Configuring Deferred Tax for Non-Localized Countries/Regions

This blog describes how you can configure deferred tax in the SAP Cloud Applications Studio so  that you can make this activity available for an installation in a non-localized country/region, for which SAP has not delivered a local version.

Prerequisites

  • You have installed the latest PDI release for creating the tax content.
  • The country/region you want to configure is available in the tax country table already delivered by SAP. For the list of delivered tax countries/regions, see Tax Basic Countries/Regions.

Note: You can only create tax content for the countries/regions included in this list. If a country/region is not listed here, please contact SAP Business ByDesign Globalization team through  Customer Influence and mark the area as ‘Globalization’ in the request.

  • In the solution where deferred tax configuration is done, you must configure the other relevant tax elements, such as tax events, tax types, tax codes and tax rates.
  • In the solution where tax adjustment is done, you must configure the tax declaration type, tax declaration key number type and the tax declaration profile.

Deferred Tax

Tax deferral refers to instances where a taxpayer can delay payment of taxes until some future period.

In SAP Business ByDesign, when you apply a tax deferral scheme in output tax, the payment of the total tax for which you are liable is postponed to the end of the period in which you receive the payment for the supply or services invoiced.

Similarly, when you apply a tax deferral scheme in input tax, you cannot deduct this tax credit from tax liabilities until you pay the invoice.

Accounting posting for the deferred tax will be determined by mapping deferred tax accounts to account determination groups of tax events. You can do this in Business Configuration in the Tax activity available under the Chart of Accounts, Financial Reporting Structures, Account Determination fine-tuning activity.

Postings Where Deferred Tax is Enabled

Create and post an invoice document containing items for which deferred tax applies.

  • The system posts the invoice document to the general ledger and given that the tax is not yet payable or receivable, tax will not be posted to output or input tax accounts. At this time, taxes are posted to an intermediate account called a Deferred Account.
  • When an invoice is paid, taxes will be moved from intermediate accounts to output or input tax accounts.
  • For any partial payments, proportionate amounts will be moved from intermediate accounts to output or input tax accounts.

You configure deferred tax enablement based on business scenario, country/region, tax type and product type. Once the configuration is enabled, taxes that belong to all the lines items with the above combination will be posted to deferred accounts.

SAP Business ByDesign allows you to create invoice documents with both deferred and non-deferred line items.

Configure Deferred Tax Enablement

You can configure the enablement of deferred tax as follows:

  1. In the Solution Explorer, right-click the Business Configuration node and select Business Configuration Set. The Business Configuration Wizard opens.

 

  1. Under Business Configuration Object Type, select Use SAP Business Configuration Object.
  2. Enter a name and a description.
  3. Under Business Configuration Object -> Name, select DeferredTaxConfiguration from the list.
  4. Enter the values as below:
    • Deferred Tax Business Scenario: Enter the business scenario for which you need to configure deferred tax. From the drop-down list, you can choose either Sales or Procurement.
    • Country/Region: Enter the country/region code for which you need to configure the deferred tax.

Note:  The country/region you want to configure must be available in the tax country table already delivered by SAP. For the list of delivered tax countries/regions, see Tax Basic Countries/Regions.

You can only create tax content for the countries/regions included in this list. If a country/region is not listed here, please contact SAP Business ByDesign Globalization team through  Customer Influence and mark the area as ‘Globalization’ in the request.

 

    • Tax Type: Enter the tax type code for which deferred tax needs to be enabled. You can configure deferred tax for the tax types which are defined in the same solution.
    • Product Type: Specify the product type for which you need to enable deferred tax. From the drop-down list, you can choose Material, Service, Entitlement, Warranty or Individual Product.
    • Default: Specify if you want the deferred tax default value to be True. The default value is False.

  1. Verify the values in the Review your Business Configuration Set if you want to make any changes. Click Back to proceed with the changes or corrections. If all the values are correct, save the content by clicking Finish.
  2. To activate, right-click on the BC set in the Solution Explorer view.
  3. Right-click on the Business Configuration node and click Deploy Business Configuration.

The content is deployed and activated in the SAP Business ByDesign system.

Note: SAP delivers deferred tax implementation for India, Croatia, Italy, France, and Mexico. You cannot create new BC Sets for these countries.

Tax Adjustment

For certain scenarios, deferred tax is not activated during the payment of the invoice document, the activation is instead completed by sources external to the system or based on preconditions (for example, partial or full payment, and so on).

A tax adjustment can be used as a source document to activate deferred tax for already-existing tax items, for which all the document information is already available in the system. In the tax adjustment, the deferred tax activation can be done in two ways – Activation by Percentage and Activation by Date.

You can create a tax adjustment using tax declaration run for a particular period. All the deferred tax documents during this period are moved from a deferred to a non-deferred account, based on the activation method. For each source document a corresponding tax adjustment document is created.

You can cancel the tax adjustment document manually. The cancelation of the source document does not lead to the cancelation of the tax adjustment document. However, the cancelation source document is considered in tax adjustments.

Configure Tax Adjustment Profile

 The Tax Adjustment Profile defines the activation method types for deferred tax activation. In this configuration object, you can store the following settings:

  • Assignment of tax types, tax events, and tax return types against a calculation method type
  • Assignment of Tax Adjustment Profile validity
  • Assignment for Activation by Percentage
  • Assignment for Activation by Date

You can configure a tax adjustment profile as follows:

  1. Follow steps 1 and 2 as outlined in section 1.2 Configure Deferred Tax Enablement.
  2. Under Business Configuration Object -> Name, select TaxAdjustmentProfile from the list.
  3. Select the Tax Adjustment Profile node and enter the values as below
    • Country/Region: Specify the country/region for which you need to configure the tax adjustment profile. You can select the appropriate country/region from the available value help.
    • Tax Return Type: Enter the tax return type created in the same solution.
    • Calculation Method: There are 3 calculation methods available:
      • Single Activation by Percentage: The deferred tax activation happens for all those deferred tax items picked up during the tax declaration run period, based on the percentage maintained in the node, Assignment for Activation by Percentage.
      • Full Single Activation by Date: If the activation date falls during the tax declaration run period, then the deferred tax activation happens for all those deferred tax items selected during this run period.
      • Pro-Rata Activation by Affiliated Items: Not currently supported for partners or customers
    • Tax Type: Specify the relevant tax type
    • Tax Event: Specify the relevant tax event for which the deferred tax activation is required.
  1. Select the Tax Adjustment Profile Validity node and enter the values as below:
    • Enter the Country/Region, Tax Return Type, Calculation Method, Tax Type, Tax Event as maintained above.
    • Valid From: Specify the date on which the validity of this calculation method starts.
    • Valid To: Specify the date on which the validity of this calculation method ends.
  1. Select the Assignment for Activation by Percentage node and enter the values as below.

Note: You maintain values for this node only if you select Single Activation by Percentage as the calculation method in the previous step.

    • Enter the Country/Region, Tax Return Type, Tax Type, Tax Event, Calculation Method, Valid From, Valid To as maintained above
    • Tax Percentage: Specify the percentage for the deferred tax activation.
  1. Select the Assignment for Activation By Date node and enter the values as below:

Note: You maintain values for this node only if you select Full Single Activation by Date as the calculation method.

    • Enter the Country/Region, Tax Return Type, Tax Type, Tax Event, Calculation Method, Valid From, Valid To as maintained above.
    • Calendar Day: Specify a 2-digit activation date.
    • Calendar Month: Specify a 2-digit activation month for the above date.

Assign Deferred Tax in SAP Business ByDesign System

  1. In the SAP Business ByDesign System, go to the Business Configuration work center, and navigate to the Charts of Accounts, Financial Reporting Structures, Account Determination fine-tuning activity.
  2. Open the activity and select Account Determination -> Tax.
  3. Assign the deferred tax accounting entry to the account determination profile. You can reuse an existing account determination profile or create a new account determination profile particularly for the country/region enabled for the deferred input/output tax.

Summary

When you deploy the add-on that you have created, the tax postings will be delayed and reported based on the configuration maintained for the non-localized country/region, for which SAP has not delivered a local version.

Please share your feedback or thoughts in the comments section below.

Follow the below pages for more information:

SAP Business ByDesign Localization

To post and answer questions on SAP Business ByDesign Localization

To read other blog posts on SAP Business ByDesign Localization