

  • There must be 3 parties in the supply-chain, which are identified for VAT purposes in three different EU countries;
  • Party B, must not be established in the EU country of arrival of the goods (EU country C) and in the EU country of dispatch (EU country A);
  • The goods must be transported directly from EU country A to EU country C;
    Party C must be registered for VAT in the EU country where it receives the products (country C);
  • The transportation of the goods must be ordered / arranged in the first part of the chain (i.e. between party A and party B).

The simplified triangulation rules do not apply if party B is registered for VAT in the EU country of dispatch and/or established in the EU country of arrival, however not all EU countries apply this rule strictly and there are in practice many country specific requirements.

SAP and triangulation

Due to the country by country deviations of the standard rule there are many country specific rules for triangulation. That means that in the determination logic different local rules should be taken into consideration when Party B is VAT registered in either the Ship from country or the final Ship To country where the customer receives the goods.

If the supplier (i.e third party vendor) is not set up in SAP the ship from location will not be available in standard VAT determination during billing and sales.

Based on the above the consequence of the simplified triangular is that standard SAP often requires manual intervention. Staff ( sales order staff/customer services representatives) needs to be trained to manually determine triangulations and detective controls have to be set up that it is done correctly.

This manual intervention could be avoided if extra functionality is to standard SAP to recognize these triangular scenarios and all the country specific rules so it can deal with it in an automated way. That is part of the basic VAT determination functionality of Taxmarc™.


From Global Indirect Tax management written by Richard Cornelisse and Robbert Hoogeveen

About Richard Cornelisse

I advise multinational businesses in improving the efficiency and effectiveness of their Indirect Tax Function and Tax Control Framework. I started my career as a manager at Arthur Andersen and then became a partner in EY where I led the indirect tax performance team for Netherlands and Belgium. Currently I am a senior managing director of Phenix Consulting. I have over 20 years’ experience advising clients on international VAT issues. I am specialized in the tax aspects of financial transformations, shared service centre migration, and post merger integration work. I am also somewhat of a mentor, giving back to the profession. If you are interested in conversation and discussion, please feel free to contact me.
This entry was posted in Automating complex VAT flows in SAP, Control Framework, SAP add on, SAP enhancement point, SAP for VAT, SAP implementation, user exit, VAT automation, VAT Control and tagged , , , , , , . Bookmark the permalink.

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