Offest Tax

Oracle eBTax: Reverse charge taxes, do you use Offset taxes or the Self Assess solution?

What is reverse charge VAT?

“Reverse Charge” is a part of the VAT law in a growing number of European countries. It states that the VAT (Value Added Tax) for Goods and Services delivered inside the country by a foreign company is owed by the recipient of the goods and not by the foreign service provider/supplier.

VAT must not be charged on invoices to the recipient. By law, a clear statement must appear on each of these invoices indicating that the liability for the payment of VAT is reversed to the recipient. The recipient has to calculate, report and pay the VAT (it may be recoverable if the recipient is VAT registered). The foreign service provider/supplier may be entitled to a VAT refund claim for all VAT charges by local suppliers.

So, in Oracle do we use Offset or Self Assessed tax?

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Oracle eBTax: Examples of how Offset Tax differs from Self Assessed Tax.

This post offers examples of how Offset Tax differs from Self Assessed Tax.

There are 3 options available to you with Payables and Oracle when it comes to Tax.

Option 1 – (No special requirements)

Invoice entered for a foreign supplier so tax shown on AP invoice was 0%.
The tax calculated is a zero amount.

 

The tax calculated is as follows:

The distribution of the invoice is shown as follows – you can see that there is no value in the recoverable and non recoverable tax.

 

When the accounting has been created (what is sent to GL), the following GL entries will be made. A zero value is recorded for tax.

 

Option 2 – (Use Offset Tax)

Invoice entered for a foreign supplier so tax shown on AP invoice was 0%.
The following screen shot shows that Offset tax has been calculated, a 5% and a -5% so the net amount is 0.

The tax calculated is as follows:

The distribution of the invoice is shown as follows – you can see that both the tax and offset tax are shown.

When the accounting has been created (what is sent to GL), the following GL entries will be made. You can see the two taxes should cancel each other out (ignore the cost centre value of 0). Even though the values cancel each other out, the journal entry is made and the taxes have been recorded.

ebtax

 

Option 3 – (Use Self Assessment)

Invoice entered for a foreign supplier but when we calculate the tax, no tax line is created!

r12 ebtax

 

The tax calculated is as follows – so, even though no tax line is shown on the distributions, a tax is calculated (however it has a status of ‘Self Assessed’ in the system).

r12 etax

The distribution of the invoice reflects the entered lines – i.e. there is only one line – no recoverable or non recoverable tax shown.

The Big difference is that when the accounting has been created (what is sent to GL), the following GL entries will be made. 500 will be credited to a Self Assessed account and 500 debited to a self assessed liability account.

The major difference between offset and self assessed is what is visible on the distributions of the invoice. Both options make journal entries to account for the tax that should be charged. The account values can of course be changed so the liability account could be different if required.

 

 

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