A number of people have asked me about Ariba's new handling of 0% VAT as part of AN48, so I thought I would post a little more detail...


Problem:

  • Buyers need to understand whether 0% VAT rate is Exempt or Zero-rated on an invoice.
  • Prior to AN48, this information was captured in an unstructured way in the Tax Details Description or as buyer defined custom fields.

 

Solution:

With AN48, suppliers may indicate in their invoices if 0% VAT “Zero rated” vs. “Exempt” in the new Exempt Detail field.

 

Benefits:

  • Buyers and suppliers will now have better clarity with respect to zero rated vs exempt VAT.
  • Buyers now have a structured approach to determine tax code in their ERP system (These typically are different for Zero Rated or Exempt), and to develop automated approval rules for tax managers to address reclamation risk.

 

Solution Details:

The Exempt Detail field applies when the “Tax Category” = “VAT” when tax rate is 0%.

 

It is required for if the buyer has enable the "Require explanation for zero-rate VAT" business rule on the supplier network.

 

exempt.bmp

 

The Exempt Detail field the above business rule applies to all submission methods.  The cXML guide and EDI guides (both x.12 and EDIFACT) have been appropriately updated to reflect these changes.  For Ariba’s EDI standard, theTaxDetail exemptDetail field is mapped to TXI06(in X12 810), and TAX07 in (EDIFACT INVOIC).

 

exempt.bmp

 

Ariba has additionally added this field to the “Tax Book Report”.

 

Buyer Change Impact:

  • Our Ariba Supplier Network Only buyer who integrate directly with their ERP systems and CD buyers may take advantage of this right away; however, you will need to work with your IT organization to make the appropriate interface and workflow changes to leverage this capability.
  • More work by Ariba is required in a future release for OnDemand (P2P and InvoicePro) to consume and display this field, so that it can potentially be used in your work flow and output in your approved invoice interface “OK to Pay”.

 

Why is this important to buyers, suppliers, and the tax authority?  

The text book difference between zero rated and exempt is as follows:

 

  • Zero rated VAT - There are some goods and services that are zero-rated. This means that they're taxable for VAT, but the VAT rate is zero per cent.
  • Exempt VAT - There are some goods and services that are exempt from VAT. Exempt goods and services are not taxable for VAT.  

 

If a supplier sells zero-rated goods or services, the supplier can generally reclaim VAT on any purchases that relate to those sales.  If a supplier sells only exempt goods or services, the supplier cannot normally reclaim VAT on his/her purchases.

 

Also, VAT rates are either standard, reduced, zero, or exempt.  The intention of this flag is to distinguish between zero and exempt since in Ariba they are both technically 0%.  Buyers, suppliers, and tax authority can quite easily distinguish standard vs. reduces using the Ariba percent (e.g. in UK standard is 17.5% and reduced is 5%.)