| # To use tax codes You use tax codes to specify the following for each type of tax: The tax rates in each country The way the tax must be calculated The tax authority to which the tax must be paid The ledger accounts to which the tax amounts must be posted The text that must be printed on invoices to which the tax applies Each type of tax is represented by a tax code. For example, you can use the tax code VAT to indicate value-added tax and DST to indicate destination sales-tax. For each tax code, you must select the VAT Type, which defines the way in which ERP Enterprise handles the tax, and the Kind of Tax. If you use a tax provider, the information about the tax rates is not used. The tax provider contains all the data required to calculate the tax amounts and returns the amounts to ERP Enterprise. You must still define tax codes to specify the ledger accounts to which the tax amounts must be posted. Tax codes by country For the home country of each financial company, you must link the tax codes that apply to the country. You link tax codes to countries in the Tax Codes by Country (tcmcs0536m000) session. Single tax rates If a type of tax in a country consists of only one tax rate, you can define the tax code as a singular tax code. You specify the tax rate, the maximum amount, and other details, in the Single Tax Rates (tcmcs0132m000) session. Multiple tax codes If a type of tax in a country consists of several parts that must be paid to different tax authorities, you must define the tax as a multiple tax code for this country. For each part, you must create a multiple tax code line in the Multiple Tax Code Lines (tcmcs0535m000) session. ERP Enterprise assigns a sequence number to each line. The tax on the multiple tax code lines can be calculated in the following ways: Parallel Individually for each line Cumulative Including the tax amounts of previous lines Next, you specify the tax rates for each multiple tax code line in the Multiple Tax Code Lines (tcmcs0535m000) session. No-tax tax codes ERP Enterprise cannot create, finalize, and post transactions if no tax code is available. Consequently, you must define a tax code for transactions that are not subject to taxation. To define the tax code for non-taxable transactions, select the Tax Code for No Tax check box in the Tax Codes by Country (tcmcs0136s000) session. Zero rate tax codes Taxable transactions on which no tax must be paid are considered as transactions with a zero tax rate rather than as non-taxable transactions. For such transactions, you must set up tax codes with zero rates. Tax exemption can apply, for example, for the following reasons: The goods or services are not taxable. The goods transfer to or from specific countries is not taxable The transactions are related to service operations in specific situations. The business partner holds an exempt certificate. Usually, if no tax is levied on a transaction, some additional information, such as a reference to the tax law that states the exception, or the business partner's tax exemption certificate number, must be printed on the invoice. Depending on the type of tax, you can use a reason code linked to the tax code or you can link a text to the tax code to contain this information. Tax ledger accounts and dimensions You must specify the ledger accounts to which ERP Enterprise must post the tax amounts, for each financial company. In each financial company of your system, use the following sessions: Posting Data for Single Tax Codes (tfgld0571m000), for single tax codes. Posting Data for Multiple Tax Codes (tfgld0570m000), for multiple tax codes. If dimensions are linked to the tax ledger accounts, for invoices ERP Enterprise derives the dimensions from the financial business partner group control accounts. For journal vouchers, ERP Enterprise derives the dimensions from the ledger account of the journal. If mandatory dimensions are linked to the tax accounts and no dimensions are defined for the transaction ledger account, ERP Enterprise uses the dimensions that you specify in the Posting Data for Tax Codes (tfgld0171s000) or the Posting Data for Multiple Tax Codes (tfgld0170s000) session. Shifted tax The responsibility for the payment of value added tax can be shifted from the supplier to the customer. In such a situation, you can define a value added tax code of the Shifted type. ERP Enterprise does not add the calculated tax amount to the invoice amount but posts the tax amount to a separate ledger account to be dealt with later. The shifted tax amount is posted to the sales tax account or the purchase tax account. Simultaneously, a reverse entry is generated on a shifted tax contra-account. In the tax analysis the amount is included twice: As an entry on the purchase tax account or the sales tax account. As a reverse entry on the Shifted Purchase Tax or Shifted Sales Tax account. Uses of shifted tax codes Among others, shifted tax is used as follows: Shifted tax is used in The Netherlands in relation to legislation concerning the responsibility for tax payment on the invoices from subcontractors to the main contractor. In the European Union, shifted tax can be used for purchase invoices from other EU countries. Such purchase invoices do not state any tax, but when you post them you must calculate a fictitious tax amount against the national tax rate. This tax amount is included on the tax report as both chargeable and payable. Direct pay sales tax codes for purchases must be of the Shifted type. Group tax codes A group tax code is a method to link multiple individual tax codes to a transaction. If withholding tax and/or social contributions apply to an invoice as well as value added tax or sales tax, you can use a group tax code. A group tax code must include: One tax code of the VAT kind of tax, set up either for value added tax tax or for sales tax. One of the following: One or multiple tax codes of the following kinds, as required: Withholding Income Tax Withholding Social Contribution Social Contribution (Company Expense) One or multiple Exclude from Withholding tax codes. If the invoice-from business partner's tax classification indicates that payments of their invoices are subject to withholding tax and social contributions, ERP Enterprise can link a group tax code to the transaction. ERP Enterprise verifies that the group tax code corresponds to the business partner's tax classification. For example, if the tax classification indicates that withholding income tax applies and withholding social contributions does not apply, the group tax code must contain a tax code of the Withholding Income Tax kind and cannot contain a tax code of the Withholding Social Contribution and/or the Social Contribution (Company Expense) kind. You can only use group tax codes for the following types of transactions: Purchase invoices for cost items and for service items. The invoices must not be self-billed. Purchase orders for cost items and service items. Tax authorities A tax authority is a government body with jurisdiction over the sales taxes in a specific area. For example, the state of California, the province of Ontario, the county of Dade, and the city of Atlanta. ERP Enterprise uses tax-authority codes and tax-authority groups to identify the jurisdiction of a specific tax code or tax code level. You can optionally link a tax authority to a single tax code or to a line of a multiple tax code. You can select and sort tax-analysis report data by tax-authority codes and by tax-authority groups, and you can update the tax rates at once for all the tax codes linked to a tax authority or a group of tax authorities. Item tax codes You can link default tax codes to items and to service orders, contracts, and so on from specific service departments, in the following sessions: For sales orders: Item - Sales Defaults (tdisa0102s000) and Items - Sales (tdisa0501m000) For purchase orders: Items - Purchase Defaults (tdipu0102m000) and Items - Purchase (tdipu0101m000) For service orders: Service Departments (tsmdm1100m000) For value added tax, in sessions and transactions in which a tax code is required, ERP Enterprise can display the default tax code. If you use the Standard search order, ERP Enterprise retrieves the tax codes from the following sessions, in the following order: Tax Handling (tctax0138m000) The tax code for the tax country and item combination, if you specify one. Items - Sales (tdisa0501m000) The tax code for the item if you specify one. Tax Handling (tctax0138m000) The tax code you define for the tax country and an empty Item field. Related topics Overview of tax handling Setting up tax registration Setting up withholding tax and social contributions Sales tax |