Deferred Taxes

By default, Determination considers calculated taxes due and payable upon invoicing of a transaction. However, you can change this default behavior by invoking special tax treatment types. For example, you may need to defer taxes until the payment of an invoice is received or until some other point in the future.

For transactions that need special treatment, Determination calculates tax normally but then flags them for special treatment by your integration software. It does this by inserting a value into the XML element <TAX_TREATMENT>. You can control how these flagged invoices are recorded in your business source system by modifying your integration software. If you need assistance with this, contact Consulting Services.

Types of Special Tax Treatment

Determination offers several special tax treatment type flags.

Deferred Tax

This is when taxes are deferred as a result of tax authority rules and regulations. An authority may specify tax is due at a time later than the invoice date, for example at the point of invoice payment. The tax treatment type for these transactions is marked by D (Deferred) or DI (Deferred Invoice). The difference between D and DI is how they are handled by Integrations. Tax amounts associated with a tax treatment type of D are recorded as a statistical value in the host system and not posted to the general ledger. With DI, the associated tax amounts are not statistical values and are able to be posted to the relevant general ledger account, for example Deferred Taxes Payable.

Deferred Payment

These are payments received for invoices that had deferred taxes calculated on them and tax is now due to the tax authority at point of payment. The tax treatment type for these transactions is marked by DP (Deferred Payment).

Setting Special Tax Treatment Types

There are two methods for setting special tax treatment types: Tax rules and TransEditors.

Determination Tax Rules

You can rely on a standard Determination tax rules to provide special tax treatment types, or you can create custom tax rules that contain a particular tax treatment type. For help with Determination rules see Rules.

TransEditors

Instead of relying on tax rules in Determination to flag your invoices for tax treatment types, you can create special TransEditors.

To use this approach, you set up conditions your transactions must meet in order to receive special tax treatment types. If your transactions meet these conditions, the TransEditor assigns an appropriate value (D, DI, and DP) to either the invoice or line level input tag <TAX_TREATMENT>.

For help with TransEditors, see TransEditors.

 If you set the tax treatment type through TransEditors, you override any tax treatments attached to Determination tax rules.

Output for Special Tax Treatment

When you flag transactions for special tax treatment types, the output is affected as follows:

  • The output element <INVOICE>.<TAX>.<TAX_TREATMENT> or <LINE>.<TAX>.<TAX_TREATMENT> contains the value D (Deferred), DI (Deferred Invoice), DP (Deferred Payment), or W (Withholding).
  • The <TAX_TREATMENT> value is stored in the Audit database so that reports can be generated based on special tax treatment.
  • Tax advisories are provided in the output XML if only some lines of a transaction receive special tax treatment. You can see these <ADVISORY> tags in your output if you enable the Gather Invoice Tax Summaries in the company Options tab or by setting the Configuration value to Y for GATHER_INVOICE_TAX_SUMMARIES.