Reporting Supplier Tax

This document presents an overview of how to generate and report supplier tax transactions. For example, in the United States, at the end of the year companies report to the Internal Revenue Service certain types of payments (1099 reportable payments) they make to suppliers, such as sole proprietorships, using a 1099 form.

The transactions created and the base amount—the amount to report to the tax authorities—depends on the withheld tax method of the supplier:

  • With tax withholding method 1, the base amount to report is the gross amount (invoice amount including VAT). M3 Business Engine creates a record with base amount at the time of payment, but no account entries are created.
  • With tax withholding methods 2, the withheld tax is calculated on the net amount (invoice amount minus VAT). M3 Business Engine creates a record with base amount as well as withheld tax at the time of payment, account entries are created.
  • With tax withholding methods 3, the withheld tax is calculated on the net amount (invoice amount minus VAT). M3 Business Engine creates a record with withheld tax at invoice entry, account entries are created. A record for the base amount to report is created at the time of payment, but no account entries are created.
  • With tax withholding methods 4, the base amount depends on the setting for the service code used (net amount (invoice amount minus VAT) or gross amount (invoice amount including VAT) can be used). M3 Business Engine creates a record with base amount as well as withheld tax at the time of invoice entry or at entry of on-account payment, account entries are created.

Any cash discount is not considered in the calculation for all withheld tax methods.

The withheld tax is automatically posted to a separate account. For supplier payments, accounting events AP20, AP30, AP31, AP32, AP33, and AP34 are used together with accounting type 396. When recording supplier invoices with method 3 or 4, accounting rule AP10-396 is used to post the amount to report.

Outcome

A report is created indicating the reported amount and withheld tax amount in local currency per payer and invoice.

You can send the report to the appropriate authorities.

All supplier tax transactions in the FAPSER table have status 9 (included in an approved supplier tax report).

Before you start

  • You must have selected the method for reporting supplier tax for the applicable suppliers in the 'Tax withholding method' field on 'Supplier. Define Purchase & Financial' (CRS624/F). For a detailed description of the methods and their impact on the process, see the Parameters to Set table in Register supplier or payee information required for financial management.
  • Ensure that setting 260 (Withholding tax on the invoiced gross amount) is set to 0 in 'Settings – Accounts Payable' (APS905). This setting must only be selected when using flexible service codes, as described in Withholding Supplier Tax Using Flexible Service Codes.
  • Service codes must be defined in 'Supplier Service Code. Open' (CRS063). The service code determines how much of the invoice or payment amount is to be withheld, expressed as a percentage. For tax withholding method 4, additional percentages for surcharge taxes can be used as well as percentages defined per date using country and state of the supplier. The latter is defined in 'Withholding Percentage. Define per Date (CRS667) via related options 11-Withholding percentage per date in 'Supplier Service Code. Open' (CRS063).

    For tax withholding method 4, an official service code can used for withholding tax as defined by the regional or national tax authori-ties. Official service codes are defined in 'Official Service Code. Open (APS026) and connected to the Service code in (CRS063).

    The ID of this service code is automatically saved on each withholding tax transaction and can be used as a selection criterion in the tax reporting process.

  • A service code must be selected for the supplier in (CRS624/F) or, for local exceptions, in 'Supplier. Open/Division' (MFS620/E).
  • Basic company data for supplier tax reporting must be entered in 'Setting – Supplier Tax' (APS035).

    The report method to be used in 'Supplier Tax Report. Create Pro-posal' (APS430) indicates how the supplier tax is summarized to the authorities and the reports created.

    The check box for 'Internal tax reference (challan) used' indicates if an internal number should be assigned to all supplier tax transac-tions included in the proposal in 'Supplier Tax Report. Create Proposal' (APS430). The number is retrieved from the number series 83-1 in 'Number Series. Open' (CRS165) and assigned to the trans-actions when the proposal is confirmed.

  • The expense accounts used in the accounting lines on which supplier tax will be calculated must belong to VAT account type 0 (No VAT account) or 4 (Purchase account) in 'Accounting Identity. Open' (CRS630/E).
  • The following accounting rules must be defined in 'Accounting Rule. Open' (CRS395) for posting withheld tax using withholding methods 2: AP20–396, AP30–396, AP31–396, AP32–396, AP33–396 and AP34–396. To post withheld tax using tax withholding method 3, you must define accounting rule AP10–396 and for tax withholding method 4, accounting rule AP10–396 and AP20-396 must be defined.
  • For French tax reporting, activity codes must also be defined in 'Supplier Activity Code. Open' (APS025). The activity code for physical people ('personnes physiques') is NP and for companies ('enterprises et personnes morales') is RS.
  • An activity code must be selected for the applicable suppliers in (CRS624/F). Activity codes can then be used as selection criteria when creating a tax report in 'Supplier Tax Report. Create Proposal' (APS430).

Follow these steps

Outline

  1. Register service code during supplier invoice entry and invoice matching

    A default service code for the supplier is used when you enter a supplier invoice and post it to an expense account in one of the these programs:

    • 'Supplier Invoice. Record' (APS100)
    • 'Supplier Invoice Batch. Open' (APS450).

    You can change the service code manually, either for the entire invoice or for a specific expense accounting line. For example, the supplier's hourly fees can be reportable and require a service code, but reimbursable business expenses such as travel do not.

    If the invoice is matched to a purchase order or to goods receipt transactions, the service code for the accounting lines is displayed in 'Supplier Invoice. Match GR Line' (APS360/E).

    Accounting lines without service codes are automatically excluded from the supplier tax routine, as are all accounting lines that do not have transaction code 41 in 'General Ledger. Display Transactions' (GLS211/E).

    Note that recurring payments in 'Supplier Payment. Open Recurring' (APS095) cannot be included in the supplier tax routine.

    Also note that for tax withholding method 4, only one service code per supplier invoice can be used during supplier invoice entry in (APS100) and that supplier invoices entered in (APS450) are not covered.

  2. Register service code during recoding

    If the invoice is posted to a clearing account in (APS100) or (APS450), no supplier tax transaction is created during invoice entry even if tax withholding method 3 is selected for the supplier. Instead, you confirm or adjust the service code to use during recoding in 'Supplier Invoice. Recode' (APS110).

  3. Pay supplier invoice

    You pay the invoices as usual in 'Supplier Payment Proposal. Open' (APS130) or 'Supplier Payment. Enter Manual' (APS120). The amount you pay is the invoice amount minus the deducted tax.

    Using tax withholding method 4, withheld tax can also be created for on-account payments by connecting a service code to the supplier in (CRS624/F) or during entry of the payment.

  4. Review tax transactions

    You review new tax transactions per payer in 'Supplier Tax Report. Display Invoices' (APS425). 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 in (APS425/E) for traceability purposes.

    Note: Since changes in (APS425) do not update the general ledger automatically, you must adjust the ledgers manually depending on the selected tax withholding method. Manual adjustments involve entering credit invoices in (APS100) or entering journal vouchers in 'Journal Voucher. Open' (GLS100).

  5. Create supplier tax report

    You create a supplier tax report in 'Supplier Tax Report. Create Proposal' (APS430).

  6. Analyze supplier tax reports

    Once the report is created, you can select option 11='Tax report' for a specific supplier tax transaction in 'Supplier Tax Report. Display Invoices' (APS425). This lists the report in which the transaction was included in 'Supplier Tax Report. Create Proposal' (APS430).

    You can also work the other way around by selecting option 11='Invoices' for a payer in (APS435)—a subprogram of (APS430)—to display the tax transactions in (APS425).

    You can always reprint a supplier tax report in (APS430) or create a detail printout for supplier tax transactions in 'Supplier Tax. Print Details (APS555).

  7. Confirm supplier tax reports

    Once the report is created and the details analyzed, you select the proposal with option 9 ='Update' in (APS430). Depending on the 'Report method' selected in 'Settings – Supplier Tax' (APS035), tables for electronic reporting and/or printouts are created.

    If the check box for 'Internal tax reference (challan) used' is selected in (APS035), an internal number together with the date is assigned to the proposal and to all supplier tax transactions included.

    You can display or print withholding tax transactions connected to the specific internal tax reference (challan) in (APS425) and in (APS555).

    You are able to enter details about the supplier tax payment made in (APS427 - Supplier Tax Payment. Open Details) by selecting the 'Tax payment' option for an updated (that is, confirmed) supplier tax report in (APS430).

Related topics