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Global Withholding Tax Whitepaper
Global Withholding Tax Whitepaper
1.1
Definition ..................................................................................................................... 3
1.2
Purpose ........................................................................................................................ 3
1.3
1.4
1.5
Gross up ....................................................................................................................... 4
BACKGROUND
This document describes the solution for a company that is subject to withholding tax (WHT). WHT is a
common solution supported by Oracle. In some cases however the solution cannot be used (in case of
gross up, meaning the company has to take the tax amount to its own cost instead of the supplier) and
modifications to the process and to the Oracle system has to be made.
In this document youll find a description and possible solutions to overcome gross up.
1.1
Definition
Withholding tax (WHT) is the amount withheld by the party making a payment to another (payee)
and paid to the taxation authorities.
The amount the payer deducts may vary, depending on:
The nature of the product or service being paid for (supply of goods, equipment, rental of
services)
The status of the payer and the status of the payee (supplier) in the related country (PE,
certificate Y/N, country of residence etc.)
The location where the service are performed or made (in- or outside the country)
1.2
Purpose
The purpose of WHT is to counteract tax evasion and tax avoidance by domestic or international
taxpayers. In some jurisdictions, the purpose of deduction is also to facilitate or accelerate tax collection.
1.3
1.4
Gross up
When the purchasing department decides to gross-up costs for a supplier (because there is no
alternative supplier accepting the withholding tax/lack of experience in the country etc.), the following
rules apply:
1. this is an exceptional purchasing decision by supplier that needs to be validated by management
2. the existing PO must be updated by adding an item Gross up linked to the appropriate GLaccount
3. Project control needs to include these costs (when third party costs) from the outset of the
project.
ORACLE SET UP
Oracle Payables>>Setup>>Tax>>Codes
In this form you need to enter a Tax code. The proposed naming convention is WHT-<<abbreviation of
country name>>-<<tax code percentage>>. So for the UK 25% WHT it looks like WHT-UK-25.
The Tax Type will be Withholding Tax. Of course you need to enter the appropriate GL-account as well.
Once entered you will notice the button Withholding Tax Details is highlighted.
In the next section the various options of the Withholding Tax Detail-form will be described.
In the screen prints a Specific Tax code for Period Limit is created. In the period between 01-Mar-2010
and 31-Mar-2010 no more Tax than 10.000 will be withheld. On the invoices (where applicable) in this
period 25% WHT will be withheld until the amount of 10.000 in total has been withheld. Between 01APR-2010 and 30-APR-2010 the WHT percentage is 20% that will be deducted on the invoices.
Before and after the specified periods no WHT will be withheld.
The above screen prints shows the setup for WHT in the UK at a percentage of 25 meaning that on
every invoice where this WHT code is used 25% of the invoice amount will be withheld.
If the WHT rate change frequently (e.g. on a yearly basis) another possibility is to setup a more generic
WHT-code on the first form (like WHT-UK) and attach the WHT-rate to the effective dates in the Tax
rates block of the Withholding Tax Details-form (as shown in the next screen print).
Amount Ranges is used when your WHT rate depends on what you already have paid during a
time period. For the amount basis you can choose between Gross Amount and Withheld Amount.
The time period is either per withholding tax calendar period or per invoice.
This setup means that up to a total invoice amount of 100.000 25% WHT is applicable. When the total
invoice amount is over 100,000 15% WHT will be applied.
Example:
Invoice 1 Gross amount = 40.000
WHT = 25% = 10.000
Invoice 2 Gross amount = 50.000
WHT = 25% = 12.500
Invoice 3 Gross amount = 20.000
WHT = 25% over 10.000 = 2.500 and
WHT = 15% 0ver 10.000 = 1.500
Using this setup also requires a Special Calendar setup. In the Special Calendar you define that the
calendar is used for Withholding Tax. In this example the WHT-calendar is setup into 4 Quarters.
Example:
Invoice 1 (date 28-02-2010) Gross Amount = 40.000
Invoice 2 (date 31-03-2010) Gross Amount = 70.000
Invoice 3 (date 01-05-2010) Gross Amount = 60.000
Invoice 4 (date 01-08-2010) Gross Amount = 110.000
WHT
WHT
WHT
WHT
WHT
WHT
=
=
=
=
=
=
25%
25%
15%
25%
25%
15%
= 10.000
of 60.000 = 15.000 and
of 10.000 = 1.500
of 60.000 = 15.000
of 100.000= 25.000 and
of 10.000 = 1.500
When the Amount Basis is Withheld Amount the system calculates the WHT based on the already
withheld amounts on previous invoices.
Invoice 1 Gross Amount = 200.000
Invoice 2 Gross Amount = 600.000
Using the Withheld Amount and the Period Basis is Period you are required to use the Calendar again
(setup Special Calendar).
Example:
Invoice 1 (date
Invoice 2 (date
Invoice 3 (date
Invoice 4 (date
28-02-2010)
31-03-2010)
01-05-2010)
31-08-2010)
Gross
Gross
Gross
Gross
Amount
Amount
Amount
Amount
=
=
=
=
400.000
100.000
300.000
600.000
Tax Groups
In the Withholding Tax Groups window you can combine multiple Withholding Tax Codes. WHT codes
can be assigned to more than one group.
If this is used Payables calculates invoice withholding tax based on every tax code in the withholding tax
group (Based on the ranking).
Because you can only apply Withholding Tax Groups to an invoice (and not an individual Withholding Tax
Code) you have to create a Withholding Tax Group even if it only applies to one Withholding Tax Code.
You can enforce this by clicking the Create Tax Group field in the Withholding Tax Details form.
Payables>>Setup>>Tax>>Withholding>>Groups
2.1.3
Setup of the WHT Tax Codes and WHT Tax Groups is dependent on the regulations of the country the
company is dealing with. Therefore the companys Tax Department has to come up with the applicable
rules for the country.
SUPPLIER SETUP
Using Withholding Tax requires some extra setup on the suppliers as well. This chapter describes the
setup that has to be done on the suppliers.
3.1.1
The Tax Authority has to be setup as a supplier with a supplier type Tax Authority. A supplier site for
the Tax Authority needs to be setup as well.
Optional Components for the Tax Authority setup are:
A unique Pay Group (so you can separate the payments to the Tax Authorities from the other
payments)
A payment format that uses the Tax Authority Remittance Advice as its Separate remittance Advice
To prevent payment to the Tax Authority without approval from the companys Tax Department the
option Hold All Payments have to be set.
An additional alert to the companys Finance and the companys Tax Department needs to be defined so
the WHT payment to the Tax Authority can be released manually within the Oracle system (see Chapter
4 and 5)
Supplier Setup
When we know upfront the supplier is subject to WHT and the WHT-percentage is known, a specific site
for the supplier needs to be setup. The recommended naming convention for this site is WHT<<country abbreviation where supplier is subject to WHT>>-<<WHT percentage>>
To automate the calculation of WHT, besides the usual setup, two extra steps in the supplier site setup
are required:
1. Fill the Withholding Tax Group-field under the Withholding Tax TAB with the correct WHTcode/percentage
2. Make sure the Allow Withholding Tax field is enabled
3. Prevent payment of the WHT-supplier site automatically by enabling the Hold All Payment
field under the Control-TAB.
The second requirement requires also the definition of an alert to the companys Finance and the
companys Tax Department for releasing the payment hold on the invoice. (See also Chapter 4 and
5)
Author: Hans van Berkum
Page 20 of 30
When the supplier is Grossed Up for WHT a supplier site also needs to be setup. The naming convention
for this site should be WHT-Gross Up-<<abbreviation of the country>>.
For the Gross Up site a WHT-100-<<abbreviation of the country>> code should be applied in The
Withholding Tax TAB.
In this solution the assumption is that the companys Procurement Department has
informed the suppliers that they are subject to Withholding Tax.
When supplier/suppliers is/are subject to WHT the calculation and handling of the WHT can be done
automatically by the system.
The required steps are:
1.
2.
3.
4.
5.
This process, besides WHT-supplier site setup, is not different from the current process so there is no
change for the companys Procurement and the companys Project Control (in case this is projectrelated).
Process description:
1. Book the invoice and match it to the PO
At this stage the alert should go to the companys Finance and Tax Department stating that a WHTinvoice has been created out of invoice that needs to be approved.
The purpose for this new line type is to use this in a to be defined alert
This setup can be skipped when the alert is based on the Gross Upitem (see 1.)
3. Project Department has to decide whether the item is linked to an existing task in the project or to a
new task (specifically for the Gross Up). If the Gross Up-item has to be linked to a new task to
separate it the Project templates have to be updated.
4. A specific WHT-code called WHT-100-<<Country abbreviation>> needs to be setup and linked
to the correct Tax Authority
5. Set up a WHT-Gross Up site for the supplier who has been awarded the Gross Up and link the WHT100 code to it
After this step the approval from the companys Tax Department is required. An alert has to be defined
sending to companys Tax Department for releasing the Payment Hold on the Tax Authority.