Resolving Complex Withholding Scenarios

This chapter describes how to:

• Exonerate vendors from withholding.

• Use tiered-based withholding.

• Use period-based withholding.

• Manage period-based withholding.

• Calculate withholding on prepayments.

• Apply withholding to the first payment only.

• Calculate withholding on payment cancellations.

• Group withholding accounting entries for payment posting.

Note. This chapter covers complex or unusual withholding scenarios. The main discussion of withholding setup and processing in Payables can be found in the other withholding chapters in this PeopleBook.

See Also

Processing Withholding in Payables

Processing Special Withholding Requirements

(IND) Setting Up and Processing Tax Deducted at Source for India

Exonerating Vendors

Payables enables you to exonerate a vendor from withholding on a percentage basis. Some vendors enjoy special privileges when it comes to withholding. This privilege is termed exoneration and enables this vendor to be withheld less than other vendors. For instance, a vendor may have a condition that stipulates that it be withheld half of the regular amount during the first six months of the year. To support this feature, we have provided a way of specifying an exoneration percentage and an expiration date for this exoneration at the vendor level. This information needs to be tracked at the jurisdiction level as well, and it is stored in the VENDOR_WTHD_JUR table.

Example: Vendor Exoneration

Let’s assume that you paid 55,000 EUR from an exonerated vendor. Let’s also assume that the withholding amount calculated prior to any exoneration is 3600 EUR (see the example below in Using Tiered-Based Withholding). If this vendor had an effective exoneration of 25%, you would withhold 2700 EUR instead of 3600 EUR.

See Also

Defining Withholding Options

Using Tiered-Based Withholding

To support tiered-based withholding, you set up your withholding rule such that the withholding percentage depends on the basis amount. Just as in a bracketed income tax system, the bigger the amount, the higher the withholding percentage becomes. Here is an example:

If, for example, your transaction amount were 55,000 EUR you would calculate your withholding in the following manner. Since 55,000 EUR falls into the 50,000-99,999 bracket, you would subtract the amount from the From Amount of that bracket, multiply this by the corresponding percentage, and add the Additional Amount. Here is how it would look:

1. 55,000 EUR - 50,000 EUR (from amount of bracket) = 5000 EUR

2. 5000 EUR × 8% = 400 EUR

3. 400 EUR + 3200 EUR = 3600 EUR

In this case, the withholding on this 55,000 EUR transaction would be 3600 EUR.

See Also

Defining Withholding Rules

Using Period-Based Withholding

This section explains how to:

• Set up period-based withholding.

• Calculate period-based withholding.

• Compare credit notes for period-based and voucher withholding.

Setting Up Period-Based Withholding

To set up period-based withholding calculations, you set up a calendar that determines a period for your withholding rule, using the Calendar Builder page. You join that calendar to the withholding rule (which you set up using the Withhold Rule page) using the Withholding Entity page.

For example, let's say you withhold at 10% if the total accumulated monthly basis amount is less than 10,000 EUR, and you withhold at 12% if the total monthly basis amount is equal to or over 10,000 EUR:

1. Set up a withholding rule with a line for each percentage withholding and basis amount range:

   From Basis Amount	To Basis Amount	Percent Withheld	Additional Amount
   0	9,999.99	10%	0
   10,000	99999999999.99	12%	1000

2. Define a calendar with monthly periods.

3. Define withholding categories on the Withholding Entity page that join the withholding rule with the monthly calendar.

Now when you pay less than 10,000 EUR in a month to a vendor, you withhold at 10% and when you pay more, you withhold at 12%.

Note. You can also set up your withholding categories on the Withholding Entity page to set a minimum basis or withholding amount below which no withholding occurs; if the withholding category is associated with a calendar, this minimum amount will be applied by calendar period (that is, by month for a monthly calendar).

See Also

Defining Withholding Rules

Defining Withholding Entities

Calculating Period-Based Withholding

As with tiered withholding, these calculations are not based on one transaction but rather on all transactions that have occurred during a certain period of time (a month, a week, a year, and so on). However, these calculations occur at payment time and must be calculated for each individual transaction.

Example: Calculating Period-Based Withholding

Let’s continue with the example from the section, Using Tiered-Based Withholding. You've paid a 55,000 EUR to a vendor this month and withheld 3,600 EUR. Now you receive a second transaction in the amount of 50,000 EUR. Here is how the withholding on the second payment would be calculated:

1. 50,000 EUR + 55,000 EUR (balance from first transaction) = 105,000 EUR

2. 105,000 EUR - 100,000 EUR (from basis amount) = 5000 EUR

3. 5000 EUR × 9% = 450 EUR

4. 450 EUR + 7200 (additional amount at the 9% bracket) = 7,650 EUR

5. 7650 EUR - 3,600 EUR (amount already withheld) = 4,050 EUR

In this case, the withholding on the second transaction of 50,000 EUR would amount to 4,050 EUR. The same methodology would then apply to all subsequent payments to this vendor.

Comparing Credit Notes for Period-Based and Voucher Withholding

Credit notes for period based withholding are accounted for during withholding and payment calculations and therefore reduce the amount of the withholding for a given payment. Here are some incremental examples (assuming a 10% withholding):

Payment #1:

Period balance for basis amount: 300.

Period balance for withholding amount: 30.

Result: Payment is for 200.00 EUR to the vendor and the withholding is 20.00 EUR.

Payment #2:

Period balance for basis amount: 500.

Period balance for withholding amount: 50.

Result: Payment is for 90.00 EUR to the vendor and the withholding is 10.00 EUR.

Payment #3:

Period balance for basis amount: 600.

Period balance for withholding amount: 60.

Result: Payment is for 175.00 EUR to the vendor and the withholding is 25.00 EUR.

Managing Period-Based Withholding

Since your withholdings can be period-based, Payables enables you to update the current withholding totals for period-based withholding using the Withholding Period Adjustment page. This feature handles the possibility that you may issue a manual check and need to take this manual transaction into account for withholding calculations of subsequent transactions for the same period. Corrections to period-based withholding amounts update the table the system uses to accumulate period totals, called WTHD_PERIOD_LOG.

This section explains how to:

• Update period-based withholding.

• Review period-based withholding.

See Also

Using Period-Based Withholding

Pages Used to Manage Period-Based Withholding

Updating Period-Based Withholding

Access the Withhold Period Accumulation Adjustment page.

Tax ID	Displays the vendor’s tax ID.
Declaration Date (declaration date)	Displays the date on which your withholdings are going to be declared for reporting purposes.

Accounting Period

Withholding Basis Amount

Reviewing Period-Based Withholding

Access the Withhold Period Accumulation Log page.

Selection Criteria

Enter search criteria for the withholding period transactions and click theSearch button.

Business Unit and Vendor Information

View the results of your search in the Business Unit & Vendor Information scroll area. This scroll area shows your results by business unit and vendor; within a business unit and vendor, you can view transactions by entity, type, jurisdiction, and class combination in the Transaction Log scroll area. Within each withholding class combination, you can view accumulated total basis amount and withholding amount by period in the Details grid.

Calculating Withholding on Prepayments

Prepayments enable you to pay for goods or services before an invoice is received. You can choose to withhold on the prepaid voucher, or postpone withholding until you process the final invoice. If you postpone withholding, the withholding is not calculated when the Prepaid voucher is paid. It is calculated when the system applies the regular voucher to the prepaid voucher during the Voucher Posting process.

You can postpone withholding for prepayments by selecting the Postpone Withholding check box on either the Withholding Information page or on the Voucher − Voucher Attributes page.

Note. You cannot postpone withholding on prepayments when withholding is calculated at voucher post.

Here are some examples of withholding on prepayments. If your supplier asked you for a pre-payment of 1000.00 EUR on merchandise worth 10,000.00 EUR you would have the following two options given a 5% withholding:

Note. In all of these examples, the prepaid voucher is voucher ID 00000001 and the applied regular voucher is voucher ID 00000002.

Example 1: Apply Withholding on the Prepayment (Withholding is Not Postponed)

This option would mean that withholding would occur on the prepayment and the following PYMNT_VCHR_XREF rows would have been generated—assuming backup withholding—after this pre-payment is paid:

When the prepayment is applied to the regular voucher, the following rows get written to the PYMNT_VCHR_XREF table.

After the regular voucher is paid, the entries look as follows (the withholding calculations are performed during pay cycle):

Example 2: Postpone Withholding on a Prepayment

This option means that withholding is not calculated for a prepayment and that, instead, withholdings are calculated on the full EUR 10,000 when the regular voucher is paid. When the prepayment is paid, the PYMNT_VCHR_XREF entries for the prepayment would look like this (no withholding at this point):

This is what PYMNT_VCHR_XREF looks like after the prepayment is paid:

This is what PYMNT_VCHR_XREF looks like after the prepayment has been applied:

This is what PYMNT_VCHR_XREF looks like after the regular voucher has been paid:

See Also

Specifying VAT and Withholding on Prepayments

Applying Withholding to First Payment Only

In cases where you have scheduled multiple payments for a voucher for a withholding vendor, you have the option to apply the entire withholding amount to the first payment. To do this the system checks the total basis amount for the voucher when the first payment is being issued. It then checks that the first installment amount is greater than the total withholding amount for the voucher. If the first installment amount is greater, the system withholds the total withholding; if it is not, the system creates an exception and rejects the transaction. Make a correction at the voucher level and reschedule at a later time.

You can specify this option on the Withholding Entity page by selecting the Appl. 1st Pmnt option. This information is stored on the WTHD_CATEGORY table.

See Also

Defining Withholding Entities

Calculating Withholding on Payment Cancellations

Payables handles reversals for withholdings on payment cancellations. Withholding calculations occur at payment time, so the system needs to know not to calculate withholdings again. After canceling, run payment and withhold posting. The system creates a new entry in the PYMNT_VCHR_XREF table for the regular amount (gross amount - withholding = regular amount) and a reversal entry on the WTHD_TRXN_TBL so you will not report withholding twice.

Here is an example of how it works.

Payment Cancellation Example

Some of the associated withholdings are not in Not Selected status (one is in Paid status).

Note. There are two withholding classes associated with the voucher in this example.

After Payment and Withholding Posting:

PYMNT_VCHR_XREF (after payment and withholding calculations):

PYMNT_VCHR_WTHD:

WTHD_TRXN_TBL:

After Payment Cancellation, Payment Posting, and Wthd Posting

PYMNT_VCHR_XREF:

PYMNT_VCHR_WTHD:

WTHD_TRXN_TBL:

Further Considerations When Canceling Payments with Withholding

Consider the following when canceling payments with withholding.

Canceling Withholding Schedules

If withholding has been paid and the withholding payment needs to be canceled as well, you must cancel this separately. It will not be canceled just because the regular payment is canceled. Alternatively, you may use the Withholding Adjustment page to adjust withholding.

Canceling a Payment, Changing Withholding Details, and Reissuing the Payment

If you cancel a payment and want to change the withholding details for the voucher and reissue the payment with withholding recalculated, you must do the following:

1. Cancel the payment.

2. Delete the withholding schedule on the voucher.

3. Add the withholding schedule amount back to the regular payment schedule—that is, consolidate the withholding schedule with the regular payment schedule.

4. Change the withholding details.

5. Save the voucher.

6. Run the Pay Cycle process on the voucher or make a manual payment to reissue the payment with withholding recalculated.

Note that you:

• Cannot delete or update a withholding schedule on a voucher if there is a related payment schedule that has been paid or if the withholding has been posted.

• Cannot delete or update a regular payment schedule if there is a related withholding schedule or if withholding has been posted.

• Must cancel the related payment before you can delete withholding schedules.

See Also

Canceling Payments

Scheduling and Creating Voucher Payments

Grouping Withholding for Payment Posting

In Payables, accounting entries are written for withholding during voucher posting (if withholding at voucher posting option is selected) and payment posting, and withholding entries are grouped by: WTHD_ENTITY, WTHD_TYPE, WTHD_JUR_CD, WTHD_CLASS, and WTHD_RULE.

The linking of a withholding PYMNT_VCHR_XREF (PYMNT_TYPE = W) to its PYMNT_VCHR_WTHD entries is 1 to 1 and is linked as follows for backup withholding:

Example #1: Two-Line Voucher with Single Payment

Total 1000: Line 1: 500 Line 2: 500.

Line 1 withholding 31%

Line 2 withholding 20%

PYMNT_VCHR_XREF:

PYMNT_VCHR_WTHD:

VCHR_ACCTG_LINE (assuming summary control posting method):

Example #2: Two-Line Voucher with Split Payments

Total 1000: Line 1: 700 Line 2: 300. Payment split 600/400.

PYMNT_VCHR_XREF:

PYMNT_VCHR_WTHD:

VCHR_ACCTG_LINE (assuming summary control posting method):