Self-Assessment of Taxes
Taxes for purchase transactions are usually calculated by the supplier and included in the invoice. The responsibility of collecting and remitting these taxes to the authority lies with the supplier.
However, in certain cases the supplier doesn't have presence (nexus) or isn't registered in the customer location. Taxes applicable in such cases, in the customer location, are self-assessed by the purchasing organization. Unlike supplier assessed taxes that are paid to the supplier, self-assessed taxes are remitted by the purchasing organization directly to the tax authority.
The key here is that these taxes are to be calculated on the same invoice, but the taxes don't impact the amount payable to the supplier, instead it should be accounted for as a tax liability.
The core requirements remain the same, however, the terminology used for self-assessed taxes vary by tax regime, such as reverse charges, use taxes, and offset taxes. Reverse charge is the terminology primarily used in the European Union, use taxes is the terminology used in the United States, and offset taxes is a alternate solution to handle self-assessment of taxes and is not used by any regime.
Oracle Fusion Tax provides the following options to configure and automate calculation of self-assessed taxes:
-
Self-assessment
-
Offset taxes
-
Reporting-only taxes
-
Use taxes
Self-Assessment
Taxes must be self-assessed by the purchasing organization when the supplier isn't registered in the ship-to or bill-to location of the transaction. This is the recommended approach for defining and calculating self-assessed taxes. This is driven based on the registration party used for the transaction.
Registration Party
In the context of a tax applicable to the transaction it is the party whose registration must be considered. The tax registration party type default is specified for the tax. As most of the taxes are assessed by the supplier, the default is set to the ship-from or the bill-from location.
Supplier Tax Registration
You can define tax registration for the supplier, the supplier site, and for a particular tax regime. If the tax registration varies by tax or tax jurisdiction, define the registration at a granular level. If the supplier doesn't have presence in a specific jurisdiction, there are two options for configuration. The first is to create a tax registration record with the registration status as not registered. The second option is not to define a registration record. If you follow the second option, when you define the condition set, set the operator for the Registration determining factor class to Is blank.
Registration Party of the First Party
Similar to the supplier registration, you can define the tax registration records for a legal reporting unit tax profile. For the tax registration of the first party select the Set as self-assessment (reverse charge) option. This option triggers self-assessment of taxes when the registration party selected for the tax line is that of the first party. Self-assessment is only applicable for Payables transactions. The option on the first party registration doesn't impact Receivables transactions. Create a tax registration rule to conditionally use the first party registration when the supplier isn't registered. The condition to use for this tax rule is as follows:
|
Tax Determining Factor Class |
Class Qualifier |
Tax Determining Factor Name |
Operator |
Condition Value |
|---|---|---|---|---|
|
Registration |
Bill-from party |
Registration Status |
Equal to |
Not Registered |
If the registration records aren't created for the suppliers without registration, create the condition set as follows:
|
Determining Factor Type |
Class Qualifier |
Determining Factor Name |
Operator |
Condition Value |
|---|---|---|---|---|
|
Registration |
Bill-from party |
Registration Status |
Is blank |
Offset Taxes
Offset taxes is a backward compatible approach that is configured to self-assess taxes. Configure offset taxes in addition to your regular taxes. Offset taxes carry a negative rate, and are calculated in the context of the regular tax. Where offset taxes are applicable, the application creates two tax lines with one positive and one negative amount. An offset tax record is a matching, duplicate record with negative amounts that reduces or completely offsets the tax liability recorded in the tax transaction. Use offset taxes when the tax requirement includes creating an offset general ledger posting.
Reporting-Only Taxes
You can identify taxes for reporting purposes only. When these taxes are applicable to the transactions, records are created in the tax repository entities. However, invoice distributions aren't created for these taxes. Therefore, there is no impact to the payable amount, payment amount, and invoice accounting.
Use Taxes
Assigning use taxes to invoices, you create a record of the taxes you owe to tax authorities. Oracle Fusion Payables doesn't create invoice distributions for these taxes. Therefore, there isn't any accounting impact due to these taxes.