Gain immediate insight into VAT risks, and their root causes, in SAP

Client Context

A multinational client, a global leader in the chemicals industry, operating multiple European legal entities within a single SAP environment engaged KGT to perform an SAP VAT Health Check. The scope included a Principal entity and selected sales organizations in different countries across Europe.

The organization was facing a high volume of incorrectly issued invoices, recurring VAT reporting issues, and VAT audits resulting in findings with significant financial exposure. In addition, changes in the business model proved difficult to translate into a correct and consistent VAT configuration within SAP. Against this background, the objective was to assess whether the existing SAP VAT configuration, master data, and supporting processes were fit for purpose in an increasingly complex VAT and regulatory landscape.

Challenge

The review revealed that VAT risks were not incidental but structurally embedded in the SAP landscape. VAT determination and reporting outcomes were highly dependent on incomplete master data, inconsistent configuration choices, and manual workarounds.

Key challenges identified included:

• VAT determination logic in SAP that produced incorrect outcomes due to incomplete or inconsistent master data (e.g. VAT registrations, tax classifications, tax codes)
• Limited involvement of tax specialists in the design and validation of VAT determination logic
• Manual processes in high-risk areas such as plant abroad scenarios, Intrastat, and foreign VAT registrations
• Non-compliant invoice scenarios, including missing mandatory fiscal representative information and invoice numbering risks
• Remediation activities led by IT that focused on correcting individual issues without addressing underlying structural causes

As a result, VAT risks exceeded the organization’s acceptable risk appetite and were difficult to quantify, prioritize, and defend during audits.

KGT’s Approach

As part of the SAP VAT Health Check, KGT implemented the SAP VAT Data Analysis add-on solution directly within the client’s SAP environment. The add-on enables continuous access to VAT-relevant transactional data across all entities in scope, without the need for manual data extraction or runtime-intensive reporting.

Using best-practice VAT determination logic, KGT independently recalculated VAT outcomes and compared these with SAP’s results. This approach provided full visibility into VAT determination across sales, intercompany, and complex chain transactions.

The findings were consolidated, allowing risks to be clearly identified, quantified, and prioritized.

Following the analysis, KGT delivered an extensive VAT Health Check report, documenting:

• Identified VAT risks and compliance gaps
• Structural weaknesses in SAP configuration and master data
• Clear, prioritized recommendations covering SAP setup, data governance, and process design

Results

The SAP VAT Health Check delivered immediate, fact-based insight into the organization’s VAT position.

Key results included:

• Clear identification of incorrect VAT determination and reporting risks
• Quantification and prioritization of high-risk areas across countries and transaction types
• Increased transparency into how VAT was determined throughout the end-to-end transaction flow
• A concrete remediation roadmap based on root causes rather than isolated symptoms

The organization was able to move from assumption-driven VAT reviews to evidence-based decision-making.

Impact

The recommendations from the KGT SAP VAT Health Check were addressed through a collaborative approach:

• The client’s IT department implemented SAP configuration and technical improvements
• KGT’s SAP Tax experts supported the remediation of VAT determination logic, tax controls, and process design

This combined effort resulted in:

• Reduced VAT risk exposure and improved audit defensibility
• Lower reliance on manual VAT processes in high-risk areas
• Improved alignment between Tax, IT, and Finance functions
• Strengthening of the organization’s Tax Control Framework
• Prevention of VAT design weaknesses being carried forward into future SAP changes

Client Value

The KGT SAP VAT Health Check transformed VAT from a hidden operational risk into a transparent and controlled process embedded within SAP. By combining real-time insight with expert-led remediation, the organization achieved lasting improvements in VAT governance, operational efficiency, and compliance readiness.

This case demonstrates how data-driven VAT control can deliver tangible value beyond compliance - supporting better decisions, lower risk, and a more resilient SAP landscape.