Differential Taxes for Brazil
In Brazil, differential tax is applicable when goods are procured from a different state at a lower tax rate when they can be sourced from within the state.
Along with the regular tax, difference between intra-state and inter-state tax rate is additionally levied as differential tax on the customer procuring the goods. This tax becomes payable in the state where the goods are received.
For example, consider an organization located in location A that procures an item from a supplier located in location B. ICMS tax is applicable on the transaction. The tax rate is 18% if it is sourced from within the state (intra-state rate) and is 12% if sourced from outside the state (inter-state rate).
This table provides details of the ICMS tax that is applicable for this transaction.
|
Tax Details |
Example |
|---|---|
|
Transaction amount |
1000 USD |
|
Tax Rate (inter-state) |
12% |
|
Tax amount |
1000 * 12% = 120 USD |
This table provides details of the differential tax that is applicable to the transaction:
|
Tax Details |
Example |
|---|---|
|
Transaction amount |
1000 USD |
|
Differential Rate |
18% (-) 12% = 6% |
|
Tax amount |
1000 * 6% = 60 USD |
The total tax payable is 180 (120+60) USD.
Consider these points when configuring ICMS differential tax in Oracle Tax:
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Generally ICMS (differential) tax is not notified in the fiscal document sent by supplier. It must be assessed and paid by the organization procuring the goods or services from a different state. Therefore, configure it as self-assessed tax.
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To apply this tax as self-assessed, tax registration party must be configured to derive Ship-to Party or Bill-to Party. Further, tax registration record associated with the legal reporting unit must be marked as self-assessed.
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Tax rate percentage of this tax is a derived value and is the difference between intra-state and inter-state ICMS tax rates. This result is achieved through configuration of tax calculation formula:
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ICMS tax would use inter-state tax rate percentage for calculating the tax amount.ICMS (differential) tax must be configured to derive the corresponding intra-state tax rate.
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Tax calculation formula associated with ICMS (differential) must have compounding rule for subtracting the ICMS tax from its tax amount.
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On processing the tax calculation formula, ICMS (differential) will result in a tax amount equal to the difference between intra-state and inter-state tax rates.
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ICMS (differential) is to be calculated along with ICMS tax. So, the tax applicability conditions for both these taxes must match.In addition to it, ICMS (differential) must have rule conditions to allow its applicability only on purchase transactions and on specific states, if applicable.
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ICMS (differential) involves compounding on ICMS tax. So the compounding precedence specified on the respective tax regimes or taxes must support this, therefore, the precedence number for ICMS must be less than ICMS (differential).
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ICMS (differential) tax is not applicable if the intra-state tax rate is less than the inter-state tax rate. This condition is inherently managed by the tax calculation logic, tax is not applied on the transaction if the differential amount between the compounded taxes results in a negative value.