Withholding Supplier Tax Using Flexible Service Codes

Background

Suppliers that do not have a branch or permanent establishment in Argentina are subject to income tax on any income deemed to be of an Argentinean source. The tax is withheld at source by the local payer, the customer company, at entry or payment of the supplier invoices. For flexible service codes that are defined for payment reporting level, the tax is calculated as a percentage of the invoice gross, net, or VAT amount. For flexible service codes that are defined for invoice reporting level, the tax is calculated as a percentage of the invoice accounting line gross, net, or VAT amount. The percentage is based on an actual or presumed net income, the latter varying depending on the type of income.

Regulations and tax rates, which vary by province, include criteria for taxation such as minimum invoice net amount, periodic net amount and delivery method. The base amount can be reduced or defined with a maximum limit so that only an amount exceeding this limit is used as a base of calculation.

Use of flexible service codes

In the standard workflow described in Reporting Supplier Tax, the tax calculation is based on service codes in 'Supplier Service Code. Open' (CRS063). This service code defines a withholding tax percentage. Only one service code can be selected for each supplier, although you can manually select a service code at the invoice line level when recording invoices.

The decision to calculate withholding tax using flexible service codes can be restricted to the use of specific standard service codes. You can define up to 10 restrictions per flexible service code in (CRS663). For flexible service codes that are defined for payment reporting level, the standard service code that is defined on the invoice header record is used to check against restrictions. For flexible service codes defined for invoice reporting level, the standard service code defined at the invoice accounting line is used to check against restrictions. If the standard service code matches one of the service code restriction fields, or if all restrictions fields are blank, then the flexible service code is applicable for withholding tax calculation.

In (CRS663), you can also define an official service code that is used to update the withholding tax transaction in 'Supplier Tax Report. Display Invoices' (APS425).

Use of limit values

You can define limit values for the tax calculation for each flexible service code, if required. These types of limit values are used:

• The upper limit defines the maximum amount for which withholding tax is calculated within the same year or period. If the withholding level is set to invoice, calculation is only performed if the calculation base amount of the invoice is lower than the upper limit.
• The lower limit works as the upper limit but defines the minimum amount instead. If the withholding level is set to invoice, calculation is only performed if the calculation base amount of the invoice exceeds the lower limit. If so, the withholding percentage is applied to the full calculation base, not only the part exceeding the limit.
• 'Between limits' defines combinations of minimum and maximum values between which withholding tax is calculated and the tax percentage to apply for each combination. You can define up to 99 combinations for each flexible service code.
• 'Date limits' is used to define the withholding tax percentage that is used per date limit setup in 'Flexible Service Code. Open Date Limits' (CRS668). For flexible service codes that are defined for payment reporting level, the payment date of the payment documents in the payment proposal in 'Supplier Payment Proposal. Open' (APS130) and accounting date of payment in 'Supplier Payment. Enter Manual' (APS120) are checked against the date limits to determine the tax percentage to apply in the payment. For flexible service codes that are defined for invoice reporting level, the invoice date in 'Supplier Invoice. Record' (APS100), 'Supplier Invoice. Recode' (APS110), and 'Supplier Invoice Batch. Open' (APS450) is checked against the date limits to determine the tax percentage to apply on the invoice. If the invoice, payment, or accounting date is outside the limits, then the tax percentage in (CRS663) applies.

If the supplier is a company, the year or period is a fiscal year/period. If the supplier is a physical person, the year or period is a calendar year/period. The gross, net, or VAT amount of each supplier that is registered or paid is automatically stored and accumulated for each flexible service code in a separate table for accumulated amounts. The amount accumulated during the year or period is displayed for each service code and supplier in 'Flexible Service Code. Connect to Supplier' (CRS664). The information about amount accumulation is not applicable when 'Date limits' is used in (CRS663).

Example using upper limit

One flexible service code that is defined for payment reporting level is connected to the supplier, where the withholding level is set to 'Year' and the base type is set to 'Gross amount'. The maximum yearly amount defined is 100,000. If an invoice with a gross amount of 120,000 is paid, the withholding tax is only calculated for the amount of 100,000 and not for the remaining 20,000.

Example using between limits

One flexible service code that is defined for payment reporting level is connected to the supplier, where the withholding level is set to 'Year' and the base type is set to 'Gross amount'. The service code defines these minimum and maximum values and a withholding tax percentage for each one of the ranges:

You receive and pay three invoices (without VAT) from this supplier:

• Invoice A: 3,000. The total accumulated amount when the invoice is received is zero. Since the invoice amount is lower than 5,000, a tax percentage of 10 is applied. The withholding tax is 300.
• Invoice B: 5,000. Since the total accumulated amount already was 3,000 before payment of this invoice, a tax percentage of 10 is applied to the 2,000 required to reach the amount of 5,000 (the upper limit of the first range). For the remaining 3,000, a tax percentage of 12 is applied, since the total accumulated amount will be 8,000, that is, within the second range. The withholding tax is 560.
• Invoice C: 10,000. Since the total accumulated amount already was 8,000 before payment of this invoice, a tax percentage of 12 is applied to the 2,000 required to reach the amount of 10,000 (the lower limit of the third range). The remaining invoice amount is 8,000. Since the upper limit of the third range is 15,000, a withholding tax is calculated on 5,000 only, using a tax percentage of 14. The remaining 3,000 that exceeds the upper limit is automatically tax exempt.

Outcome

These types of reports are created: a paper report and an electronic text file. The file is stored in the output folder selected when Infor Enterprise Collaborator is set up. These reports indicate the payment amount and the amount of the tax withheld in local currency for each supplier (payee) and invoice.

You can send the electronic file to the tax authorities and the certificates to the suppliers.

All transactions in the table for withholding tax transactions, FAPSER, have status 9, which indicates that they are included in a confirmed withholding tax report.

Before you start

• You have a thorough knowledge of the legal requirements for withholding tax.
• Basic company data for withholding tax must be defined in 'Settings - Supplier Tax' (APS035). For Argentina, reporting method 4 must be selected in order to create a withholding tax report based on the Argentinean format. If withholding tax transactions should be labeled with a certificate number, the start number must be entered manually in this program when configuring the system for withholding tax. The number is used as the start number when M3 assigns a certificate number to a transaction. All transactions with the same supplier, flexible service code and accounting period will then receive the same certificate number. A new certificate number will always be issued after you have printed a certificate in 'Supplier Tax Report. Create Proposal' (APS430). The latest used certificate number is displayed on (APS035/E). (The purpose of the certificate number is to verify that the payment amount has been reduced by the tax amount. The use of certificate numbers, which is a legal requirement in Argentina, enables you to print transactions for each certificate number. They are also required for sending electronic files with declarations of withheld tax to the Argentinean tax authorities.)
• You must set the 'Withholding tax using flexible service codes' field on 'Accounts Payable – Settings' (APS905/F) to 1, 2, or 3 for the division. This selection means that M3 Business Engine will only use flexible service codes. Any standard service codes selected for the suppliers or entered in the supplier invoice headers or invoice lines are completely overridden when it comes to withholding tax calculation.
  Note:  Alternatives 1 and 2 only allow the use of flexible service codes at payment of supplier invoices. To use flexible service codes at both entry, recoding and payment of supplier invoices, then you must use alternative 3.
• All suppliers of the company that meet the requirements for withholding tax must be identified. These suppliers must have tax withholding method 2 selected in 'Supplier. Define Purchase & Financial' (CRS624/F). For a description of this method, see Register supplier or payee information required for financial management.
• Flexible service codes must be defined in 'Flexible Service Code. Open' (CRS663). Each service code defines whether withholding tax transactions are assigned the certificate number from (APS035) and whether the withholding tax is calculated with or without VAT included.
• Limit values such as maximum or minimum amounts that are based on the applicable tax rates must be defined for each flexible service code in 'Flexible Service Code. Open Limits' (CRS666). For examples, see below.
• Date limits for flexible service code that is connected to supplier in 'Flexible Service Code. Connect to Supplier' (CRS664) must be defined in 'Flexible Service Code. Open Date Limits' (CRS668).
• Flexible service codes must be selected for the applicable suppliers in (CRS664). The supplier type of the suppliers in this program indicates whether the supplier is a company or a physical person.
• To assign withholding tax transactions a certificate number from (APS035), you must select the 'Assign certificate numbers' check box in (CRS663).
• You must define these accounting rules in 'Accounting Rule. Open' (CRS395) for recording the tax withheld: AP10-396, AP20-396, AP30-396, AP31-396, AP32-396, AP33-396, and AP34-396. Exceptions to the rules can be defined per flexible service code in 'Accounting Exception. Open' (CRS396).
• To include withholding tax in VAT reports, you must select the 'Withholding tax in VAT reporting' check box in 'Country. Open' (CRS045). Furthermore, you must define the accounts defined on accounting types with '396' with 'VAT account type' between 3 and 9. When selected, the withholding transactions are updated with the VAT information needed to allow them to be included in VAT reports created via 'VAT Run. Open' (TXS100).
• Infor Enterprise Collaborator must be set up. For Argentina, the M3 Business Message is based on format AR-SICORE.

Outline

Follow these steps

1. Create withholding tax transactions at invoice entry or invoice recoding.

   When you record a supplier invoice in (APS100) or (APS450), or recode a supplier invoice in (APS110) or (APS450), the withholding tax is automatically deducted from the invoice amount (the invoice transaction with transaction code 40) based on the flexible service codes that re defined for invoice reporting level connected to the supplier. If service code restrictions are used, the service code entered on the invoice accounting line. The deduction is recorded as a separate payment transaction (transaction code 50). The tax is recorded as one separate payment accounting entry transaction (transaction code 51) for each flexible service code and invoice accounting line.

   The basic conditions to create withholding tax on supplier invoices is that the accounting line has transaction code 41 (account entries for supplier invoices), a standard service code that is not 0, and an account defined with VAT account type 0, 4, 6, 8, or 9 that is not defined as a clearing account.

   When registering applicable accounting lines on the coding panel in 'Accounting. Open' (GLS120), the withholding tax transactions are displayed. Any manual changes on these transactions must be performed when all accounting lines have been entered, since the manual changes otherwise are overwritten when one or more accounting lines are changed or entered.

   From a functional perspective, M3 Business Engine creates a withholding tax transaction for the flexible service code in the table for withholding tax transactions and updates the table that stores the accumulated amounts for each flexible service code. The general ledger is also updated.

2. Create withholding tax transactions at payment.

   When you pay a supplier invoice in 'Supplier Payment Proposal. Open' (APS130) or 'Supplier Payment. Enter Manual' (APS120), the withholding tax is automatically deducted from the invoice amount (the invoice transaction with transaction code 40) based on the flexible service codes connected to the supplier and if service code restrictions are used, the service code entered on the invoice header. The tax is recorded as one separate transaction for each flexible service code and invoice. The amount you pay to the supplier is the invoice amount minus the deducted tax, including any tax that has been deducted at invoice entry.

   From a functional perspective, M3 Business Engine creates a withholding tax transaction for the flexible service code in the table for withholding tax transactions and updates the table that stores the accumulated amounts for each flexible service code. The general ledger is also updated.

3. Review withholding tax transactions.

   Review the withholding tax transactions in the FAPSER table for each payer in 'Supplier Tax Report. Display Invoices' (APS425). The program displays, among other values, the flexible service code on which the transaction is based and the sequential certificate number that was automatically linked to the withholding tax transaction at payment. You can adjust or delete records. You can also create new records for invoices that are already recorded in accounts payable. If you manually change the payment amount to report or the withheld tax amount, the original value is still displayed in local and foreign currency on (APS425/E) for traceability purposes. Note, however, that since changes in (APS425) do not update the general ledger automatically, you must adjust the ledgers manually by either entering credit invoices in (APS100) or entering journal vouchers in 'Journal Voucher. Open' (GLS100).

   Depending on the setup, a sequential certificate number is automatically linked to the withholding tax transactions at payment to verify that the payment amount was reduced by the tax amount. The information views in (APS425) enable you to display transactions for each invoice number, certificate number, or supplier and certificate number.

4. Create tax report.

   Create a proposal for the report with the withholding tax to declare in 'Supplier Tax Report. Create Proposal' (APS430). The proposal is based on selection criteria such as ranges of suppliers, payees and accounting dates. (The range of service codes is only used for standard service codes.) Verify that all relevant transactions are included by first selecting the Change option in (APS430) to list all payees included in the sub-program (APS435). You can remove individual payees from the proposal. By selecting option 11='Invoices' for a supplier, all withholding tax transactions selected for this supplier are displayed and can be edited in (APS425).

   When you confirm or approve the proposal in (APS430/B) by selecting option 9='Update', the proposal and the included transactions all receive status 9, which indicates that they have been declared. The ID of the confirmed proposal is stored for each transaction, so that you can easily identify the report in which an individual transaction was included by selecting option 11='Tax report' in (APS425). A paper tax report is printed and, in the case of Argentina, an electronic file is created. Once the proposal is confirmed, you can also print withholding tax certificates with transactions by certificate number by selecting option 11='Print certificate' in (APS430/B). The certificates printed are based on an additional selection you make on the F panel by entering ranges of payees, VAT registration numbers and flexible service codes. If the flexible service codes were defined so that no certificate numbers were assigned to the transactions, only the invoice numbers are printed on the report.

   You can always reprint reports and regenerate electronic files in (APS430).