Withholding Tax in the Cloud

Max Levy | Oracle Consulting | ERP Senior Cloud Analyst
Withholding Tax in the Cloud
Confidential – © 2019 Oracle Internal/Restricted/Highly Restricted2

Program Agenda
3 Confidential – © 2019 Oracle Internal/Restricted/Highly Restricted
1. Introduction
2. Business Cases
3. Functional Setups
4. Supplier Configurations
5. Transaction Flow
6. References

Introduction
Withholding tax is the amount withheld from a payee by a payer.The
same amount is paid directly to the tax authority to satisfy income tax
liability.
The amount deducted from a given payment depends on several
transactional characteristics including:
• Nature of services/goods provided
• Location of services/goods provided
• Tax status of the payee and payer in the tax jurisdiction (e.g. tax
exempt, etc.)

Business Cases
• Withholding tax is deducted from supplier/contractor payments
• Withholding tax is deducted from payments to employees (also
known as ‘tax deducted at source’ orTDS)
• Withholding tax is a method to ensure tax collection at the time tax
liability is generated, therefore preventing tax evasion and avoidance

Functional Setups
EnableAutomaticWithholdingTax
DefineTax Regime
DefineTax Authority
DefineWithholdingTax
DefineTax Jurisdiction
DefineTax Status
DefineTax Rates
EnableTax forTransactions

Enable Automatic WithholdingTax
• Withholding tax is enabled via ‘ManageTax Reporting and
WithholdingTax Options’
• Withholding can be enabled for prepayment and standard invoice
event classes
• Tax calculation point can be set to either ‘Invoice’ or ‘Payment’
• Tax invoices can be generated either at the time of invoicing or at the
time of payment
Navigation:
Setup &
Maintenance >
ManageTax
Reporting and
WithholdingTax
Options

Enable Automatic WithholdingTax

DefineTax Regime
• A tax regime is defined as a system of tax components related to one
or more taxes administered by a tax authority
• The tax regime is a foundational configuration which must be
completed before other components
• Subsequent tax setups (e.g. tax, tax rate) are associated to a tax
regime
• Use tax configuration options to link parties within your
organization to a specific tax regime
Navigation:
Setup &
Maintenance >
ManageTax
Regimes

DefineTax Regime

DefineTax Regime – Configuration Options

DefineTax Authority
• A tax authority is the party to which withholding tax amounts are
paid
• When withholding is collected from supplier and/or employee
payments, an invoice is created and payable to the tax authority
• Like other payees, tax authorities must be set up as a suppliers with a
‘Tax Authority’ supplier type
• Optionally, payment components (e.g. bank account, pay group) can
be associated to the tax authority supplier record to aid in
streamlined payment processing
Navigation:
Procurement >
Suppliers >
Register Supplier

DefineTax Authority

• A tax is the classification of a charge imposed by a government
through a fiscal or tax authority
• Tax regime and related configuration owner are prerequisites to
defining a withholding tax
• Tax authority is linked to the withholding tax and must be configured
beforehand
Navigation:
Setup &
Maintenance >
ManageTaxes

DefineWithholdingTax –Tax Rule Defaults
• Note: this field is NOT editable once the first withholding
transaction is created

DefineWithholdingTax –Tax Authority

DefineTax Jurisdiction andTax Status
• A tax jurisdiction is a specific geographic region in which a tax
authority levies a tax
• The tax jurisdiction configuration specifies the relationship between
the withholding tax and its corresponding geographic region (i.e. tax
zone)
• A tax status is the taxable nature of a product in the context of a
transaction for a tax
Navigation:
Setup &
Maintenance >
ManageTax
Jurisdictions
Navigation:
Setup &
Maintenance >
ManageTax
Statuses

DefineTax Jurisdiction

DefineTax Status

DefineTax Rates
• A withholding tax rate is the percentage rate applied to a transaction
amount to determine the amount withheld
• A withholding tax code is the name assigned to a specific withholding
tax rate
• Setup of withholding tax rates depends on preceding regime-to-rate
setup tasks including:
• Tax Regime
• Tax
• Tax Status
Navigation:
Setup &
Maintenance >
ManageTax Rates
andTax Recovery
Rates

DefineTax Rates

EnableTax forTransactions – Specify Defaults
Navigation: Setup
& Maintenance >
Manage Taxes

EnableTax forTransactions

Supplier Configurations
• After withholding tax configuration is complete, suppliers must be
enabled for withholding tax
• Withholding must be enabled at supplier and supplier site level
• Default withholding tax treatment can be applied at supplier and
supplier site level
• Withholding tax exemptions can be applied at supplier and supplier
address level

Enable Supplier for WithholdingTax

Enable Supplier Site for WithholdingTax

Transaction Flow – Supplier Invoice

Note: When the invoice is validated, the system generates the IRS invoice automatically

• To verify creation of the tax authority
invoice, go to the ‘Taxes’ region of the
invoice and select ‘EditTaxes’
• Use the hyperlink to reveal tax authority
invoice details, including validation status
and paid status

Transaction Flow – Supplier Invoice Accounting
• Note the system generates multiple tax lines
because SalesTax andWithholdingTax both
assessed on this invoice
• A party can be subject to multiple taxes
across multiple tax regimes as shown here

Transaction Flow –Tax Authority Invoice

Transaction Flow –Tax Authority Invoice Accounting

Withholding Tax in the Cloud

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