Deferred Tax in Central Finance

S/4HANA CENTRAL FINANCE

Deferred Tax

Document Version: 1.0 – Final Date: July 3, 2020

Deferred Tax in Central Finance

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TABLE OF CONTENTS

1 OVERVIEW ...................................................................................................................................... 4
1.1 Deferred Taxes Configuration....................................................................................................... 5
1.1.1 Define Deferred Tax Rules ............................................................................................................ 5
1.1.2 Assign Deferred Tax Rules to Company Codes ......................................................................... 5
1.1.3 Create Deferred Tax Codes ........................................................................................................... 6
1.1.4 Create Deferred Tax Account........................................................................................................ 6
1.1.5 Assign Deferred Tax Account to Deferred Tax Code ................................................................. 7
1.2 Deferred Taxes Handling ............................................................................................................... 8
1.2.1 Deferred Tax Process Steps ......................................................................................................... 9
2 DEFERRED TAXES IN CENTRAL FINANCE .............................................................................. 12
2.1 Central Finance Features ............................................................................................................ 13
3 BUSINESS SCENARIOS .............................................................................................................. 16
3.1 Central Finance without Central Payments ............................................................................... 17
3.2 Central Finance with Central Payments Activated from Day 1 ............................................... 19
3.3 Central Finance with Subsequent Activation of Central Payments ........................................ 20
4 RESTRICTIONS............................................................................................................................. 23

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Deferred Tax in Central Finance

1 OVERVIEW

Deferred taxes are taxes which have to be reported after the payment of the invoice is made or received. This
is a legal requirement in some countries, for example, France. In these cases, the tax amounts are posted on
a special deferred tax account and only after the payment is made, the tax amount is transferred from the
deferred tax account to the corresponding normal tax account and reported to the authorities.

In Central Finance, deferred tax limited functionality was introduced in S/4HANA OP 1909 FPS1, however
starting with 2020 release, the following additional scenarios for deferred taxes are added:

 Initial Load & Central Payment- Invoices

 Initial Load & Central Payment- Clearing Documents & Tax Transfer Documents

 Initial Load & Central Payment- Down Payments

 Initial Load & Central Payment- Reversal

 Real-Time Replication & Central Payment - Clearing Documents & Tax Transfer Documents

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1.1 Deferred Taxes Configuration

1.1.1 Define Deferred Tax Rules

Deferred tax rules are used by the program in each company code. They control the deferred tax process.

IMG->Financial Accounting (New) → General Ledger Accounting (New) → Periodic Processing → Report →
Sales/Purchases Tax Returns → Deferred Taxes → Define Deferred Tax Rules

1.1.2 Assign Deferred Tax Rules to Company Codes

Deferred tax functionality is enabled per company code.

IMG->Financial Accounting (New) → General Ledger Accounting (New) → Periodic Processing → Report →
Sales/Purchases Tax Returns → Deferred Taxes → Assign Deferred Tax Rules to Company Codes

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1.1.3 Create Deferred Tax Codes

IMG->Financial Accounting (New) → Financial Accounting Global Settings (New) → Tax on Sales/Purchases
→ Calculation → Define Tax Codes for Sales and Purchases

1.1.4 Create Deferred Tax Account

Deferred tax accounts are used to temporarily store the tax amount, until it is transferred to the normal tax
account. It can be a copy of the corresponding tax account. In some countries, deferred taxes are posted as
open items so the deferred tax account must be defined with the “Open Item Management” checkbox set.

IMG->Financial Accounting (New) → General Ledger Accounting (New) → Master Data → G/L Accounts →
G/L Account Creation and Processing → Edit G/L Account (Individual Processing) → Edit G/L Account
Centrally (FS00)

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1.1.5 Assign Deferred Tax Account to Deferred Tax Code

A deferred tax account must be assigned to each deferred tax code (for each transaction key, COA and
country)

IMG->Financial Accounting (New) → Financial Accounting Global Settings (New) → Tax on Sales/Purchases
→ Posting → Define Tax Accounts

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1.2 Deferred Taxes Handling

In the standard system, deferred taxes are processed during invoice posting and after invoice payment.
In the first step, if the invoice is liable for deferred tax, then, it is posted with a deferred tax code instead of the
normal tax code. In addition, the deferred tax account is used, instead of the normal tax account.
In the second step, after the invoice is fully or partially paid, a tax transfer report (RFUMSV50) is executed to
settle the deferred tax. This report creates a tax transfer document that transfers the tax amount from the
deferred tax account to the normal tax account. Furthermore, it changes the deferred tax code to the normal
tax code.

From technical perspective, the deferred taxes are stored in table DEFTAX_ITEM. The entries of the table
are stored in different line categories, depending on the deferred tax processing step. The LINE_TYPE field is
used to identify these entries:
IN - Represents an invoice that contains at least one deferred tax code.
PA - Represents a payment (partial or full), that clears a deferred tax item.
DP - Represents a down payment that contains at least one deferred tax code.
DC - Represents a down payment clearing (partial or full), that clears a deferred tax item.
BE - Represents a bill of exchange that clears (partial or full) a deferred tax item.
RL - Represents a tax transfer document that transfers (partial or full) tax amount of the invoice, from the
deferred tax account to the normal tax account. This entry is triggered by the Deferred Tax Transfer Report
and refers to entries in line types PA, DC or BR.

Notes
There are two reports used for deferred tax settlement: RFUMSV25 and RFUMSV50.
RFUMSV25 uses BSEG and BSET tables, while RFUMSV50 is based on the new table DEFTAX_ITEM. The
older report, RFUMSV25, can still be used, however it did not receive any functional updates since 2014. The
current version of RFUMSV50 covers all business scenarios supported by RFUMSV25 and more. SAP
recommendation is to use report RFUMSV50. Furthermore, Central Finance only supports the new
deferred tax approach (RFUMSV50)
RFUMSV50 and RFUMSV25 must not be executed for the same tax codes in the same fiscal period.
For customers who, due to historical reasons have been using report RFUMSV25, migration to
RFUMSV50 is needed. Information about the migration steps can be found in note 2074813

The function modules used by the system for deferred tax processing are registered in the following BTEs
(Business Transaction Events):
BTE 1025 -> CREATE_DEFTAX_ITEM
BTE 1030 -> SET_DEFTAX_ITEM

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BTE 1040 -> CREATE_DEFTAX_ITEM_REVERS

BTE 1050 -> CREATE_DEFTAX_ITEM_MR1M

The business transaction events for the new solution for deferred tax (using report RFUMSV50, table
DEFTAX_ITEM) are delivered in an active state in all releases beginning with ERP 6.0. The new deferred tax
can cause problems in countries where this solution is not used. These BTEs perform strict tests for documents
containing tax codes for deferred tax.
The BTEs can be deactivated in transaction FIBF. This deactivates the functionality of 'new deferred tax' for
all company codes in all clients on the system. This means that no data is written to table DEFTAX_ITEM at
posting time. Report RFUMSV50 can still be started, but it will not process new documents anymore. If
problems arise in one country, but the new deferred tax is used in another country, the BTEs should not be
deactivated completely. In this case it is possible to restrict the BTEs to be active only in certain countries
using the column 'country' in transaction FIBF. More details can be found in note 913805.

1.2.1 Deferred Tax Process Steps

Below is a detailed explanation of the deferred tax processing steps, including examples from a test system:

Step 1: Document posting

Vendor Invoice with deferred tax code

DEFTAX_ITEM

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During FI document posting, if the line item contains a deferred tax code, then an entry is made in table
DEFTAX_ITEM, of line category IN (invoice). The entry is created by two function modules:
CREATE_DEFTAX_ITEM and SET_DEFTAX_ITEM. If the financial document contains multiple deferred tax
codes, then a separate IN entry is created for each of them.
Step 2: Invoice payment

Payment document

DEFTAX_ITEM

During payment, if the posted payment clears an invoice for which an IN entry exists, then the system creates
one or more PA (payment) entries in DEFTAX_ITEM. The leading document for these entries is always the
cleared invoice.

Step 3: Deferred tax settlement

Tax transfer document

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Deferred Tax in Central Finance

DEFTAX_ITEM

To create the tax transfer documents and settle the deferred tax, report RFUMSV50 must be executed. The
report checks if there are IN and PA entries in DEFTAX_ITEM, for each selected invoice.
Then, the report determines the tax amount that must be transferred from the deferred tax account to the
corresponding tax account. The tax transfer document is posted via Batch Input. The original invoice number
is stored in the Document Reference (XBLNR) field of the tax transfer document. In the same time, an entry of
category RL is created in DEFTAX_ITEM table. If the complete deferred tax amount was transferred to the
corresponding tax account, then the IN entry is marked as cleared. If not, the invoice is considered again in
the next run.

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Deferred Tax in Central Finance

2 DEFERRED TAXES IN CENTRAL FINANCE

Documents are transferred differently from source systems to Central Finance system, depending on the time
they are posted:

Initial Load – Open Items

Documents which are not cleared until the start of documents load. These are incomplete documents, as only
the open line item is transferred and certain information is lost (expense/revenue lines, tax information).

Initial Load – Balances

For documents posted between the start date of Initial Load and the start date of the documents load, only the
account balances are transferred to CFIN.

Initial Load – Documents

The complete documents posted in the source system, after the start date of documents load, are replicated
to CFIN.

Ongoing Replication
Complete documents posted when the ongoing replication is activated are transferred, in real-time, to Central
Finance.

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2.1 Central Finance Features

Deferred taxes technical approach is different for these phases and, in the latest release (2020), some code
changes have been made to enable the deferred tax transfer to Central Finance.

The first important change is related to Initial Load of Open Items. The source documents which are affected
are customer/vendor invoices, with a deferred tax code, that have not been cleared yet. As mentioned above,
they are replicated without the tax information. Deferred tax is relevant for further processing (explained in the
previous chapter), which means the deferred tax information must be transferred to Central Finance even for
these open items. To enable this, the complete document is extracted in the CFIN staging tables, instead
of only the open line item.
A new reference procedure (AWTYP) is created for these items with value DTAX to distinguish from the normal
open items which are extracted with AWTYP=APAR. Furthermore, there is a new transaction type
(TRANSACTION_TYPE) used to separate open deferred tax items with open vendor items (value F) from
open deferred tax items without open vendor items (value W).
A new posting logic was also developed. This logic posts the invoice as if it would be a document of the
Documents phase (since the original document is now extracted, instead of only the open line items).
If the source document was posted in the Balances phase, then this new logic also posts a correction document
in Central Finance. This correction document adjusts the balances of the accounts which have been
transferred twice (during Balances phase and during Open Items phase, as part of the new complete
document). The example below explains this process:

Invoice posted in source system

Line item Posting Key Account Description Amount Currency Tax
1 31 VMAP01 Vendor 01 -1000 EUR D1
2 40 416300 Water 834,34 EUR D1
3 40 154050 Deferred Tax 159,66 EUR D1

Documents posted in CFIN at Initial Load:

Balances phase
Line item Posting Key Account Description Amount Currency
1 50 999998 Subst acc for vendor -1000 EUR
2 40 999999 Migration Account 1000 EUR

Line item Posting Key Account Description Amount Currency

1 40 416300 Water 834,34 EUR
2 50 999999 Migration Account -834,34 EUR

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Deferred Tax in Central Finance

Line item Posting Key Account Description Amount Currency

1 40 999997 Subst acc for tax 159,66 EUR
2 50 999999 Migration Account -159,66 EUR

Open Items phase (original invoice is posted)

Line item Posting Key Account Description Amount Currency Tax
1 31 VMAP01 Vendor 01 -1000 EUR D1
2 40 416300 Water 834,34 EUR D1
3 40 154050 Deferred Tax 159,66 EUR D1

Account balances before correction posting

 VMAP01 (vendor): -1000
 999998 (subst acct for vendor): -1000

 416300 (water): 1668,68 (834,34*2)

 999997 (subst acc for tax): 159,66

 154050 (deferred tax): 159,66

 999999 (migration account): 0

The accounts marked with red have an incorrect balance. This is because the balance of the P&L (water)
account is doubled (since it is extracted twice) and the substitution accounts are not balanced to 0 (as the
open items are not transferred anymore, rather the complete document).

Correction document posted in CFIN automatically

Line item Posting Key Account Description Amount Currency
1 40 999998 Subst acc for vendor 1000 EUR
2 50 416300 Water -834,34 EUR
3 50 999997 Subst acc for tax -159,66 EUR

Account balances after correction posting

 VMAP01 (vendor): -1000
 999998 (subst acct for vendor): 0

 416300 (water): 834,34

 999997 (subst acc for tax): 0

 154050 (deferred tax): 159,66

 999999 (migration account): 0

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The correction document can be identified by the following fields in Central Finance:
 GLVOR = ‘RFBU’
 BKTXT= ‘CFin correction document’
 BELNR= ‘CFIN_INIT’
 XBLNR= reference to the original document-> DOC NUMBER + COMPANY CODE+ FY
 BELN_SENDER=’CFIN_BCORR’
Example:

Another new feature of the deferred tax, in context of Central Finance, is the correction report
RFINS_CFIN_CORR_DEFTAX_ITEM. The report is executed in Central Finance after Initial Load is complete,
and will add the missing entries, PA (payment) and RL (tax transfer) in the DEFTAX_ITEM table.
By default, during Initial Load, only the IN entries are replicated to Central Finance. This report makes sure
that DEFTAX_ITEM table has the same information in Central Finance as in the source system. The system
does not extract the DEFTAX_ITEM table from the source system

Finally, the Configuration Consistency Check Report has been enhanced to check the deferred tax relevant
settings in target vs source systems.

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3 BUSINESS SCENARIOS

Central Payments functionality enables organizations to make payments centrally. The solution is optional and
can be implemented after the Central Finance reporting phase or it can be implemented from day 1, thus
transforming Central Finance into an operational system. Once activated, payments will be made exclusively
in the Central Finance system.

In this context, the following 3 business scenarios should be considered and analyzed from deferred taxes
perspective:

1. Central Finance without Central Payments (reporting system only)

2. Central Finance with Central Payments activated from day 1 (operational system)
3. Central Finance with Central Payments activated in the later point in time (reporting and operational)

For Initial Load, the process is the same for each of the business scenarios, from deferred tax point of view.
All historical invoices, payments and settlement documents are added in the source DEFTAX_ITEM table.
During Initial Load, the system adds only the extracted invoices (IN) in the DEFTAX_ITEM table in CFIN.
After Initial Load is complete, the correction report must be run to add the missing PA and RL items.

In the following subchapters, the real-time replication behavior in different scenarios is explained.

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3.1 Central Finance without Central Payments

In this scenario Central Finance is used only as a reporting system, with no intention of activating Central
Payments in the near future. In this case, the payments are posted in the source system and the official tax
reporting is done always in the source system. The tax settlement document does not create any entries in
DEFTAX_ITEM table in Central Finance.
In this scenario, since tax reporting is done from the source system, the entries in DEFTAX_ITEM in Central
Finance are not mandatory. If any reporting is required from this table from CFIN, then two reports must be
manually executed to create the missing entries:

Deferred tax transfer report RFUMSV50 in test mode:

The report is executed in test run only. It will create the RL entries for all clearing documents, which are not
yet processed, but it will not create the actual tax transfer documents in ACDOCA.

Deferred tax correction report RFUMSV53 (deferred tax toolbox):

As explained in note 2379998, RFUMSV53 is used to identify and solve different types of deferred tax
inconsistencies. For example, BTEs have not been activated when the FI document was posted and now, the
missing line for this FI document has to be created in table DEFATX_ITEM or in case of the decision to migrate
to the new deferred tax solution (see note 2074813)
In context of Central Finance, RFUMSV53 executed together with RFUMSV50 (in test mode) will populate the
missing entries in DEFTAX_ITEM table.
The report simulates the call of BTE 1025- CREATE_DEFTAX_ITEM. This BTE is typically called when the FI
document is posted and this BTE creates records in DEFTAX_ITEM. The report compares existing data in
DEFTAX_ITEM and new data returned by new version of FM CREATE_DEFTAX_ITEM. If there is a difference
between existing data and the new one you could replace the old data by the new one.

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3.2 Central Finance with Central Payments Activated from Day 1

If Central Payments is activated from the beginning, then all payments and tax settlement are done exclusively
in the Central Finance system and the tax reporting is done from the Central Finance system.
The DEFTAX_ITEM is populated completely only in CFIN, while in source system it contains the historical data
information.

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3.3 Central Finance with Subsequent Activation of Central Payments

In this scenario, the Central Finance system is used as a reporting system in the initial phase, with Central
Payments being activated in a later point in time. In this case, payments and tax settlements are executed in
the source system and replicated to Central Finance, until a cutoff date when payments and settlements are
executed exclusively in Central Finance.
Before activating Central Payments, the two reports RFUMSV50 and RFUMSV53 must be executed in Central
Finance, as explained in the chapter 3.1 . These two reports will create and correct the RL entries from the
DETAX_ITEM table, which are not added by default during Real-Time Replication. This step is mandatory
because once Central Payments is activated tax reporting must be don from CFIN and all entries must be
reflected correctly in DEFTAX_ITEM table.

Several other scenarios should be considered:

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Invoice is open when Central Payments is activated

In this case the invoice will be paid in Central Finance and the tax settlement and reporting will be done from
CFIN.

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Invoice is partially paid in source and partially in Central Finance

In this scenario, the PA and RL items are added in source DEFTAX_ITEM table. Once payment is replicated
the PA item is added in the DETAX_ITEM table from Central Finance. Before activating Central Payments and
paying the remaining invoice from CFIN, the two reports must be executed to create the necessary RL items
in Central Finance. After the remaining payment is executed centrally, the tax settlement and reporting are
done from CFIN.

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4 RESTRICTIONS

The following restrictions apply to the current release of the Deferred Tax functionaliy in Central Finance:

 Only the deferred tax process based on the RFUMSV50 report is supported. Processes based on the
RFUMSV25 report or country-specific reports (for example J_1HDTAX for Thailand) are not supported
in the Central Finance scenario. They may work (at least, partially) but SAP will not provide any
consulting or corrections for it.

 Creation options for tax transfer documents other than Per Invoice, With Clearing will not be supported.
(IMG Path: Financial Accounting->General Ledger Accounting->Periodic Processing->Report-
>Sales/Purchases Tax Returns->Deferred Taxes->Define Deferred Tax Rules)

 Deferred tax processes involving bills of exchange is not offered as out-of-the box functionality in Central
Finance. For details regarding bills of exchange in Central Finance, see SAP Note 2288901.

 The Central Reversal with Repost functionality of Central Finance (see SAP Note 2393791) cannot
handle documents relevant for deferred taxes.

 Reset clearing of documents from open items or from the balance phase are not supported in Central
Finance.

 Deferred tax processes involving document split are also not offered as out-of-the-box functionality in
Central Finance. That is, neither the company code in the source system nor the company code in the
Central Finance system must have document splitting activated.

 Switching to the Central Payment Scenario will not be supported if the Initial Load has been done before
implementing the new deferred tax functionality.
Caution: If you have done the initial load already and you are now in the ongoing replication state you
can also implement the deferred tax solution, but you need to be aware of the fact that documents from
the open items or balance phase were transferred without tax information into the Central Finance
system and the deferred tax process will not be completed correctly in the Central Finance system. It
will not be critical if you only do the reporting in the Central Finance system, but if you switch to Central
Payment and continue the deferred tax process in the Central Finance system, the tax transfer won’t be
correctly processed. The amounts of the tax transfer will be too high. To avoid this, we recommend
clearing all open items completely in the source system and also do the tax transfer in the source system.
If you have done partial payments in the source system and do the remaining payment in the Central
Finance system after switching to Central Payment the tax transfer in the Central Finance system will

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have the complete amount instead of only the amount of the remaining payment. So, you need to check
those tax transfer documents thoroughly and if possible, do manual correction postings.

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