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Oracle Applications

White Paper
Withholding Tax (AWT) at both invoice and
payment time in Payables
Author: Sriram Ramanujam
Versions: 1.0
Create Date 1 November 2009

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Contents

INTRODUCTION .......................................................................................................................................................................... 3
Objective ............................................................................................................................................................................... 3
Scope..................................................................................................................................................................................... 3
Background........................................................................................................................................................................... 3
Terms .................................................................................................................................................................................... 3
Withholding Tax.............................................................................................................................................................. 3
Withholding Tax Point.................................................................................................................................................... 3
ABILITY TO WITHHOLD TAX AT BOTH INVOICE AND PAYMENT TIME IN PAYABLES .................................................................... 4
Overview ............................................................................................................................................................................... 4
SETUP REQUIRED TO GET THIS FEATURE .................................................................................................................................... 5
Payables Option.................................................................................................................................................................... 5
Business Rules ............................................................................................................................................................... 5
Supplier and Supplier Site level ............................................................................................................................................ 7
Business Rules ............................................................................................................................................................... 7
CHANGES IN APPLICATION TRANSACTION UI............................................................................................................................. 9
Invoice Workbench (APXINWKB) Form .............................................................................................................................. 9
Business Rules ............................................................................................................................................................... 9
Supplier and Payables Interfaces .............................................................................................................................. 10
USER PROCEDURES .................................................................................................................................................................. 11
Setup ................................................................................................................................................................................... 11
Setup Payables Option................................................................................................................................................ 11
Setup Supplier Site ...................................................................................................................................................... 12
User..................................................................................................................................................................................... 12
User Task Description ................................................................................................................................................. 12

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Introduction

Objective
To provide an overview of the ability to withhold tax at both invoice and payment time in Payables.
Intended to provide the reader a good understanding of the features, the setups and details of the
steps on how to process a transaction involving Withholding Tax at both invoice and payment
time.
Scope
This paper will cover the functional side of the ability to withhold tax at invoice and payment time in
Payables and discuss some of the options and their impacts.

Background
The ability to withhold tax at both invoice and payment time in Payables is a new feature in R12.1.
Note : The rules related to “Allow Manual Withholding” in Payables Option will not change.

Terms

Withholding Tax

Withholding Tax is a tax in which the tax authority is paid not by the supplier
(seller) himself but instead by the buyer on behalf of the supplier. The tax
authority requires the buyer (payer) to put aside a certain percentage of the
supplier's due payment and send it directly to the tax authority. Even though the
payer is the one who fulfills the tax authority requirement by sending the amount,
the liability of the amount still falls on the supplier since the amount is deducted
from his payment total. For the payer, the total amount paid is still the same, only
divided between two payees.

Withholding Tax Point


Withholding Tax Point refers to the moment when the withholding is calculated and made
effective, and when it should be accounted to be considered as a liability or a credit.

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Ability to withhold tax at both Invoice and Payment time in Payables

Overview
In some countries like Brazil there are various Withholding Tax regimes. Many of these regimes
will apply to a single transaction. The regimes will prescribe different rates and also the point at
which the Withholding Tax needs to be deducted. The point of deduction of the Withholding Taxes
may be Invoice or Payment. Companies need to apply the Withholding Taxes at the prescribed
point of time and deposit the amount to the corresponding fiscal authority.

Oracle delivered the ability to apply Withholding Taxes both at Invoice and Payment time on the
same transaction. This will allow some Withholding Taxes to be applied at the Invoice time and
some Withholding Taxes to be applied at the Payment time for the same transaction.
Further, we create a Withholding Tax invoice at the time of application of the Withholding Taxes.
Payables currently allows application of Withholding Taxes only at the time of Invoice or Payment.
There will be another option provided which, if selected, will allow the Withholding Taxes to be
applied both at the time of Invoice and Payment. If the user selects this option, he will be able to
attach two Withholding Tax groups/codes to the supplier/supplier site. One Withholding tax/group
will be applied at the time of Invoice and the other at the time of Payment.
The User will have to do the following set up:
• Select the option of applying Withholding Taxes both at the time of Invoice and Payment.
• At the Supplier/Supplier site level, the user will be able to attach two withholding groups
(currently he can attach only one). User will apply Withholding Group 1 at the time of
Invoice and Withholding Group 2 at the time of Payment. Whenever an invoice is entered
for the supplier, these Withholding Taxes will be defaulted from the supplier site and the
taxes will be applied at the appropriate points.

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Setup required to get this feature

Payables Option
In Payables Option a new option will be provided to the user to enable him to apply the Withholding Tax At Invoice
Validation and Payment time. There will also be one more option added to enable the user to create withholding
invoices automatically at the time of application of Withholding Taxes.
In Payables, changing of the Withholding Tax region options is allowed at any point of time. It can be toggled
between ‘Never’, ‘At Invoice time’, ‘At Payment time’, and ‘At Invoice Validation and Payment time’ at any time. It is
to be ensured that whenever this is done the columns are also updated at the supplier site level and no defaulting
happens irrespective of the values at the supplier site level

Business Rules
 In the Payables Options in the ‘Apply Withholding Tax’ region, one more
option will be added to the existing options of ‘Never’, ‘At Invoice Validation
Time’, and ‘At Payment time’. This option will be named ‘At Invoice Validation
and Payment time’.

 This option can be selected only if the ‘Use Withholding Tax’ checkbox is
selected in the ‘Withholding Tax’ region of Payables Options.

 One more option will also be added in the ‘Create Withholding Invoice’ region
called ‘At Withholding Application’. It will be ensured that this option can be
selected only if the option ‘At Invoice Validation and Payment time’ is selected
in the ‘Apply Withholding Tax’ region.

 In Payables Options –> ‘Apply Withholding tax’ region, if the user tries to
select the option ‘At Invoice Validation and Payment’ without selecting the
checkbox ‘Use Withholding Tax’, then the error message saying ‘Field is
protected against update’ should pop up.

 In the Payables Options ‘Apply Withholding Tax' region, if the option selected
is ‘Apply at Invoice Validation and Payment time’ and the user tries to select
any option in ‘Create Withholding Invoice’ other than the option ‘At
Withholding Application’ or ‘Never’, the error message saying ‘The apply,
create withholding combination specified is invalid’ should pop up.

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Figure 1: Payables Option > Withholding Tax tab

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Supplier and Supplier Site level
Before this feature, Supplier/Supplier Site level had only one LOV for attaching the Withholding Taxes. One more
LOV is added and the label of the existing LOV is modified so that the User can now attach two Withholding Tax
groups – one of which will be applied at the time of Invoice and the other will be applied at the time of Payment.

Business Rules
 In the Supplier/Supplier Site the current LOV of ‘Withholding Tax Group’ is
used for applying Withholding taxes at the time of Invoice. The current LOV is
renamed from ‘Withholding Tax Group’ to ‘Invoice Withholding Tax Group’. A
second new LOV is added to enable the user to apply Withholding Taxes at
the time of Payment. The label will be ‘Payment Withholding Tax Group’.
 The current rules followed for allowing the checkbox 'Allow Withholding Tax'
to be editable at the Supplier and Supplier Site levels will continue to apply as
follows:
 At Supplier level:
 The ‘Allow Withholding Tax’ checkbox in the Tax Details tab
of the Supplier should always be editable at the Supplier level
irrespective of the Payables Option selected.
 At the Supplier Site level:
 The 'Allow Withholding Tax' checkbox should always be
displayed at the Supplier Site level, but it will be editable only
if the ‘Use Withholding Tax’ checkbox is enabled in the
Payables Option of the Operating Unit to which the supplier
site is attached, and the ‘Allow Withholding Tax’ checkbox is
selected at the Supplier level.
 For the LOV’s to be shown and editable, the following rules will apply:
 At the Supplier level:
 If the ‘Allow Withholding Tax’ checkbox is not selected at the
Supplier level, no LOV’s will be shown.
 If the ‘Allow Withholding Tax’ checkbox is selected at the
Supplier level, two LOV’s will be shown and will be editable:
o Invoice Withholding Tax Group
o Payment Withholding Tax Group

 At the Supplier Site level:


 Irrespective of the Payables Option, the following LOV’s will
always be shown at the Supplier Site level:
o Invoice Withholding Tax Group
o Payment Withholding Tax Group

 For the LOV’s to be editable, the following rules will apply:

 If the option selected in the Payables Option is ‘At Invoice


Validation and Payment Time’, then in the Supplier Site two
LOV’s will be editable:
o Invoice Withholding Tax Group
o Payment Withholding Tax Group

 If the option selected in the Payables Option is ‘At Invoice


Validation Time’, only one LOV will be editable:
o Invoice Withholding Tax Group

 If the option selected in the Payables Option is ‘At Payment


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Time’ then only one LOV will editable:
o Payment Withholding Tax Group
 If the option selected in Payables Option is ‘Never’ then no
LOV will be editable.
 The LOV’s will show the same Withholding Tax groups as are being shown in
the current Withholding Tax group LOV.
Figure 2: Supplier Header – If 'Allow Withholding Tax' checkbox is selected.

Figure 3: Supplier Site – If 'Allow Withholding Tax' checkbox is selected.

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Changes in application transaction UI
Invoice Workbench (APXINWKB) Form
The Invoice Workbench will show two columns – Withholding tax groups to be applied at the time of Invoice
validation and Withholding Tax groups to be applied at the time of Payment. The values here will be defaulted from
the Supplier/Supplier Site. The User can also enter/edit the values here depending on the Business Rules
described below.

Business Rules
 In the Invoice Workbench the existing column of ‘Withholding Tax Group’ will
be renamed to ‘Invoice Withholding Tax Group’. This will be now used for
applying Withholding Taxes at the time of Invoice. One more new column will
be added called ‘Payment Withholding Tax Group’. This will be used to apply
Withholding Taxes at the time of Payment. These columns will be shown at all
the following levels:

o Invoice Header Level


o Invoice Line Level
o Invoice Distribution Level
 At the Invoice Header level the values for both ‘Invoice Withholding Tax
Group’ and ‘Payment Withholding Tax Group’ will default from the respective
values in the Supplier Site. This default will happen only if the Supplier Site for
which the invoice is entered is enabled for Withholding Tax.
 At the Invoice Line level the values will default from the Invoice Header.
 At the Invoice Distribution level the values will default from the Invoice Line.
 These columns will show the same Withholding Tax Groups as are being
currently shown for the column 'Withholding Tax Group'.
 If the option selected in the Payables Option -> 'Apply Withholding' region is
‘At Invoice Validation and Payment Time’ then:

o The values in the ‘Invoice Withholding Tax Group’ and ‘Payment


Withholding Tax Group’ will be defaulted from the respective columns
in the Supplier Site.
o The column ‘Invoice Withholding Tax Group’ will be editable until the
invoice is validated.
o The column ‘Payment Withholding Tax Group’ will be editable until
the invoice is paid.

 If the option selected in the Payables Option -> 'Apply Withholding' region is
‘At Invoice Validation’ then:

o At the time the invoice is entered for the Supplier, the Withholding
Taxes to be applied at the time of invoice validation will default from
the Supplier Site to the column ‘Invoice Withholding Tax Group’.
o The column ‘Invoice Withholding Tax Group’ will be editable until the
invoice is validated.
o The column ‘Payment Withholding Tax Group’ will not be editable at
all.

 If the option selected in the Payables Option -> 'Apply Withholding' region is
‘At Payment Time’ then:

o At the time the invoice is entered for the Supplier, the Withholding
Taxes to be applied at the time of payment will default from the
Supplier Site to ‘Payment Withholding Tax Group’.
o The column ‘Payment Withholding Tax Group’ will be editable until
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the invoice is paid.
o The column ‘Invoice Withholding Tax Group’ will not be editable.

 If the option selected in the Payables Option -> 'Apply Withholding' region is
‘Never’ then:

o At the time the invoice is entered for the Supplier, nothing will default.
o Both the columns ‘Invoice Withholding Tax Group’ and ‘Payment
Withholding Tax Group’ will be non-editable.

Figure 4 : Invoice Header

Figure 5: Invoice Lines

Figure 6 : Invoice Distribution

Supplier and Payables Interfaces


 Similar changes have been done in the Supplier Import interface to get the
Withholding Tax groups populated for the suppliers.
 Similar changes have been done in the Payables Open interface import to get
the Withholding Tax groups populated for the imported invoices.
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User Procedures
Setup

Setup Payables Option


In the Payables Option set ‘Apply Withholding Tax’ to ‘At Invoice Validation and
Payment Time’.

Figure 7 : Payables Option: set 'Apply Withholding Tax' to BOTH Invoice Validation and Payment time

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Setup Supplier Site
Setup at Supplier Site Tax Details Page
• Attach the Withholding Tax code for Invoice and Payment time
withholding.

Figure 8 : Supplier Site populated with Withholding Tax group of INV and PAY for invoice and payment time
withholding.

User

User Task Description


Business Examples:
Withholding Tax code ‘INV’ - 6.5%
Withholding Tax code ‘PAY’ - 4%
Let us assume that the User enters an Invoice for 10,000 for Supplier SRAMANUJ
and Site SRAMANUJ.
INV and PAY will default at the header, line and distribution levels, though the user
can edit this field at any level. There is only one line of 10,000.

Figure 9 : Invoice Workbench defaults the Withholding Tax groups for both Invoice and payment time withholding.

At the time of validation the following withholding lines for 650 will be generated.

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Figure 10 : Validation of invoice creates withholding distribution lines

Now if the payment of 5000 is made, then the payment of 4786.1 would be made.

Figure 11 : Partial Payment made

An additional withholding line of 213.9 would be created.

Figure 12 : Payment time withholding distribution created

Calculation of AWT at payment time is done as follows :

a) Invoice amount - 10000

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b) AWT on Validation (AWT Code ‘INV’ 6.5%) = 10000*6.5% >> 650
c) Net payable after AWT on validation (a-b) = ( 10000 – 650 ) >> 9350
d) Partial Payment amount of 5000 is made.
AWT would be = ((d/c) * a) AWT % at payment time (AWT code ‘PAY’ 4%)
((5000 / 9350) * 10000) * 4% = 213.9
Payment made = 5000 – 213.9 = 4786.1

Let us make the remaining payment for the invoice. .


Payment of 4163.9 would be made.

Figure 13 : Remaining payment made

An additional withholding line of 186.1 would be created.

Figure 14 : Payment time withholding distribution created

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Calculation of AWT at payment time is done as follows :

a) Invoice amount - 10000


b) AWT on Validation (AWT Code ‘INV’ 6.5%) = 10000*6.5% >> 650
c) Net payable after AWT on validation (a-b) = ( 10000 – 650 ) >> 9350
d) Partial Payment amount of 5000 is made.
AWT would be = ((d/c) * a) AWT % at payment time (AWT code ‘PAY’ 4%)
((4350/ 9350) * 10000) * 4% = 186.1
Payment made = 4350 – 186.1 = 4163.9

To summarize :
a) Invoice amount – 10000
b) AWT on Validation (AWT Code ‘INV’ 6.5%) = 10000*6.5% >> 650
c) AWT on Payment (AWT Code ‘PAY’ 4%) = 10000*4% >> 400
(Deducted in 2 payments ( 213.9+186.1) )
d) Payments made (a-b-c) = (10000 – 650 – 400) = 8950
(Paid in 2 payments (4786.1 + 4163.9)

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