How Offset Taxes Are Processed
Offset taxes are a backward compatible approach that you can configure to self-assess taxes. Configure offset taxes in addition to the regular taxes. Offset taxes carry a negative rate, and are calculated in the context of the regular tax.
Where offset taxes are applicable, two tax lines are created 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.
Settings That Affect Offset Taxes
For the offset tax calculation to take effect, do the following:
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Set up offset taxes
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Enable offset tax calculation
Perform these tasks for setting up offset taxes:
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Set up the offset tax, tax status, and tax rate. Define at least one recovery type lookup to use with offset taxes.
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Create the offset tax and perform the following:
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Use the tax currency of the original tax.
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Select the Set as offset tax option.
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Enter a primary recovery type that you defined for offset taxes.
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Set up the tax status for the offset tax. Do not select the Allow tax rate override option.
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Set up a 100% tax recovery rate for the offset tax using the recovery type that's defined for the offset tax.
You can't update the recovery rate on an offset tax line. The recovery rate is always 100% to create credit entries that match the original tax amounts. When you create an offset tax, you enter a primary recovery type with a recoverable rate of 100% and a 100% recovery rate.
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Set up the offset tax rate and perform the following:
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Enter a negative rate amount.
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Assign the tax recovery rate that is defined for offset tax.
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Do not select the Allow ad hoc tax rate option.
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Set up the original tax with the required configuration to enable the tax. For the tax rate of the original tax (nonoffset tax), assign the offset tax rate code in the Offset Rate Code field.
Complete the following configuration steps to enable calculation of offset taxes for a transaction:
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For the configuration owner tax options for the Payables event classes, enable offset tax calculation by selecting the Allow offset tax calculation option. Also, specify the offset tax basis.
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Select the Allow offset taxes option on the party tax profile if you want to calculate offset taxes for the transactions created for the party. Select this option for the party type selected in the Offset Tax Basis field for the configuration owner tax options.
How Offset Taxes Are Processed
Offset taxes applicable to an invoice are created with two tax lines entries, one for the tax and one for the offset tax. The line for the offset tax has the offset option enabled. This line carries the reference to the original tax line. Two Invoice lines are created for these taxes, one for each tax.
The amount for the regular tax line is always debited to the tax expense or recovery account or both, depending on the recoverability of the tax. The credit is posted to a payables account which is offset by the negative amount credited to the payables account due to the offset tax line. The debit of the offset tax line is posted to the tax liability account. This indicates the liability that the first party organization has toward the tax authority for the self-assessed tax.
Tax Line Override
You can't override offset tax lines. However, you can update the tax line calculated for the original tax.
The corresponding tax line for the offset taxes is updated, when you:
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Update the tax rate percentage or amount
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Cancel the tax line