Understanding Tax Processing in Receivables

This chapter discusses:

• Value-added tax (VAT) in Receivables.

• Billing integration for VAT processing.

• VAT calculation types and declaration points.

• VAT calculations for advance payments and on-account payments.

• VAT calculations for drafts and direct debits.

• VAT calculations for discounts.

• VAT calculations for write-offs.

• VAT calculations for credits that offset debits.

• VAT calculation for credit item refunds.

• Prerequisite setup for VAT processing.

• (IND) Excise duty and sales tax processing for India.

• (IND) Prerequisite setup for excise duty and sales tax processing in India.

See Also

Working with VAT

VAT in Receivables

Receivables enables you to record and report VAT information associated with items.

Important! Although Receivables records and verifies VAT amounts, it does not derive the original tax amounts unless you enter items directly in Receivables. Your billing system or manual billing process is responsible for calculating VAT.

The system calculates VAT based on the information that you enter during setup (for example, VAT codes, which determine the VAT rates that the system uses).

The system loads the VAT information on your transactions into the VAT transaction table and then into the VAT reporting tables, which you can use to create VAT returns and other VAT reports.

This section provides an overview of VAT and discusses:

• VAT information and defaults.

• VAT accounting entries.

• VAT validation.

• Transaction processing and reporting.

• VAT transaction table.

• VAT reports.

VAT Information and Defaults

As in all PeopleSoft Enterprise applications that process VAT transactions, you set up VAT defaulting in Receivables in one common VAT defaults table using VAT drivers, which control the VAT settings at the various levels of the VAT defaulting hierarchy. You access the VAT Defaults Setup pages either from the application pages (for example, the customer General Information component (CUSTOMER_GENERAL) or the Receivables Options component (BUS_UNIT_OPT_AR1) for business units) or by means of the VAT Defaults setup component (VAT_DEFAULT_SEARCH), in which case you specify the driver that you want to define.

The VAT drivers make up all of the levels of the defaulting hierarchy, and the common default records store the hierarchical default data in such a way as to make retrieval of the appropriate defaults efficient. For example, a VAT default specified for a customer address sequence is used before a default for a receivables business unit. Furthermore, within each VAT driver, defaults specified by country and state are more specific and come before defaults by country only, which in turn are more specific and come before defaults where both the country and state are blank.

If you need to establish default values for the additional VAT treatment determinants specific for services, you can do this using the Services VAT Treatment Defaults Setup component (VAT_DEF_SER_SEARCH). Like the VAT Defaults setup component, this component uses VAT drivers to default the values at various levels of the hierarchy. For any applicable driver, you may define the usual place of supply of the service, or the place where the VAT is liable, whether it is the supplier's location, customer's location, or the place where the service is actually performed depending on the type of service. You can also specify whether the service is freight transport or other.

The following table lists the VAT drivers and associated VAT driver keys used by Receivables in the VAT default hierarchy sequence from most specific to least specific for the VAT Defaults component. The table lists the drivers that control defaults for the services VAT treatment:

The detailed description of the fields set at the various levels is discussed in the PeopleSoft Enterprise Global Options and Reports 8.9 PeopleBook.

See Also

Establishing VAT Defaults

VAT Accounting Entries

The Receivable Update Application Engine process (ARUPDATE) creates both regular accounting entries and VAT accounting entries.

For general ledger purposes, the system bases the VAT entries on the accounting date. For tax reporting purposes, the system also records and uses the tax declaration date, which may be the same as the accounting date. The declaration date is set during pending item entry, either on the VAT Header page or in your billing interface.

Note. The system does not fully support VAT processing and multiple offset accounting lines when ChartField inheritance is in use. If you are processing items with VAT and multiple accounting lines (for example, multiple user-defined lines entered on accounting templates or by means of online pending item entry), and you have defined any ChartField inheritance options as Always Inherit, that ChartField may be out of balance due to the VAT amount. The amounts can be allocated across the accounting entries to make the entries balance. The ChartField may not balance in General Ledger.

VAT Validation

Here is how the system validates VAT information:

• It compares the totals of the entered VAT lines with the control totals on the pending item.

• It compares the VAT transaction amount and the VAT amount to the total item amount for items entered in Receivables.

  If an item is interfaced from Billing, Billing calculates the amounts.

• It validates and tracks the VAT registration IDs of some countries.

Note. The system automatically calculates the VAT amount if you enter pending items online.

You cannot post a pending item unless the first validation is successful. The sum of the transaction amounts for each VAT line must equal the control transaction amount, and the VAT amounts total must equal the control VAT amount. Also the VAT transaction amount and VAT amount for each item must equal the total amount of the item.

The system receives VAT information for external groups and edits both the entered and calculated totals for validity. If the calculated totals and the entered totals do not match, the system first checks the VAT tolerance percentage. If the difference exceeds the percentage, the system checks the tolerance amount. If both the percentage and the tolerance amount are exceeded, the system assigns the status, Calc Error (calculation error). If the percentage is exceeded but the amount is not, the tolerance is met and the system assigns the item the status, No Error. If you receive an error, you can review the VAT entries for the group and make corrections, as necessary.

Note. Receivables allows a within-tolerance difference, because the Receivable Update process, reporting, and journals are always based on the VAT amount shown on the invoice as sent to the customer.

The system validates and tracks VAT registration IDs when you enter an item online or receive it from an external billing system, and when you enter VAT registration IDs for VAT entities and customers. It uses routines that PeopleSoft provides for the following countries:

• Australia

• Belgium

• Canada

• France

• Germany

• Ireland

• Italy

• Netherlands

• Spain

• United Kingdom

You must have a valid VAT registration ID before you can create a VAT entity. However, you can create a customer without having a VAT registration ID.

When you enter VAT registration IDs, omit the two-character country code. The system automatically appends the code to the registration ID, as needed. If you enter the country code or an invalid VAT registration ID, the system issues an error message.

Use the VAT Header page to review VAT information for external groups or to enter VAT information for internal groups that have not been posted.

Transaction Processing and Reporting

Receivables has the following transaction processing and reporting capabilities:

• Supports multiple VAT accounting entries per pending item.

• Moves VAT liability from an intermediate VAT account to a final VAT account at payment time (when using a Payment declaration point).

• Adjusts VAT liabilities at the time of payment for write-offs, discounts, drafts, direct debits, and bank receipts.

• Adjusts VAT liabilities, as needed, for advance payments and on-account payments.

• Rounds VAT amounts based on rules that you define.

  You can apply different rounding rules for each VAT country and override the default rounding options for each VAT entity, customer, or transaction. The rounding options are:

  • Normal rounding (to the nearest unit).

    For example, the system rounds down all values less than .49 and rounds up all values greater than or equal to .50.

  • Rounding up.

  • Rounding down.

The rounding options apply to VAT amounts in both the item VAT header and the individual VAT lines. The system adjusts any discrepancies between the VAT header amount and the total of the VAT lines in the larger of the two amounts.

The Payment Predictor process (ARPREDCT) calls the common VAT defaulting routines to update the VAT default values for prepayments and on-account items that it creates. If there is an error, the process creates a payment worksheet so you can correct the invalid information online.

VAT Transaction Table

You should run the VAT Transaction Loader Application Engine process (FS_VATUPDFS) periodically to update the VAT transaction table. Each time that the VAT Transaction Loader process runs, it picks up all VAT, regardless of the tax declaration date, that you have not already posted to the VAT transaction table. The system posts information to the VAT transaction table at a detail level to retain a complete history of VAT transactions.

VAT Reports

From the VAT transaction table, you can run the VAT Reporting SQR process (VAT1001) to copy VAT transaction information to the VAT reporting tables. For each VAT report instance, you can then use the PeopleSoft VAT reporting capabilities to view the status of your VAT liabilities and prepare your VAT returns.

Billing Integration for VAT Processing

The Billing interface to Receivables consists of the Load AR Pending Items Application Engine process (BILDAR01) that inserts entries into Receivables tables.

Billing passes VAT account types to Receivables as either VO for output or VOI for output intermediate. It passes VO when the VAT declaration point is set to invoice or delivery, and it passes VOI when the declaration point is set to payment. If Billing sends transactions that originated in PeopleSoft Enterprise Asset Management as an asset reinstatement, the type is VORE.

In the Pending Distribution table (PENDING_DST) for VAT accounting entries, if the declaration point is invoice or delivery, the accounting entry line type in the SYSTEM_DEFINED field is set to V (VAT-Final). If the declaration point is payment, the SYSTEM_DEFINED field is set to W (VAT-Intermediate).

See Also

Passing VAT Entries to PeopleSoft Receivables

VAT Calculation Types and Declaration Points

This section discusses:

• Gross or net calculation type.

• Invoice, delivery, or payment declaration point.

• Calculation type with declaration point combinations.

Gross or Net Calculation Type

The calculation type that you select determines the basis for calculating the VAT amount. You can select either gross or net as the calculation type. For example, assume that you have a sales amount of 100.00 EUR with early payment terms of 2 percent (%) discount and a VAT rate of 8%. In this case, you would enter a VAT transaction amount of 100.00 EUR.

For a calculation type of gross, the system calculates a VAT basis of 100.00 EUR. The VAT amount would be 8.00 EUR and the total amount would be 108.00 EUR.

For a calculation type of net, when the customer has the opportunity to pay early and take a discount, the system calculates a VAT basis of 98.00 EUR. The VAT amount would be 7.84 EUR and the total amount would be 107.84 EUR.

Invoice, Delivery, or Payment Declaration Point

Declaration point refers to when you report VAT to the tax authorities—at invoice time, delivery, or at the time of payment.

Receivables maintains two amount fields for recording the two stages of VAT liabilities—an intermediate amount and a final amount. The Intermediate VAT field tracks VAT amounts that are owed by various customers but are not yet ready to be reported to the tax authorities. The Final VAT field contains all VAT that is ready to be reported to the tax authorities by placing it in the VAT transaction table.

For a declaration point of invoice or delivery, the system creates entries to final VAT during pending item entry. For a declaration point of Payment, the system creates entries to intermediate VAT during pending item entry. The default value for the declaration point comes from either the setting for the customer location, customer, business unit, or the VAT entity. These settings are defined using the VAT Defaults component. The setting for the customer location overrides the setting for the customer; the setting for the customer overrides the setting for the business unit; and the setting for the business unit overrides the setting for the VAT entity.

The system stores pending information in the Pending VAT table (PS_PENDING_VAT). The system stores VAT information for each item in Receivables on the Item VAT Activity table (PS_ITEM_ACT_VAT). Separate VAT accounting entries are created for each item activity. On each item activity VAT line, the amount is identified as either intermediate VAT or final VAT. When you run the VAT Transaction Loader, it looks for both intermediate and final VAT amounts that have not yet been recorded on the VAT transaction table.

The default declaration date is based on the declaration point, which determines when you must report VAT to the government. The system uses the delivery or invoice date as the default declaration date.

For a Payment declaration point, the system handles partial payments in the same manner, regardless of recalculation. The percentage of VAT that the system moves from intermediate status to final status equals the percentage of the item being paid. For example, if the system receives a payment for 50% of an item’s balance, it moves 50% of the VAT amount from intermediate to final.

Calculation Type and Declaration Point Combinations

This table lists the calculation and declaration point combinations that Receivables supports. Recalculation occurs only when there is a discount:

Combination 1: Calculation Type Gross and Payment Declaration Point Without Recalculation

When you post the pending item that creates the receivable, the system creates accounting entries. These accounting entries record the VAT liability on the gross amount of the item in the ChartField combination that you designated for output intermediate VAT on the VAT Code - Accounting Information page. At payment time, the system creates accounting entries that:

• Offset the intermediate VAT liability.

• Create the final VAT liability.

The system makes no adjustments to the amount of the liability—the status simply changes from intermediate to final.

Combination 2: Calculation Type Gross and Payment Declaration Point with Recalculation

This scenario is almost the same as the gross calculation type with a payment declaration point without recalculation. In this scenario, however, the system creates a PENDING_VAT record to adjust the VAT liability if you take a discount.

Combination 3: Calculation Type Gross and Invoice or Delivery Declaration Point Without Recalculation

If you declare VAT at invoice or delivery, Receivables places the VAT amounts directly into the Final VAT field. The VAT accounting entries that you provide (or that the system creates) record the VAT liability based on the gross item amount in the ChartField combination that you designated for output use on the VAT Code - Accounting Information page. Subsequent processing does not create any VAT accounting entries.

Combination 4: Calculation Type Gross and Invoice or Delivery Declaration Point with Recalculation

This scenario is nearly the same as the preceding one, but the system creates a PENDING_VAT record to adjust the VAT liability if you take a discount.

Combination 5: Calculation Type Net and Payment Declaration Point Without Recalculation

When you post the pending item that creates the receivable, the system creates accounting entries that record the VAT liability on the net amount of the item in the ChartField combination that you designated for output intermediate VAT on the VAT Code - Accounting Information page. At payment time, the system creates accounting entries that:

• Offset the intermediate VAT liability.

• Create the final VAT liability.

No adjustments are made to the amount of the liability—the status simply changes from intermediate to final.

Combination 6: Calculation Type Net and Invoice or Delivery Declaration Point Without Recalculation

If you choose to declare VAT at invoice time or delivery, Receivables places the VAT amounts directly into the Final VAT field. The VAT accounting entries that you provide (or that the system creates) record the VAT liability based on the net item amount in the ChartField combination that you designate for output on the VAT Code - Accounting Information page. Subsequent processing does not create any VAT accounting entries.

VAT Calculations for Advance Payments and On-Account Payments

The system calculates VAT for advance payments and on-account payments and creates accounting entries if you enabled VAT for advance payments on the VAT Defaults Setup page for the VAT Entity Registration driver.

You can override the default as needed for each VAT entity and declaration point combination on the VAT Header page when you apply payments.

If the Receivable Update process generates VAT output entries for an advance payment, it performs the following tasks:

• Records the final output VAT.

• Reverses the VAT entries for the advance payment when you apply the advance payment to an item.

If the advance payment is recorded in a foreign currency, the system does not revalue the VAT amount when you apply an item to the payment. When you enter the item, the system converts the remaining VAT amount to the base currency of the item’s business unit using the exchange rate for the item.

The system also calculates the correct VAT amount and creates the correct accounting entries when you apply a discount to an advance payment. You must apply the discount when you apply the payment to the item.

This section provides the following examples, which demonstrate different VAT scenarios for creating accounting transactions for advance payments:

• VAT declaration point set to Payment, prepayment applied on payment worksheet.

• VAT declaration point set to Payment, prepayment offset on maintenance worksheet.

• VAT declaration point set to Payment, prepayment applied on direct debit worksheet.

• VAT declaration point set to Payment with VAT rate changes.

• VAT declaration point set to Invoice.

• VAT declaration point set to Delivery.

Note. The Payment Predictor process (ARPREDCT) processes VAT for prepayments and on-account payments in the same manner as the payment worksheet.

VAT Declaration Point Set to Payment, Prepayment Applied on Payment Worksheet

This example applies when the VAT declaration point is set to payment, the final payment is applied on the payment worksheet, and VAT transactions must be generated. The example has the following conditions:

• An advance payment of 1,196.00 EUR is received, and the standard VAT rate is 19.6%.

• An invoice with the total 3,588.00 EUR, including 19.6% VAT, is sent to the customer.

• The prepayment is cleared against the invoice on the payment worksheet.

• The final payment of 2,392.00 EUR is received and applied on the payment worksheet.

Here are the accounting entries:

1. When advance payment is created:

   Accounting Entry	Debit	Credit
   Cash	1,196.00
   Advance Payments Received (AR)		1,000.00
   VAT Output Final (VO)		196.00

2. When the invoice is sent to the customer:

   Accounting Entry	Debit	Credit
   Accounts Receivables (AR)	3,588.00
   User-defined (Revenue)		3,000.00
   VAT Output Intermediate (VOI)		588.00

3. When advance payment is applied against the invoice on the payment worksheet:

   • These are the item distribution lines:

     Accounting Entry	Debit	Credit
     Cash	1,196.00
     Accounts Receivables (AR)		1,196.00
     VAT Output Intermediate (VOI)	196.00
     VAT Output Final (VO)		196.00

   • These are the prepayment distribution lines:

     Accounting Entry	Debit	Credit
     Cash		1,196.00
     Advance Payments Received	1,000.00
     VAT Output Final (VO)	196.00

4. When final payment is applied against the invoice on the payment worksheet:

   Accounting Entry	Debit	Credit
   Cash	2,392.00
   Accounts Receivables		2,392.00
   VAT Output Intermediate (VOI)	392.00
   VAT Output Final (VO)		392.00

VAT Declaration Point Set to Payment, Prepayment Offset on Maintenance Worksheet

This example applies when the VAT declaration point is set to payment, the advance payment is offset on the maintenance worksheet, and VAT transactions must be generated. The example has the following conditions:

• An advance payment of 1,196.00 EUR is received, and the standard VAT rate is 19.6%.

• An invoice with the total 1196.00 EUR, including 19.6% VAT, is sent to the customer.

• The prepayment is offset against the invoice on the maintenance worksheet.

Here are the accounting entries:

1. When advance payment is created:

   Accounting Entry	Debit	Credit
   Cash	1,196.00
   Advance Payments Received (AR)		1,000.00
   VAT Output Final (VO)		196.00

2. When the invoice is sent to the customer:

   Accounting Entry	Debit	Credit
   Accounts Receivables (AR)	1196.00
   User-defined (Revenue)		1,000.00
   VAT Output Intermediate (VOI)		196.00

3. When advance payment is matched against the invoice on the maintenance worksheet:

   • These are the item distribution lines:

     Accounting Entry	Debit	Credit
     VAT Output Intermediate (VOI)	196.00
     Maintenance Control	1,000.00
     Accounts Receivables (AR)		1,196.00

   • These are the prepayment distribution lines:

     Accounting Entry	Debit	Credit
     Advance Payments Received (AR)	1,196.00
     Maintenance Control		1,000.00
     Advance Payments Received (AR)		196.00

VAT Declaration Point Set to Payment, Prepayment Applied on Direct Debit Worksheet

The examples in this section apply when the VAT declaration point is set to payment, the prepayment is applied on a direct debit worksheet, and VAT transactions must be generated. The example has the following conditions:

• An advance payment of 1,196.00 EUR is received, and the standard VAT rate is 19.6%.

• An invoice with the total 3588.00 EUR, including 19.6% VAT, is sent to the customer.

• The prepayment is applied to items in direct debit on the direct debit worksheet.

The accounting entries vary based on the selected cash clearing method for the direct deposit business unit.

Cash Clearing Method: None

Here are the accounting entries:

1. When advance payment is created:

   Accounting Entry	Debit	Credit
   Cash	1,196.00
   Advance Payments Received (AR)		1,000.00
   VAT Output Final (VO)		196.00

2. When the invoice is sent to the customer:

   Accounting Entry	Debit	Credit
   Accounts Receivables (AR)	3,588.00
   User-defined (Revenue)		3,000.00
   VAT Output Intermediate (VOI)		588.00

3. When the advance payment is applied against the invoice in a direct debit that is approved on a direct debit worksheet and remitted to the bank:

   • These are the item distribution lines:

     Accounting Entry	Debit	Credit
     Cash	3,588.00
     Accounts Receivables (AR)		3,588.00
     VAT Output Intermediate (VOI)	196.00
     Advance Payments Received		196.00

   • These are the prepayment distribution lines:

     Accounting Entry	Debit	Credit
     Cash		1,196.00
     Advance Payments Received	1,196.00

4. When the Receivable Update process is run on or after the due date:

   Accounting Entry	Debit	Credit
   VAT Output Intermediate (VOI)	392.00
   VAT Output Final (VO)		392.00

5. When you reconcile the bank statement, the system does not generate any accounting entries.

Cash Clearing Method: Payment Entry

Here are the accounting entries:

1. When a deposit is saved or received electronically:

   Accounting Entry	Debit	Credit
   Cash	1,196.00
   Cash Clearing		1,196.00

2. When advance payment is identified as a prepayment on the payment worksheet:

   Accounting Entry	Debit	Credit
   Cash Clearing	1,196.00
   Advance Payments Received (AR)		1,000.00
   VAT Output Final (VO)		196.00

3. When the invoice is sent to the customer:

   Accounting Entry	Debit	Credit
   Accounts Receivables	3,588.00
   User-defined (Revenue)		3,000.00
   VAT Output Intermediate (VOI)		588.00

4. When the advance payment is applied against the invoice in a direct debit that is approved on a direct debit worksheet and remitted to the bank:

   • These are the item distribution lines:

     Accounting Entry	Debit	Credit
     Cash Clearing	3,588.00
     Accounts Receivables (AR)		3,588.00
     VAT Output Intermediate (VOI)	196.00
     Advance Payments Received		196.00

   • These are the prepayment distribution lines:

     Accounting Entry	Debit	Credit
     Cash Clearing		1,196.00
     Advance Payments Received	1,196.00

5. When the Receivable Update process is run on or after the due date:

   • These are the item distribution lines:

     Accounting Entry	Debit	Credit
     Cash	3,588.00
     Cash Clearing		3,588.00
     VAT Output Intermediate (VOI)	392.00
     VAT Output Final (VO)		392.00

   • These are the prepayment distribution lines:

     Accounting Entry	Debit	Credit
     Cash		1,196.00
     Cash Clearing	1,196.00

6. When you reconcile the bank statement, the system does not generate any accounting entries.

Cash Clearing Method: Bank Reconciliation

Here are the accounting entries:

1. When a deposit is saved or received electronically:

   Accounting Entry	Debit	Credit
   Cash	1,196.00
   Cash Clearing		1,196.00

2. When advance payment is identified as a prepayment on the payment worksheet:

   Accounting Entry	Debit	Credit
   Cash Clearing	1,196.00
   Advance Payments Received (AR)		1,000.00
   VAT Output Final (VO)		196.00

3. When the invoice is sent to the customer:

   Accounting Entry	Debit	Credit
   Accounts Receivables (AR)	3,588.00
   User-defined (Revenue)		3,000.00
   VAT Output Intermediate (VOI)		588.00

4. When the advance payment is applied against the invoice in a direct debit that is approved on a direct debit worksheet and remitted to the bank:

   • These are the item distribution lines:

     Accounting Entry	Debit	Credit
     Cash Clearing	3,588.00
     Accounts Receivables (AR)		3,588.00
     VAT Output Intermediate (VOI)	196.00
     Advance Payments Received		196.00

   • These are the prepayment distribution lines:

     Accounting Entry	Debit	Credit
     Cash Clearing		1,196.00
     Advance Payments Received	1,196.00

5. When the Receivable Update process is run on or after the due date:

   Accounting Entry	Debit	Credit
   VAT Output Intermediate (VOI)	392.00
   VAT Output Final (VO)		392.00

6. When you reconcile the bank statement:

   • These are the item distribution lines:

     Accounting Entry	Debit	Credit
     Cash	3,588.00
     Cash Clearing		3,588.00

   • These are the item distribution lines:

     Accounting Entry	Debit	Credit
     Cash		1,196.00
     Cash Clearing	1,196.00

VAT Declaration Point Set to Payment with VAT Rate Changes

VAT rate changes—between the time that the advance payment is created and the time that the item is created—require additional activities and cause the accounting entries to differ. The accounting entries differ depending on whether the advance payment is less than or greater than the item.

Advance Payment is Less Than the Item

This example applies when the VAT declaration point is set to payment, and the advance payment is less than the item. The example has the following conditions:

• An advance payment of 1,196.00 EUR is received, and the standard VAT rate is 19.6%.

• A 1200.00 EUR invoice with a 9.09% VAT rate is sent to the customer, and an item is created in Receivables.

• The prepayment is cleared against the invoice on the payment worksheet.

• The final payment of 4.00 EUR is received and applied on the payment worksheet.

Here are the accounting entries:

1. When the prepayment is created:

   Accounting Entry	Debit	Credit
   Cash	1,196.00
   Advanced Payments Received (AR)		1000.00
   VAT Output Final (VO)		196.00

2. When the invoice is sent to the customer:

   Accounting Entry	Debit	Credit
   Accounts Receivable	1,200.00
   User-defined (Revenue)		1,100.00
   VAT Output Intermediate (VOI)		100.00

3. When the prepayment is applied to the item:

   Accounting Entry	Debit	Credit
   VAT Output Intermediate (VOI)	196.00
   Advance Payments Received (AR)	1,000.00
   Accounts Receivable		1,196.00

4. When the final payment is applied against the invoice on the payment worksheet:

   Accounting Entry	Debit	Credit
   Cash	4.00
   Accounts Receivable		4.00
   VAT Output Final (VO)	96.00
   VAT Output Intermediate (VOI)		96.00

Advance Payment is Greater Than the Item

This example applies when the VAT declaration point is set to payment, and the advance payment is greater than the item. The example has the following conditions:

• An advance payment of 1,196.00 EUR is received, and the standard VAT rate is 19.6%.

• A 720.00 EUR invoice with a 20% VAT rate is sent to the customer, and an item is created in Receivables.

• The prepayment is applied to the 720.00 EUR item.

• A second invoice for 840.00 EUR with a 20% VAT rate is sent to the customer, and an item is created in Receivables.

• The original prepayment is applied to the 840.00 EUR item.

• A final payment of 364.00 EUR is applied to the 840.00 EUR item.

Here are the accounting entries:

1. When the prepayment is created:

   Accounting Entry	Debit	Credit
   Cash	1,196.00
   Advanced Payments Received (AR)		1,000.00
   VAT Output Final (VO)		196.00

2. When the invoice is sent to the customer:

   Accounting Entry	Debit	Credit
   Accounts Receivable	720.00
   User-defined (Revenue)		600.00
   VAT Output Intermediate (VOI)		120.00

3. When the prepayment is applied to the item:

   Accounting Entry	Debit	Credit
   VAT Output Intermediate (VOI)	118.00
   Advance Payments Received (AR)	602.00
   Accounts Receivable		720.00

4. When the second invoice is sent to the customer:

   Accounting Entry	Debit	Credit
   Accounts Receivable	840.00
   User-defined (Revenue)		700.00
   VAT Output Intermediate (VOI)		140.00

5. When the original prepayment is applied to the second item:

   Accounting Entry	Debit	Credit
   VAT Output Intermediate (VOI)	78.00
   Advance Payments Received (AR)	398.00
   Accounts Receivable		476.00

6. When the final payment is applied to the second invoice on the payment worksheet:

   Accounting Entry	Debit	Credit
   Cash	364.00
   Accounts Receivable		364.00
   VAT Output Intermediate (VOI)	64.00
   VAT Output Final (VO)		64.00

VAT Declaration Point Set to Invoice

This example applies when the VAT declaration point is set to invoice. The example has the following conditions:

• An advance payment of 1,160.00 EUR is received, and the standard VAT rate is 16%.

• An invoice with the total 4,640.00 EUR, including 16% VAT, is sent to the customer.

• The advance payment is applied against the invoice.

• The final payment is received from the customer.

Here are the accounting entries:

1. When advance payment is received:

   Note. Although the amount posted under advance payments received is 1,000.00, the customer’s total balance must be decreased by 1,160.00.

   Accounting Entry	Debit	Credit
   Cash	1,160.00
   Advance Payments Received (AR)		1,000.00
   VAT Output on Advance Payments (VOAP)		160.00

2. When invoice is sent to the customer:

   Accounting Entry	Debit	Credit
   Accounts Receivables	4,640.00
   User-defined (Revenue)		4,000.00
   VAT Output Final		640.00

3. When advance payment is applied against the invoice:

   Accounting Entry	Debit	Credit
   Advance Payments Received (AR)	1,000.00
   VAT Output on Advance Payments (VOAP)	160.00
   Accounts Receivables		1,160.00

4. When the final payment is received:

   Accounting Entry	Debit	Credit
   Cash	3,480.00
   Accounts Receivables		3,480.00

VAT Declaration Point Set to Delivery

This example applies when the VAT declaration point is set to delivery and no intermediate VAT is generated. The example has the following conditions:

• An advance payment of 1,196.00 EUR is received, and the VAT rate is 19.6%.

• An invoice with the total 1,196.00 EUR, including 19.6% VAT is sent to the customer.

• The advance payment is cleared against the invoice.

Here are the accounting entries:

1. When advance payment is received:

   Accounting Entry	Debit	Credit
   Cash	1,196.00
   Advance Payments Received (AR)		1,196.00

2. When the invoice is sent to the customer:

   Accounting Entry	Debit	Credit
   Accounts Receivables (AR)	1,196.00
   User-defined (Revenue)		1,000.00
   VAT Output Final		196.00

3. When advance payment is applied against the invoice on maintenance worksheet:

   Accounting Entry	Debit	Credit
   Advance Payments Received (AR)	1,196.00
   Maintenance Control		1,196.00
   Accounts Receivables		1,196.00
   Maintenance Control	1,196.00

VAT Calculations for Drafts and Direct Debits

For drafts and direct debits, the system calculates and records VAT information at payment time. For draft payments, the Receivable Update process generates accounting entries at the due date or discount date (depending on the selected system function). For direct debits, it generates the accounting entries at the due date, remittance date, or after bank reconciliation, depending on the cash clearing method.

If the associated item has a declaration point of payment, the following entries are generated:

VAT Calculations for Discounts

For discounts, the system uses the VAT calculation method at payment time to determine VAT adjustments.

You can apply prompt payment discounts if the advance payment is applied to the invoice before the discount due date, or if the final payment is received (and applied to the invoice) before the discount due date.

If you select VAT Discountable Amount for the basis amount for a payment term, the system calculates the discount amount on the net amount of the item after VAT. Otherwise, it calculates it on the he gross amount.

Note. This scenario applies only to certain countries. For example, it is valid for Germany but not for France.

This section offers the following examples of discounts:

• VAT declaration point set to Invoice with the VAT recalculation flag on.

• VAT declaration point set to Invoice with the VAT recalculation flag off.

VAT Declaration Point Set to Invoice with the VAT Recalculation Flag On

This example assumes the following conditions:

• A 4,640.00 EUR invoice, including 16% VAT, is sent to the customer.

• The payment is applied against the invoice before the discount due date.

  A 2% prompt payment is applied.

Here are the accounting entries:

1. When the invoice is sent to the customer:

   Accounting Entry	Debit	Credit
   Accounts Receivables	4,640.00
   User-defined (Revenue)		4,000.00
   VAT Output Final		640.00

2. When payment is received and applied against the invoice:

   Accounting Entry	Debit	Credit
   Cash	4547.20
   Accounts Receivables		4547.20
   Customer Discount (2% of 4000.00)	80.00
   Accounts Receivables		92.80
   VAT Output Discount (VOD)	12.80

VAT Declaration Point Set to Invoice with the VAT Recalculation Flag Off

This example assumes the following conditions:

• A 4,640.00 EUR invoice, including 16% VAT, is sent to the customer

• The payment is applied against the invoice before the discount due date.

  A 2% prompt payment is applied.

Here are the accounting entries:

1. When the invoice is sent to the customer:

   Accounting Entry	Debit	Credit
   Accounts Receivables	4,640.00
   User-defined (Revenue)		4,000.00
   VAT Output Final		640.00

2. When payment is received and applied against the invoice:

   Accounting Entry	Debit	Credit
   Cash	4547.20
   Accounts Receivables		4547.20
   Customer Discount (2% of 4000.00)	92.80
   Accounts Receivables		92.80

VAT Calculations for Write-Offs

This section provides the following examples of accounting entries for write-offs.

• VAT declaration point set to Invoice for debit and credit items.

• VAT declaration point set to Payment.

• VAT declaration point set to Invoice for underpayments and overpayments.

VAT Declaration Point Set to Invoice for Debit and Credit Items

This example has two scenarios:

• Writing off a debit item.

• Writing off a credit item.

Writing Off a Debit Item

A 105.50 EUR invoice, including 5.5% VAT, is sent to the customer, and then the item is written off.

Here are the accounting entries:

1. When the invoice is sent to the customer:

   Accounting Entry	Debit	Credit
   Accounts Receivables	105.50
   User-defined (Revenue)		100.00
   VAT Output Final (VO)		5.50

2. When the item is written off:

   Accounting Entry	Debit	Credit
   Accounts Receivable		105.50
   Write-Off	100.00
   VAT Output for Write Off (VOW)	5.50

Writing Off a Credit Item

A 105.50 EUR credit, including 5.5% VAT, is written off.

Here are the accounting entries:

1. When the credit item is created:

   Accounting Entry	Debit	Credit
   Accounts Receivables		105.50
   User-defined (Revenue)	100.00
   VAT Output for Credits (VOC)	5.50

2. When the item is written off:

   Accounting Entry	Debit	Credit
   Accounts Receivables	105.50
   Write Off		100.00
   VAT Output for Write Off (VOW)		5.50

VAT Declaration Point Set to Payment

This example has two scenarios:

• Writing off a debit item.

• Writing off a credit item.

Writing Off a Debit Item

A 105.50 EUR invoice, including 5.5% VAT, is sent to the customer and then the item is written off.

Here are the accounting entries:

1. When the invoice is sent to the customer:

   Accounting Entry	Debit	Credit
   Accounts Receivables	105.50
   User-defined (Revenue)		100.00
   VAT Output Intermediate (VOI)		5.50

2. When the item is written off:

   Accounting Entry	Debit	Credit
   Accounts Receivables		105.50
   Write-Off	100.00
   VAT Output Intermediate (VOI)	5.50

Writing Off a Credit Item

A 105.50 EUR credit, including 5.5% VAT, is written off.

Here are the accounting entries:

1. When the credit item is created:

   Accounting Entry	Debit	Credit
   Accounts Receivables		105.50
   User-defined (Revenue)	100.00
   VAT Output Intermediate (VOI)	5.50

2. When the customer’s credit item is written off:

   Accounting Entry	Debit	Credit
   Accounts Receivables	105.50
   Write-Off		100.00
   VAT Output Intermediate (VOI)		5.50

VAT Declaration Point Set to Invoice for Underpayments and Overpayments

This example has two scenarios:

• Writing off an overpayment.

• Writing off an underpayment.

Writing Off an Overpayment

A 105.50 EUR invoice, including 5.5% VAT, is sent to the customer. The customer overpays the amount by 10.00 EUR, and the amount overpaid is written off.

Here are the accounting entries:

1. When the invoice is sent to the customer:

   Accounting Entry	Debit	Credit
   Accounts Receivables	105.50
   User-defined (Revenue)		100.00
   VAT Output Final (VO)		5.50

2. When the customer overpays the amount:

   Accounting Entry	Debit	Credit
   Accounts Receivables	10.00	115.50
   Cash	115.50
   Write Off		9.45
   VAT Output Final (VO)		0.55

Writing Off an Underpayment

A 105.50 EUR invoice, including 5.5% VAT, is sent to the customer. The VAT declaration point is set to payment. The customer underpays the amount by 10.00 EUR, and the remaining amount due is written off.

Here are the accounting entries:

1. When the invoice is sent to the customer:

   Accounting Entry	Debit	Credit
   Accounts Receivables	105.50
   User-defined (Revenue)		100.00
   VAT Output Intermediate (VOI)		5.50

2. When the customer underpays the amount:

   Accounting Entry	Debit	Credit
   Accounts Receivables		95.50
   Cash	95.50
   VAT Output Intermediate VAT (VOI)	4.98
   VAT Output Final (VO)		4.98
   Accounts Receivables		10.00
   Write-Off	9.48
   VAT Output Intermediate VAT (VOI)	0.52

VAT Calculations for Credits That Offset Debits

This section offers a scenario of credits used to offset debits when the VAT declaration point set to Invoice and the VAT recalculation flag set to Y or N, with no discount. The scenario has the following conditions:

• A 100.00 EUR invoice, including 5.5% VAT, is sent to the customer.

• The customer has a 100.00 EUR credit.

• The customer’s credit is used to offset the amount of the debit.

Here are the accounting entries:

1. When the invoice is sent to the customer:

   Accounting Entry	Debit	Credit
   Accounts Receivables	100.00
   User-defined (Revenue)		94.50
   VAT Output Final (VO)		5.50

2. When the customer has a 100.00 EUR credit:

   Accounting Entry	Debit	Credit
   Accounts Receivables		100.00
   User-defined (Revenue)	94.50
   VAT Output for Credits (VOC)	5.50

3. When the customer’s credit is used to offset the debit:

   Accounting Entry	Debit	Credit
   Accounts Receivables	100.00	100.00
   Maintenance Control	100.00	100.00

VAT Calculations for Credit Item Refunds

This section offers examples of refunding a credit item under the following conditions:

• VAT declaration point is set to Invoice.

• VAT declaration point is set to Payment.

VAT Declaration Point is Set to Invoice

This example has two scenarios:

• Refunding a credit item at the customer’s request.

• Refunding a credit item when the customer overpays.

Refunding a Credit Item at the Customer’s Request

A 150.00 EUR invoice, including 8.25 EUR VAT, is sent to a customer, and the full amount of the overpayment is put on account.

Here are the accounting entries:

1. When the credit item is entered:

   Accounting Entry	Debit	Credit
   Accounts Receivables		150.00
   User-defined (Revenue)	141.75
   VAT Output Final (VOC)	8.25

2. When a customer requests a refund:

   Accounting Entry	Debit	Credit
   Accounts Receivables	150.00
   Refund		150.00

Refunding a Credit Item When the Customer Overpays

A 100.00 EUR invoice, including 5.50 EUR VAT, is sent to a customer. Then the following occurs:

• The customer overpays the invoice by 150.00 EUR.

  The overpayment is put on account as a credit item, and no VAT is assessed to the money on account.

• The money placed on account is refunded.

Here are the accounting entries:

1. When the invoice is sent to the customer:

   Accounting Entry	Debit	Credit
   Accounts Receivables	100.00
   User-defined (Revenue)		94.50
   VAT Output Final (VO)		5.50

2. When an overpayment is put on account as a credit item:

   Accounting Entry	Debit	Credit
   Accounts Receivables		100.00
   Cash	250.00
   AR (Charged to OA Account)		150.00

3. When the money placed on account is refunded:

   Accounting Entry	Debit	Credit
   Accounts Receivables	150.00
   Refund Control		150.00

VAT Declaration Point is Set to Payment

This example has two scenarios:

• Refunding a credit item.

• Refunding a credit item put on account.

Refunding a Credit Item

A 150.00 EUR credit item, including 8.25 EUR VAT, is entered, and then the credit item is refunded.

Here are the accounting entries:

1. When a credit item is entered:

   Accounting Entry	Debit	Credit
   Accounts Receivables		150.00
   User-defined (Revenue)	141.75
   VAT Output Intermediate (VOI)	8.25

2. When the customer requests a refund:

   Accounting Entry	Debit	Credit
   Accounts Receivables	150.00
   Refund Control		150.00
   VAT Output Intermediate (VOI)		8.25
   VAT Output Final (VOC)	8.25

Refunding a Credit Item Put on Account

A credit was created using a payment worksheet as a result of an overpayment. Then the following occurs:

• The overpayment was put on account (OA item, which is a credit item).

• The on-account item is refunded.

Here are the accounting entries:

1. When an invoice is sent to the customer:

   Accounting Entry	Debit	Credit
   Accounts Receivables	100.00
   User-defined (Revenue)		94.50
   VAT Output Intermediate (VOI)		5.50

2. When an overpayment is put on account as a credit item:

   Accounting Entry	Debit	Credit
   Accounts Receivables		100.00
   Cash	250.00
   OA Account		150.00
   VAT Output Intermediate (VOI)	5.50
   VAT Output Final (VO)		5.50

3. When the item is refunded:

   Accounting Entry	Debit	Credit
   Accounts Receivables	150.00
   Refund Control		150.00

Prerequisite Setup for VAT Processing

Before you can process transactions using VAT in Receivables, you must perform these steps:

1. Set up your VAT processing rules and defaults.

2. Use the Business Unit Definition page to define a location code and to associate the receivables business units with the general ledger (GL) business units that are linked to a VAT entity.

   You establish the GL business unit and VAT entity relationship on the VAT Entity - Identification page.

3. On the Receivables Options - VAT Defaults page, click the VAT Defaults link to define the tolerances for groups and other VAT defaults.

   These tolerances and other defaults can also be set directly using the VAT Defaults component for the receivables business unit options driver.

4. From the customer General Information component, click the VAT Defaults link to define VAT processing information for pending items for each customer.

   These settings can also be set directly using the VAT Defaults component for the customer driver.

See Also

Defining VAT Defaults

Working with VAT

Entering Customer VAT Information

(IND) Excise Duty and Sales Tax Processing for India

You can enter and calculate excise and sales taxes on the Group Entry Tax page only if you are entering items directly in Receivables or for transactions interfaced from a billing system for which you create accounting entries in Receivables. You can calculate tax for excise duty only, sales tax only, or both. If you interface items from billing and your billing system generates the accounting entries, you cannot recalculate the tax. Instead, run the Receivable Update process to update the customer balances.

When you run the Receivable Update process, the system updates the tax information to populate the excise duty and sales tax tables: Item Tax Activity (PS_ITEM_ACTTAX) and Item Tax Activity Detail (PS_ITEM_ACTTAX_DTL). The process also creates the following accounting entries if you entered the items in Receivables or if your billing system does not generate the accounting entries:

The customer and business unit for a transaction determine how to populate information on the tax transaction lines, such as the ship from country and state and the appropriate tax codes. If you enter an item directly in Receivables, the system uses the default values for the receivables business unit. If you interface an item from billing, the system does the following:

• If an order management business unit has been specified, the system uses the order management business unit.

• If no order management business unit has been specified, but a billing business unit has been specified, the system uses the billing business unit.

• If neither an order management business unit or a billing business unit have been specified, the system uses the receivables business unit.

If you change the default values in the tax transaction lines, you must run the tax determination routine again before you calculate the tax.

After you enter the amounts in the tax transaction lines and the control totals, you run the tax calculation routine to calculate the tax amounts. The system populates the Pending Tax (PS_PENDING_TAX) and Pending Tax Detail (PS_PENDING_TAX_DTL) tables.

(IND) Prerequisite Setup for Excise Duty and Sales Tax Processing in India

Before you can process excise duty and sales tax for India, you must perform these steps:

1. Enable excise duty and sales tax processing for each business unit on the Business Unit Tax Applicability page.

2. Set up the tax structure for excise duty and sales tax processing.

See Also

(IND) Setting Up Excise Duty, Sales Tax, and Customs Duty for India