R12 Self Assessment Tax in Oracle Accounts Payables

What is Self Assessment Tax:

A Self-Assessed Tax is a tax calculated and remitted for a transaction, where tax was not levied by the supplier but is deemed as due and therefore needs to be paid by the purchaser. In such cases the purchaser is responsible for calculating and remitting the tax to the Tax authority. Self-Assessment is also known as Use Tax or reverse charges in certain tax regimes.

As there is no Self-Assessment Tax amount on the reports it need to be included in all AP Invoices related reports.

●If goods purchased from a seller who is not registered for a tax then,

●To ensure that tax is not evaded on that transactions, it is buyers responsibility to calculate and remit the tax to relevant authority.

●Known as “Self Assessed Tax” or “Use Tax”

In AP unless the tax is self-assessed, we have to always pay it to the supplier. The logic is as entire amount is payable to supplier ultimately his account should get credited. Therefore this accounting entry is passed.

Expense A/c Dr. (item account) -----XXX
Tax Expense A/c Dr. (either item acc or the tax expense acc )--- YY
To, Supplier Account (Supplier account code combination) ----XXX
To, Supplier Account (tax amount but in Supplier account code combination) ----YY

However if it would have been self-assessed then since tax is payable separately to tax authority it has to be accounted for liability separately and then the entry would have:

Expense A/c Dr. (item account) -----XXX
Tax Expense A/c Dr. (either item acc or the tax expense acc ) ---YY
To, Supplier Account (Supplier account code combination) ----XXX
To, Tax Liability (Tax liability account code combination ) ----YY

How Do I Determine if I Should Self Assess?

Each taxing jurisdiction and authority defines their own criteria for self assessment.

If the regulations governing your business dictate that you self assess then EBusiness

Tax establishes the need to self assess a tax based upon the registration status of the Legal Establishment purchasing the goods or services and the Registration Status of the Supplier.

Conceptually the following is normally true: If goods purchased from a unregistered seller, to ensure that tax is not evaded on that transactions, it is buyers responsibility to calculate and remit the tax to relevant authority.

Self Assessment Tax  Pros and Cons:

Pros :-

• Easy one time set up required.
• Correctly driven by suppliers registration status.
• Automatic tax calculation. No Manual intervention needed
• Automatic accounting of tax liability.
• Recommended approach if customer is using rules model. 
• It is possible to check the “Self Assessed” flag on the fly in the tax details tab. 
• Users can run “Account Analysis Report” to get details of  Self Assessed Tax.

Cons :-

• Can be used only if customer intends to configure tax rules.
• If a suppliers have multiple registrations spread across many jurisdictions then set up might become complicated.   

Release 12 replaces the concept of a Use tax with self assessed taxes for fresh regimes. If you are using an upgraded regime you can retain the old use tax solution until you desire to replace the old regime.

The 11i way:

1) When a tax code with tax type as use was associated in AP invoice workbench , then the details of that tax would get displayed in the USE TAX LIABILITY REPORT.

Tax distribution would not get created for this tax rate.

2) The total of that report would determine the tax liability and user would create 2 accounting entries One for accruing tax liability and other for settlement.

The R12 way :

1)Users configure SELF ASSESSED TAX which is the R12 equivalent of USE TAX.

2) The self assessed tax information can be viewed on the AP invoice workbench if user navigates to Tax Details

3) The accounting of self assessed tax will automatically happen in the TAX LIABILITY account defined at the TAX RATE level. User will still have to create accounting for settlement.

4) If a user wants to ascertain the use / self assessed tax liability then he just has to take the total of

liability side of the above mentioned account. Debit side will have details of tax recoverable ( If any). Details can be obtained if the user extracts the SLA account analysis report.

Use Tax:

11i Functionality:

• When a tax code with tax type as “Use” was attached to a  AP invoice, then the details of that tax would not be visible on invoice but  displayed only in the “Use Tax Liability Report.”
• Tax distribution (accounting) would not get created for this tax rate.
• The total of Use Tax Liability Report would determine the use tax liability 
• User would then have to create 2 accounting entries - One for accruing tax liability and other for settlement. 

R12 Functionality:

• Only supported for upgraded customer. 
• Post upgrade users can continue using Use Tax in the exact same manner as in 11i.
• When a tax code with tax type as USE is associated in AP invoice at lines level, then the details of that use tax would Not be visible on invoice but  displayed only in the Use Tax Liability Report.  
• Tax distribution would not get created for this tax rate.
• The total of that report would determine the tax liability.
• User would have to create 2 accounting entries - One for accruing tax liability and other for settlement. 
• Use taxes will be migrated with tax type as “Use”

Use Tax Pros and Cons

Pros :-

Easy set up in 11i with seamless upgrade. 

Use Tax Liability report displays the details of the calculated use tax .

Customers using Use Tax in 11i, can use the same functionality post upgrade.

Cons :-

Supported only for backward compatibility. New Use tax creation not allowed. 

It is not driven by the supplier registration status. Tax will be calculated as Use tax only if that tax code is manually entered or defaulted on the transaction.  

No automatic accounting. Based on the Use Tax liability report, users have to pass two accounting entries – One for liability and one for payment. 

No details displayed on the Invoice. 

R12 EBS Query:

select

distinct

i.invoice_num,

i.invoice_type_lookup_code,

i.invoice_amount,

al.line_number,

al.description,

al.org_id,

al.amount,

ID.DISTRIBUTION_LINE_NUMBER,

ID.AMOUNT "Distribution Amount",

i.ACCTS_PAY_CODE_COMBINATION_ID  Dr_account_id,

gcc.CONCATENATED_SEGMENTS Dr_Account,

ID.DIST_CODE_COMBINATION_ID  Cr_account_id,

gcc1.CONCATENATED_SEGMENTS  Cr_Account,

i.self_assessed_tax_amount

from

apps.AP_INVOICES_all i,

apps.AP_INVOICE_LINES_all al,

apps.AP_INVOICE_DISTRIBUTIONS_ALL ID,

apps.GL_CODE_COMBINATIONS_KFV gcc,

apps.gl_code_combinations_kfv gcc1

where i.org_id=al.org_id

and i.invoice_id=al.invoice_id

AND ID.INVOICE_ID=al.invoice_id

and al.line_number=ID.INVOICE_LINE_NUMBER

and ID.DIST_CODE_COMBINATION_ID = gcc.CODE_COMBINATION_ID

and i.ACCTS_PAY_CODE_COMBINATION_ID = gcc1.CODE_COMBINATION_ID

and i.invoice_num in ('62379')

order by ID.DISTRIBUTION_LINE_NUMBER;

Reference Support Note#948414.1