Retention taxes or withholding taxes

Requirement

Self-employed suppliers are responsible for their own income tax payments to the tax authorities. In some industries, the buyer can and does agree to manage this obligation:
  1. The buyer calculates, reports, and pays the tax on the supplier’s behalf.
  2. Calculation can be on the invoiced amount or on the paid amount.
  3. The buyer reports, to the government, all transactions and tax deductions withheld from payments to these suppliers.
  4. The supplier receives a tax certificate as proof of the tax that has been paid over to the authorities on their behalf in this process.

Companies that are identified as withholding agents are responsible for withholding taxes from their suppliers. These companies can deduct withheld taxes from the related invoices, thus reducing their total due amount. These additional taxes depend on the supplier's activity. Withheld taxes are directly paid to the tax authority. To justify the deducted amount, companies must send a certificate to the supplier.

In Argentina, tax deduction is used with complex calculation rules, such as rate scales that include a limit and a percentage per range. The main retention taxes in Argentina are the IIBB (Ingresos Brutos, gross income) and IVA (Impuesto al Valor Agregado, VAT). These additional taxes are set by country, province, and municipality.

M3 solution

Four methods are possible for processing and controlling supplier tax deductions, accounting and reporting. The selected method is determined by country-specific rules:

  • The Alt1 method, where supplier payments are reported for tax purposes, but no tax deduction is made
  • The Alt2 method, where tax deductions are made on the supplier payment and then reported to tax authorities
  • The Alt3 method, where supplier tax deductions are recorded on invoice entry, but are accounted for only when the supplier payment is recorded
  • The Alt4 method, where the tax deduction is accounted for at the entry of the supplier invoice

Using the Alt4 method, any tax exemption letter that is received from suppliers can be recorded in the supplier master record.

For Argentina, the Alt2 method – reporting at payment– is used with flexible services codes.

Configuration guidelines

Program ID Program name Description or comment
APS905 Settings - Accounts Payable Activate the use of flexible service codes. Set the 260 Withholding tax using flexible service codes to one of these values:
  • 1 for flexible service codes only on invoices
  • 2 for flexible services on invoices and credit notes
CRS063 Supplier Service Code. Open Create the service code with the withholding tax percentage.

Connection with Supplier.
CRS663 Flexible Service Code. Open

Set up flexible services codes. This setup corresponds to the regime that is defined by Argentinean authority. You can set VAT, the gross amount, or the net amount as the base amount. You can set a minimum limit and a maximum limit. You can use scales or ranges to define percentages per amount range.
CRS664 Flexible Service Code. Connect to Suppl Link the flexible service codes to suppliers.
CRS624/F Supplier. Define Purchase & Financial Specify the default service code. See the settings for (CRS063).

Set the Tax withhol mtd field (Tax withholding method) to 3.
CRS395 Accounting Rule. Set Configure accounting rules for accounting type 396.
APS037 Supplier Tax. Open Exemption Letter
APS425 Supplier Tax Report. Display Invoices
APS430 Supplier Tax Report. Create Proposal
APS555 Supplier Tax. Print Details