Tax Types Accounts Payables

Tax Types

Payables uses five types of taxes:

• Sales. Used to record sales tax charges

• Use. A tax you pay directly to a tax authority instead of to a supplier. Suppliers do not include use taxes on invoices. By assigning use taxes to invoices, you can create a record of the taxes you owe to tax authorities. Review your use tax liabilities by running the Use Tax Liability Report.

• Offset. A negative-rate tax you use to offset a positive tax to allow you to record and report on zero-rated taxes. For example, an office in an EU state paying an intra-EU invoice can assign a VAT tax and a corresponding Offset tax to an invoice, so it can record and report VAT taxes without actually paying any to the supplier.

• User-defined (VAT, GST). You can define in the Oracle Payables Lookups window as many tax types as you require for your tax authorities and tax rates. Payables treats user-defined taxes as Sales taxes.

• Automatic Withholding Tax. A tax you use to withhold taxes from Payables expense reports and supplier invoices. Entering Use Taxes

To record a Use tax you pay to a tax authority instead of a supplier, assign a Use type tax code to the invoice distributions that are taxable by the Use tax. Payables records the tax you owe the tax authority based on the Use tax code's tax rate and account. You do not create a tax distribution for the Use tax, because tax distributions record supplier liabilities.

Offset Taxes

Use Offset tax codes to record taxes on invoices, while reducing or completely offsetting tax liability. Offset taxes have negative-amount rates, so when you use them, you enter negative-amount invoice tax distributions. For example, you can use Offset taxes to record the Value Added Tax (VAT) name and amount without paying VAT tax to the supplier (the tax distribution and the Offset tax distribution net to zero).
For example, you enter an invoice with a $5 VAT tax distribution you want to offset. You also enter a -$5 Offset tax distribution. You will pay no VAT tax, but you will record the $5 VAT tax so you can report it later. If you are a member of the European Union (EU), you can report on these zero-rated taxes using the Intra-EU VAT Audit Trail report.
To make Offset tax entry easier, in the Tax Codes window you can associate Offset taxes with Sales or User-defined taxes. You enable the use of associated tax codes at the supplier site. If you have enabled the Use Offset Taxes check box at the supplier site, when you enter a tax code with an associated Offset tax, then Payables will create a new Offset tax distribution. Payables creates the new distribution at one of the following times:

• When you use the Calculate Tax button in the Distributions window

• During Approval

• When you choose the OK button in the Tax Summary window

For example, you can define an Offset tax code named Offset 10 that has a negative 10% rate. You can then define a user-defined tax called VAT 10 that has a 10% rate. You can assign the Offset 10 tax to the VAT 10 tax. You can always override the default Offset tax distribution on an invoice or manually enter additional offsetting tax distributions.
You enable the Use Offset Taxes check box at the supplier site and enter an invoice for $100 with a tax code of VAT 10. Payables creates both a $10 tax distribution and a -$10 offsetting tax distribution automatically either when you use the Calculate Tax button or during Approval.
You cannot enter an Offset tax in the Tax Code field in the Invoice Gateway, or the invoice record will be rejected during import. However, you can enter taxes that have associated Offset taxes. Payables creates a tax distribution for both the tax code you entered and for the Offset tax.
If you use partially recoverable taxes, note that Offset taxes are 100% recoverable.

EU VAT Taxes

When you enter a supplier that is registered to pay Value-Added Tax (VAT) charges, you should enter the VAT registration number and related information during supplier entry.. Specify a country as an European Union (EU) member state.
If your organization is VAT-registered, and you receive an invoice from a VAT-registered supplier site in the same EU member state, you are required to pay VAT charges to the supplier.
However, if your organization is located in an EU member state and the VAT-registered supplier site is located in a different EU member state, you are not required to pay VAT charges on invoices from the supplier, but you are required to report the charges to your tax authorities. You can use Offset tax distributions to eliminate your VAT liability while maintaining a record of the charges.
You can use the Intra-EU VAT Audit Trail Report to review the original VAT charges for your intra-EU invoices. Payables includes in this report any charges from supplier sites located in other EU member states.
If you assign to a VAT-registered supplier in an EU member state different from yours a default VAT tax code with an associated offsetting tax code, then Payables can automatically create VAT and offsetting tax distributions for you when you enter invoices for that supplier.

Setting Up Payables for Offset Taxes

   To set up Payables for Offset taxes:

1. In the tax codes window, define an Offset tax. When you define it, enter Offset as the tax type, and enter a negative rate.

1. In the Tax Codes window, if you want to associate an Offset tax with a Sales or User-defined tax, then when you define the Sales or User-defined tax, enter the Offset tax code name in the Offset tax field.

2. In the Supplier Sites window, enable the Use Offset Taxes check box for any supplier sites for which you want to automatically create Offset tax distributions. If you do not enable this option and you enter a tax distribution for the supplier site, Payables will ignore any associated Offset taxes.

You can also assign to the supplier site a default Tax Code that has an associated Offset tax.

Entering Offset Taxes

You cannot manually enter Offset taxes in the Invoice gateway. However, you can enter Sales or User-defined taxes that have an associated Offset tax if you have completed setup for Offset taxes.

Prerequisites

   Set up Payables for Offset taxes.

   The invoice date is within the effective date range of the Offset tax code. (The Offset tax code is active).

   Ensure that Approval will not enter a duplicate Offset tax distribution: Either make sure that the Use Offset Taxes option is not enabled for the supplier site, or make sure that when you enter the Sales or Offset tax that it does not have an associated Offset tax.

   To enter Offset taxes manually:

1. Enter an invoice in the Invoices window. For the invoice amount, include the negative amount that will offset the tax. For example, if you are entering a $100 invoice and the VAT tax is $8, and the offsetting tax is -$8, then enter $100 as the invoice amount.

2. When you enter the distributions, for each distribution that is taxable, enter the Sales or User-defined tax in the tax code field. Or if the distribution is subject to another tax, then leave the tax Code field blank to indicate to Approval that both taxes apply to the taxable distribution. Note that Approval does not check if tax amounts are appropriate for Offset taxes.

3. Enter the tax distribution for the tax you want to offset, either manually or automatically. In the tax code field, enter the Sales or User-defined tax code.

4. Enter the offsetting tax distribution. In the Tax Code field, enter the Offset tax code. Enter a negative amount.

5. Save and approve the invoice.

Prerequisites

   Set up Payables for Offset taxes.

   The Use Offset Taxes option is enabled for the supplier site.

   To enter Offset taxes automatically:

1. Enter an invoice. For the invoice amount, include the negative amount that will offset the tax. For example, if you are entering a $100 invoice and the VAT tax is $8, and the offsetting tax is -$8, then enter $100 as the invoice amount.

2. When you enter the distributions, for each distribution that is taxable, enter the Sales or User-defined tax in the Tax Code field Or, if the distribution is subject to another tax, then leave the tax Code field blank to indicate to Approval that both taxes apply to the taxable distribution. Note that Approval does not check if tax amounts are appropriate for Offset taxes.

3. Enter the tax distribution for the tax you want to offset, either manually or automatically. In the Tax Code field, enter the Sales or User-defined tax code.

4. If you use Line or Tax Code level automatic tax calculation, then you can choose the Calculate Tax button to automatically create the Offset tax distribution.

5. If you do not choose the Calculate tax button, then save the invoice. Note that the sum of the distribution amounts will not equal the invoice amount until after Approval.

6. Save and approve the invoice. During Approval, Payables first creates the Offset tax distribution, if you have not yet created one. Approval then checks that the positive tax amounts are appropriate for the taxable invoice distributions.