Projects:Tax As Expenses/User Guide
User Guide
Abstract and Justification
Tax Posting as expenses is a new enhancement in ERP core which will be available for MP 15 and further MP.
It is intended to allow the end user to post taxes as an expense for those cases of non-deductible taxes, and for those cases of Organizations do not allowed to deduct taxes at all because of Organization type (Public Sector) or Organization activity.
User Goals
Taxes (by example VAT) will be posted as an expense or as a liability (VAT deductible) depending on "Organization" and/or "Tax Rate" parameters setup, in other words:
- End-user will be able to set up an Organization as Non Tax Deductible Organization, which implies that purchase tax (by example VAT) are posted as an expense and sales invoice are VAT exempt.
- End-user will be able to set up specific Tax Rates as Deductible or Non Deductible.
New Definitions and Acronyms
VAT = Value Added Tax
Prerequisites
Installation
No specific requirements here but to have ERP core version 2.50MP15 or higher
Configuration
Feature Setup
1.- There are some organizations like Public Sector for which tax deduction is not allowed, that means:
- purchase VAT must be posted as an expense
- and sales invoices are VAT exempt.
“Tax Posting as Expense” feature will allow the end-user to set up at Organization level, Organizations as “Tax Not Deductible” Organizations and to select the Exempt Sales Tax to be used while posting sales invoices as shown in the screen below:
But besides “Tax Posting as Expense” feature will allow the end-user to setup deductible purchase VAT for Tax Not Deductible Organizations in case it is required, as shown in the screen below.
2.- There are some organizations for which tax deduction is allowed, that means:
- purchase VAT must be posted as VAT deductible
- and sales invoices could or could not be VAT exempt
“Tax Posting as Expense” feature will allow the end-user to properly setup specific "Purchase" VAT as “Tax Not Deductible” which therefore will be posted as an expense, as shown in the screen below.
In any case, purchase VAT posted as an expense means that the corresponding purchase VAT must be posted in the Product Expense account, that means a higher cost/expense for the organization.
Organization Setup
As described above "Tax Posting as Expense" feature allow the end to set-up Tax Deductible Organization (normal behavior) and from now on Non-Tax Deductible Organization.
A Non-Tax Deductible Organization can be setup. For doing that end-user must be navigate to the application path: General Setup || Enterprise || Organization || Organization >> Information - and for the PublicOrg below parameters must be setup:
- Tax Not Deductible = yes
- Sales Tax Exempt Rate = Exempt Sales Rate
A Tax Deductible Organization can be setup. For doing that end-user must be navigate to the application path: General Setup || Enterprise || Organization || Organization >> Information - and for the "TaxD Org" below parameters must be setup:
- Tax Not Deductible = no
BP (Vendor and Customer) Setup
It is important to setup BP (Vendors) properly for the system to use the tax rate required:
- National Vendors - Vendors located in the same country than Organization country, by example Germany. For these ones system will use by example "National Purchase VAT 19%" setup as "Country = Germany" and "Destination Country = Germany".
- Intracommunity Vendors - Vendors located in a different EU country (by example France) than the EU Country where the Organization is located (by example Germany). For these ones system will use by example "Intracommunity Purchase VAT 19%" setup as "Country = France" and "Destination Country = Germany".
- National Customers - Customers located in the same country than Organization country, by example Germany. For these ones system will use by example "National Sales VAT 19%" setup as "Country = Germany" and "Destination Country = Germany".
- Intracommunity Customers - Customers located in a different EU country (by example France) than the EU Country where the Organization is located (by example Germany). For these ones system will use by example "Intracommunity Sales Exempt" setup as "Country = France" and "Destination Country = Germany".
For getting the above, end-user must properly setup Vendor location in the application path: Master Data Management || Business Partner || Business Partner >> Location/Address
National Vendor (same applies to Customers):
Intra-community vendor (same applies to Customers):
Non-Deductible Tax Category Setup & Allocation
For those cases an Organization is allowed to deduct VAT but for some specific tax rates, it will be required to :
1. Define a Non-deductible Tax Category to be setup at the application path:Financial Management || Accounting || Setup || Business Partner Tax Category || Business Partner Tax Category, as shown below.
(It is important to remark here that a VAT is deductible or not deductible for an Organization which can deduct VAT because of the transaction type or BP, not because of the Goods/Services exchanged.
2. Create a Non-Deductible BP (Vendor)
3. and Link "Non-deductible" BP Tax Category to the Non-Deductible BP (vendor, by example) as shown below:
Tax Rates setup
Tax Rates can be setup at Client level, in that case those tax rates apply to any Organization under a Client regardless of Non-Tax Deductible or Tax Deductible scenarios.
For getting tax rates setup, the end-user must navigate to the application path:
Financial Management || Accounting || Setup || Tax Rate || Tax
Next sections describe high-level how different tax rates must be setup.
National Purchase VAT 19% setup
- Client = Client
- Organization = *
- Name= National VAT 19%
- Description = National VAT 19%
- Valid from = 01/01/2001
- Tax Category = VAT19%
- Rate = 19.00
- Sales/Purchase Type = Purchase Type
- Country = Germany
- Destination Country= Germany
- Tax Due = 480000
- Tax Credit = 260000
Non-Deductible National Purchase VAT 19% setup
- Client = Client
- Organization = *
- Name= National VAT 19% Non-D
- Description = National VAT 19% Non-D
- Valid from = 01/01/2001
- Tax Category = VAT19%
- Rate = 19.00
- Sales/Purchase Type = Purchase Type
- Business Partner Tax category = Non Deductible
- Tax Not Deductible = YES
- Country = Germany
- Destination Country= Germany
- Tax Due = 480000
- Tax Credit = 260000
National Sales VAT 19% setup
- Client = Client
- Organization = *
- Name= National Sales VAT 19%
- Description = National Sales VAT 19%
- Valid from = 01/01/2001
- Tax Category = VAT19%
- Rate = 19.00
- Sales/Purchase Type = Sales Type
- Country = Germany
- Destination Country= Germany
- Tax Due = 48000
- Tax Credit = 26000
Exempt Tax Rate
- Client = Client
- Organization = *
- Name= Exempt Tax Rate
- Description = Exempt Tax Rate
- Valid from = 01/01/2001
- Tax Category = Exempt
- Tax Exempt = Yes
- Rate = 0.00
- Sales/Purchase Type = Sales Type
- Tax Due = 480000
- Tax Credit = 260000
Intra-Community VAT 19%
- Client = Client
- Organization = *
- Name= IntraCommunity VAT 19%
- Description = IntraCommunity VAT 19%
- Valid from = 01/01/2001
- Tax Category = VAT19%
- Summary = Yes
- Sales/Purchase Type = Purchase Type
- Country = France
- Destination Country= Germany
- Tax Due = n/a
- Tax Credit = n/a
Intra-Community VAT 19% (19%)
- Client = Client
- Organization = *
- Name= IntraCommunity VAT 19% (19%)
- Description = IntraCommunity VAT 19%
- Valid from = 01/01/2001
- Tax Category = VAT19%
- Tax Rate = 19.00
- Sales/Purchase Type = Purchase Type
- Parent Tax Rate = Intra-Community VAT 19%
- Country = France
- Destination Country= Germany
- Tax Due = 480000
- Tax Credit = 260000
Intra-Community VAT 19% (-19%)
- Client = Client
- Organization = *
- Name= IntraCommunity VAT 19% (19%)
- Description = IntraCommunity VAT 19%
- Valid from = 01/01/2001
- Tax Category = VAT19%
- Tax Rate = -19.00
- Sales/Purchase Type = Purchase Type
- Parent Tax Rate = Intra-Community VAT 19%
- Country = France
- Destination Country= Germany
- Tax Due = 26000
- Tax Credit = 48000
Intra-Community Exempt Sales VAT
- Client = Client
- Organization = *
- Name= Intracommunity Sales VAT
- Description = Intracommunity Sales VAT
- Valid from = 01/01/2001
- Tax Category = VAT19%
- Tax Exempt = yes
- Tax Rate = 0.00
- Sales/Purchase Type = Sales Type
- Country = Germany
- Destination Country= France
- Tax Due = 480000
- Tax Credit = 260000
"Allow Negative" Setup
In order to get the proper posting in the case of an "Intra-community" Purchase VAT, the "Allow Negative" feature needs NOT to be enabled for the organization's general ledger configuration.
Items Setup
It is important to remark that Items must be linked to the proper Tax Category, which in our case should be "VAT19%"; for doing that end-user must navigate to the application path: Master Data Management || Product || Product
Use Case Scenarios
Tax Non-Deductible Organization
National Purchase
In order to get a National Purchase transaction properly posted for a Tax Non-Deductible Organization, end-user must follow below steps:
- Go to Procurement Management - Transactions – Purchase Invoice – Header and create a new purchase invoice
- Select the Organization “PublicOrg"
- Select AP Invoice as Transaction document.
- Select the business partner “National Vendor".
- Go to lines tab.
- Create a new record.
- Select the product “Item A”
- Enter the Invoiced Quantity as 1.
- Check that the Tax = National VAT 19%
- Enter as Net Unit Price = 100
- Check that the Line Net Amount = 100
- and the Line Gross Amount = 119
- and the Tax Amount = 19,00
Once the invoice is completed and posted, below posting must be shown which means that a Tax Non-Deductible Organization is not allowed to deduct purchase VAT therefore it will posted as an expense:
| Account nº | Name | Debit | Credit |
| 440000 | Vendor Liabilities | 119,00 | |
| 689000 | Product Expense | 119,00 (including VAT=19,00) |
National Sales
In order to get a National Sales transaction properly posted for a Tax Non-Deductible Organization, end-user must follow below steps:
- Go to Procurement Management - Transactions – Sales Invoice – Header and create a new sales invoice
- Select the Organization “PublicOrg"
- Select AR Invoice as Transaction document.
- Select the business partner “National Customer".
- Go to lines tab.
- Create a new record.
- Select the product “Item A”
- Enter the Invoiced Quantity as 1.
- Check that the Tax = Exempt Sales VAT (the one setup at Organization level)
- Enter as Net Unit Price = 100
- Check that the Line Net Amount = 100
- and the Line Gross Amount = 100
- and the Tax Amount = 0,00
Once the invoice is completed and posted, below posting must be shown which means that Sales invoices are VAT exempt:
| Account nº | Name | Debit | Credit |
| 240000 | Account receivable | 100,00 | |
| 531000 | Income account | 100,00 |
Intracommunity Purchase
In order to get an Intracommunity Purchase transaction properly posted for a Tax Non-Deductible Organization, end-user must follow below steps:
- Go to Procurement Management - Transactions – Purchase Invoice – Header and create a new purchase invoice
- Select the Organization “PublicOrg"
- Select AP Invoice as Transaction document.
- Select the business partner “Intracommunity Vendor".
- Go to lines tab.
- Create a new record.
- Select the product “Item A”
- Enter the Invoiced Quantity as 1.
- Check that the Tax = Intracommunity VAT 19%
- Enter as Net Unit Price = 100
- Check that the Line Net Amount = 100
- and the Line Gross Amount = 100
- and the Tax Amount = 19,00 and -19,00
Once the invoice is completed and posted, below posting must be shown which means that a Tax Non-Deductible Organization is not allowed to deduct purchase VAT therefore it will posted as an expense:
| Account nº | Name | Debit | Credit |
| 440000 | Vendor Liabilities | 100,00 | |
| 480000 | VAT liabilities (-19%) | 19,00 | |
| 689000 | Product Expense (including VAT 19%) | 119,00 |
Tax Deductible Organization
National Purchase
In order to get a National Purchase transaction properly posted for a Tax Deductible Organization, end-user must follow below steps:
- Go to Procurement Management - Transactions – Purchase Invoice – Header and create a new purchase invoice
- Select the Organization “TaxD Organization”.
- Select AP Invoice as Transaction document.
- Select the business partner “National Vendor".
- Go to lines tab.
- Create a new record.
- Select the product “Item A”
- Enter the Invoiced Quantity as 1.
- Check that the Tax = National VAT 19%
- Enter as Net Unit Price = 100
- Check that the Line Net Amount = 100
- and the Line Gross Amount = 119
- and the Tax Amount = 19,00
Once the invoice is completed and posted, below posting must be shown which means that a Tax Deductible Organization is allowed to deduct purchase VAT:
| Account nº | Name | Debit | Credit |
| 440000 | Vendor Liabilities | 119,00 | |
| 260000 | VAT deductible | 19,00 | |
| 689000 | Product Expense | 100,00 |
Non-deductible Purchase
In order to get a Non Deductible National Purchase transaction properly posted for a Tax Deductible Organization, end-user must follow below steps:
- Go to Procurement Management - Transactions – Purchase Invoice – Header and create a new purchase invoice
- Select the Organization “TaxD Organization”.
- Select AP Invoice as Transaction document.
- Select the business partner “Non-Deductible National Vendor".
- Go to lines tab.
- Create a new record.
- Select the product “Item A”
- Enter the Invoiced Quantity as 1.
- Check that the Tax = Non Deductible National VAT 19%
- Enter as Net Unit Price = 100
- Check that the Line Net Amount = 100
- and the Line Gross Amount = 119
- and the Tax Amount = 19,00
Once the invoice is completed and posted, below posting must be shown which means that the tax rate which was setup as Non-Deductible tax rate has to be posted as an expense:
| Account nº | Name | Debit | Credit |
| 440000 | Vendor Liabilities | 119.00 | |
| 689000 | Product Expense (including VAT 19%) | 119.00 |
Intracommunity Purchase
In order to get an Intra-community Purchase transaction properly posted for a Tax Deductible Organization, end-user must follow below steps:
- Go to Procurement Management - Transactions – Purchase Invoice – Header and create a new purchase invoice
- Select the Organization “TaxD Organization”.
- Select AP Invoice as Transaction document.
- Select the business partner “Intracommunity Vendor".
- Go to lines tab.
- Create a new record.
- Select the product “Item A”
- Enter the Invoiced Quantity as 1.
- Check that the Tax = Intracommunity VAT 19%
- Enter as Net Unit Price = 100
- Check that the Line Net Amount = 100
- and the Line Gross Amount = 100
- and the Tax Amount = 19,00 and -19,00
Once the invoice is completed and posted, below posting must be shown which means that a Tax Deductible Organization is allowed to deduct purchase VAT:
| Account nº | Name | Debit | Credit |
| 440000 | Vendor Liabilities | 100,00 | |
| 260000 | VAT deductible (19%) | 19,00 | |
| 480100 | VAT liabilities (-19%) | 19,00 | |
| 689000 | Product Expense | 100,00 |