How to handle reserved words in XSD

the XML recommendation states that names for elements schould not start with "xml" (or uppercase variants) for "future standardisation" reasons

By now it is fairly clear there will not be an XML 2.0 or the acceptance of XML 1.1, so most tools are very lax with this requirement
Some tools however will not allow you to do so.
So, this is likely a limitation by your tool being too strict (or actually adhering strict to the recommendation)

I consider element names that start with "xml" as poor design and I strongly recommend not to do that. Simply because by XML 1.0 recommendation you should not and you might hit a tool that prevents you (as you just seem to have experienced)

So, change the name of your element. If you can't do that, tell us which tool is breaking on it, we might find a workaround or suggest alternative tooling

We are using SAP PO middleware and looks like its not xml 1.1 + capable from what you are saying. Please let me know if there is any alternative.