Withholding Tax White Paper

Oracle/Client Confidential - For internal use only 1

Oracle Applications

White Paper

Withholding Tax (AWT) at both invoice and payment time in Payables

Author: Sriram Ramanujam

Versions: 1.0

Create Date 1 November 2009

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Contents

INTRODUCTION .......................................................................................................................................................................... 3 Objective ............................................................................................................................................................................... 3 Scope..................................................................................................................................................................................... 3 Background........................................................................................................................................................................... 3 Terms .................................................................................................................................................................................... 3

Withholding Tax .............................................................................................................................................................. 3 Withholding Tax Point.................................................................................................................................................... 3

ABILITY TO WITHHOLD TAX AT BOTH INVOICE AND PAYMENT TIME IN PAYABLES.................................................................... 4 Overview ............................................................................................................................................................................... 4

SETUP REQUIRED TO GET THIS FEATURE .................................................................................................................................... 5 Payables Option.................................................................................................................................................................... 5

Business Rules ............................................................................................................................................................... 5 Supplier and Supplier Site level ............................................................................................................................................ 7

Business Rules ............................................................................................................................................................... 7 CHANGES IN APPLICATION TRANSACTION UI............................................................................................................................. 9

Invoice Workbench (APXINWKB) Form .............................................................................................................................. 9 Business Rules ............................................................................................................................................................... 9 Supplier and Payables Interfaces .............................................................................................................................. 10

USER PROCEDURES.................................................................................................................................................................. 11 Setup ................................................................................................................................................................................... 11

Setup Payables Option................................................................................................................................................ 11 Setup Supplier Site ...................................................................................................................................................... 12

User..................................................................................................................................................................................... 12 User Task Description ................................................................................................................................................. 12


Introduction

Objective

To provide an overview of the ability to withhold tax at both invoice and payment time in Payables. Intended to provide the reader a good understanding of the features, the setups and details of the steps on how to process a transaction involving Withholding Tax at both invoice and payment time.

Scope

This paper will cover the functional side of the ability to withhold tax at invoice and payment time in Payables and discuss some of the options and their impacts.

Background

The ability to withhold tax at both invoice and payment time in Payables is a new feature in R12.1.

Note : The rules related to “Allow Manual Withholding” in Payables Option will not change.

Terms

Withholding Tax

Withholding Tax is a tax in which the tax authority is paid not by the supplier (seller) himself but instead by the buyer on behalf of the supplier. The tax authority requires the buyer (payer) to put aside a certain percentage of the supplier's due payment and send it directly to the tax authority. Even though the payer is the one who fulfills the tax authority requirement by sending the amount, the liability of the amount still falls on the supplier since the amount is deducted from his payment total. For the payer, the total amount paid is still the same, only divided between two payees.

Withholding Tax Point

Withholding Tax Point refers to the moment when the withholding is calculated and made effective, and when it should be accounted to be considered as a liability or a credit.


Ability to withhold tax at both Invoice and Payment time in Payables

Overview

In some countries like Brazil there are various Withholding Tax regimes. Many of these regimes will apply to a single transaction. The regimes will prescribe different rates and also the point at which the Withholding Tax needs to be deducted. The point of deduction of the Withholding Taxes may be Invoice or Payment. Companies need to apply the Withholding Taxes at the prescribed point of time and deposit the amount to the corresponding fiscal authority.

Oracle delivered the ability to apply Withholding Taxes both at Invoice and Payment time on the same transaction. This will allow some Withholding Taxes to be applied at the Invoice time and some Withholding Taxes to be applied at the Payment time for the same transaction.

Further, we create a Withholding Tax invoice at the time of application of the Withholding Taxes.

Payables currently allows application of Withholding Taxes only at the time of Invoice or Payment. There will be another option provided which, if selected, will allow the Withholding Taxes to be applied both at the time of Invoice and Payment. If the user selects this option, he will be able to attach two Withholding Tax groups/codes to the supplier/supplier site. One Withholding tax/group will be applied at the time of Invoice and the other at the time of Payment.

The User will have to do the following set up:

• Select the option of applying Withholding Taxes both at the time of Invoice and Payment.

• At the Supplier/Supplier site level, the user will be able to attach two withholding groups (currently he can attach only one). User will apply Withholding Group 1 at the time of Invoice and Withholding Group 2 at the time of Payment. Whenever an invoice is entered for the supplier, these Withholding Taxes will be defaulted from the supplier site and the taxes will be applied at the appropriate points.


Setup required to get this feature

Payables Option

In Payables Option a new option will be provided to the user to enable him to apply the Withholding Tax At Invoice Validation and Payment time. There will also be one more option added to enable the user to create withholding invoices automatically at the time of application of Withholding Taxes.

In Payables, changing of the Withholding Tax region options is allowed at any point of time. It can be toggled between ‘Never’, ‘At Invoice time’, ‘At Payment time’, and ‘At Invoice Validation and Payment time’ at any time. It is to be ensured that whenever this is done the columns are also updated at the supplier site level and no defaulting happens irrespective of the values at the supplier site level

Business Rules

� In the Payables Options in the ‘Apply Withholding Tax’ region, one more option will be added to the existing options of ‘Never’, ‘At Invoice Validation Time’, and ‘At Payment time’. This option will be named ‘At Invoice Validation and Payment time’.

� This option can be selected only if the ‘Use Withholding Tax’ checkbox is

selected in the ‘Withholding Tax’ region of Payables Options.

� One more option will also be added in the ‘Create Withholding Invoice’ region called ‘At Withholding Application’. It will be ensured that this option can be selected only if the option ‘At Invoice Validation and Payment time’ is selected in the ‘Apply Withholding Tax’ region.

� In Payables Options –> ‘Apply Withholding tax’ region, if the user tries to

select the option ‘At Invoice Validation and Payment’ without selecting the checkbox ‘Use Withholding Tax’, then the error message saying ‘Field is protected against update’ should pop up.

� In the Payables Options ‘Apply Withholding Tax' region, if the option selected

is ‘Apply at Invoice Validation and Payment time’ and the user tries to select any option in ‘Create Withholding Invoice’ other than the option ‘At Withholding Application’ or ‘Never’, the error message saying ‘The apply, create withholding combination specified is invalid’ should pop up.


Figure 1: Payables Option > Withholding Tax tab


Supplier and Supplier Site level

Before this feature, Supplier/Supplier Site level had only one LOV for attaching the Withholding Taxes. One more LOV is added and the label of the existing LOV is modified so that the User can now attach two Withholding Tax groups – one of which will be applied at the time of Invoice and the other will be applied at the time of Payment.

Business Rules

� In the Supplier/Supplier Site the current LOV of ‘Withholding Tax Group’ is used for applying Withholding taxes at the time of Invoice. The current LOV is renamed from ‘Withholding Tax Group’ to ‘Invoice Withholding Tax Group’. A second new LOV is added to enable the user to apply Withholding Taxes at the time of Payment. The label will be ‘Payment Withholding Tax Group’.

� The current rules followed for allowing the checkbox 'Allow Withholding Tax' to be editable at the Supplier and Supplier Site levels will continue to apply as follows:

� At Supplier level:

� The ‘Allow Withholding Tax’ checkbox in the Tax Details tab of the Supplier should always be editable at the Supplier level irrespective of the Payables Option selected.

� At the Supplier Site level:

� The 'Allow Withholding Tax' checkbox should always be displayed at the Supplier Site level, but it will be editable only if the ‘Use Withholding Tax’ checkbox is enabled in the Payables Option of the Operating Unit to which the supplier site is attached, and the ‘Allow Withholding Tax’ checkbox is selected at the Supplier level.

� For the LOV’s to be shown and editable, the following rules will apply:

� At the Supplier level:

� If the ‘Allow Withholding Tax’ checkbox is not selected at the Supplier level, no LOV’s will be shown.

� If the ‘Allow Withholding Tax’ checkbox is selected at the Supplier level, two LOV’s will be shown and will be editable:

o Invoice Withholding Tax Group o Payment Withholding Tax Group

� At the Supplier Site level:

� Irrespective of the Payables Option, the following LOV’s will always be shown at the Supplier Site level:


� For the LOV’s to be editable, the following rules will apply: � If the option selected in the Payables Option is ‘At Invoice

Validation and Payment Time’, then in the Supplier Site two LOV’s will be editable:


� If the option selected in the Payables Option is ‘At Invoice

Validation Time’, only one LOV will be editable: o Invoice Withholding Tax Group

� If the option selected in the Payables Option is ‘At Payment


Time’ then only one LOV will editable: o Payment Withholding Tax Group

� If the option selected in Payables Option is ‘Never’ then no LOV will be editable.

� The LOV’s will show the same Withholding Tax groups as are being shown in the current Withholding Tax group LOV.

Figure 2: Supplier Header – If 'Allow Withholding Tax' checkbox is selected.

Figure 3: Supplier Site – If 'Allow Withholding Tax' checkbox is selected.


Changes in application transaction UI

Invoice Workbench (APXINWKB) Form

The Invoice Workbench will show two columns – Withholding tax groups to be applied at the time of Invoice validation and Withholding Tax groups to be applied at the time of Payment. The values here will be defaulted from the Supplier/Supplier Site. The User can also enter/edit the values here depending on the Business Rules described below.

Business Rules

� In the Invoice Workbench the existing column of ‘Withholding Tax Group’ will be renamed to ‘Invoice Withholding Tax Group’. This will be now used for applying Withholding Taxes at the time of Invoice. One more new column will be added called ‘Payment Withholding Tax Group’. This will be used to apply Withholding Taxes at the time of Payment. These columns will be shown at all the following levels:

o Invoice Header Level o Invoice Line Level o Invoice Distribution Level

� At the Invoice Header level the values for both ‘Invoice Withholding Tax Group’ and ‘Payment Withholding Tax Group’ will default from the respective values in the Supplier Site. This default will happen only if the Supplier Site for which the invoice is entered is enabled for Withholding Tax.

� At the Invoice Line level the values will default from the Invoice Header.

� At the Invoice Distribution level the values will default from the Invoice Line.

� These columns will show the same Withholding Tax Groups as are being currently shown for the column 'Withholding Tax Group'.

� If the option selected in the Payables Option -> 'Apply Withholding' region is ‘At Invoice Validation and Payment Time’ then:

o The values in the ‘Invoice Withholding Tax Group’ and ‘Payment

Withholding Tax Group’ will be defaulted from the respective columns in the Supplier Site.

o The column ‘Invoice Withholding Tax Group’ will be editable until the invoice is validated.

o The column ‘Payment Withholding Tax Group’ will be editable until the invoice is paid.

� If the option selected in the Payables Option -> 'Apply Withholding' region is

‘At Invoice Validation’ then: o At the time the invoice is entered for the Supplier, the Withholding

Taxes to be applied at the time of invoice validation will default from the Supplier Site to the column ‘Invoice Withholding Tax Group’.

o The column ‘Invoice Withholding Tax Group’ will be editable until the invoice is validated.

o The column ‘Payment Withholding Tax Group’ will not be editable at all.


‘At Payment Time’ then: o At the time the invoice is entered for the Supplier, the Withholding

Taxes to be applied at the time of payment will default from the Supplier Site to ‘Payment Withholding Tax Group’.

o The column ‘Payment Withholding Tax Group’ will be editable until


the invoice is paid. o The column ‘Invoice Withholding Tax Group’ will not be editable.


‘Never’ then: o At the time the invoice is entered for the Supplier, nothing will default. o Both the columns ‘Invoice Withholding Tax Group’ and ‘Payment

Withholding Tax Group’ will be non-editable.

Figure 4 : Invoice Header

Figure 5: Invoice Lines

Figure 6 : Invoice Distribution

Supplier and Payables Interfaces

� Similar changes have been done in the Supplier Import interface to get the Withholding Tax groups populated for the suppliers.

� Similar changes have been done in the Payables Open interface import to get the Withholding Tax groups populated for the imported invoices.


User Procedures

Setup

Setup Payables Option

In the Payables Option set ‘Apply Withholding Tax’ to ‘At Invoice Validation and Payment Time’.

Figure 7 : Payables Option: set 'Apply Withholding Tax' to BOTH Invoice Validation and Payment time


Setup Supplier Site

Setup at Supplier Site Tax Details Page

• Attach the Withholding Tax code for Invoice and Payment time withholding.

Figure 8 : Supplier Site populated with Withholding Tax group of INV and PAY for invoice and payment time withholding.

User

User Task Description

Business Examples:

Withholding Tax code ‘INV’ - 6.5%

Withholding Tax code ‘PAY’ - 4%

Let us assume that the User enters an Invoice for 10,000 for Supplier SRAMANUJ and Site SRAMANUJ.

INV and PAY will default at the header, line and distribution levels, though the user can edit this field at any level. There is only one line of 10,000.

Figure 9 : Invoice Workbench defaults the Withholding Tax groups for both Invoice and payment time withholding.

At the time of validation the following withholding lines for 650 will be generated.


Figure 10 : Validation of invoice creates withholding distribution lines

Now if the payment of 5000 is made, then the payment of 4786.1 would be made.

Figure 11 : Partial Payment made

An additional withholding line of 213.9 would be created.

Figure 12 : Payment time withholding distribution created

Calculation of AWT at payment time is done as follows :

a) Invoice amount - 10000


b) AWT on Validation (AWT Code ‘INV’ 6.5%) = 10000*6.5% >> 650

c) Net payable after AWT on validation (a-b) = ( 10000 – 650 ) >> 9350

d) Partial Payment amount of 5000 is made.

AWT would be = ((d/c) * a) AWT % at payment time (AWT code ‘PAY’ 4%)

((5000 / 9350) * 10000) * 4% = 213.9

Payment made = 5000 – 213.9 = 4786.1

Let us make the remaining payment for the invoice. .

Payment of 4163.9 would be made.

Figure 13 : Remaining payment made

An additional withholding line of 186.1 would be created.

Figure 14 : Payment time withholding distribution created


Calculation of AWT at payment time is done as follows :

a) Invoice amount - 10000


c) Net payable after AWT on validation (a-b) = ( 10000 – 650 ) >> 9350

d) Partial Payment amount of 5000 is made.

AWT would be = ((d/c) * a) AWT % at payment time (AWT code ‘PAY’ 4%)

((4350/ 9350) * 10000) * 4% = 186.1

Payment made = 4350 – 186.1 = 4163.9

To summarize :

a) Invoice amount – 10000


c) AWT on Payment (AWT Code ‘PAY’ 4%) = 10000*4% >> 400

(Deducted in 2 payments ( 213.9+186.1) )

d) Payments made (a-b-c) = (10000 – 650 – 400) = 8950

(Paid in 2 payments (4786.1 + 4163.9)

Documents

Withholding Tax White Paper