Defining Liability to Tax and Authorization to Deduct Tax

Use

Withholding tax is only posted for a withholding tax type if the vendor is defined as subject to tax for this withholding tax type, and the customer is defined as authorized to deduct tax for this type.

Prerequisites

Each withholding tax type assigned to a company code must have been defined for the country of the company code.

Procedure

The following differences apply to vendor and customer business transactions.

Vendor Business Transactions

In order to be able to post withholding tax in vendor business transactions, for each withholding tax type, the company code must be authorized to deduct withholding tax, and the vendor must be subject to withholding tax.

To make the required settings, proceed as follows from the Implementation Guide for Financial Accounting : Financial Accounting Global Settings Withholding Tax Extended Withholding Tax Company Code Assign Withholding Tax Types to Company Codes .
For Accounts Payable, you specify whether and for how long the company code is authorized to deduct withholding tax for the specified withholding tax type.
Define the following in the vendor master record:

Make an entry for each withholding tax type

Define the vendor as subject to withholding tax

If necessary, also define the withholding tax code, type of recipient, withholding tax ID, and details of any withholding tax exemption

Customer Business Transactions

In order to post withholding tax in customer business transactions, the company code must be subject to withholding tax for the type concerned, and the customer must be authorized to deduct withholding tax.

To make the required settings, proceed as follows from the Implementation Guide for Financial Accounting : Financial Accounting Global Settings Withholding Tax Extended Withholding Tax Company Code Assign Withholding Tax Types to Company Codes .
Similarly, for Accounts Receivable, you specify whether the company code is subject to withholding tax or if it is authorized for self-withholding tax. If necessary, you can also enter details concerning withholding tax exemption.
Define the following in the customer master record:

Make an entry for each withholding tax type
Define the customer as being authorized to deduct withholding tax and define the validity period for the authorization.
If necessary, also define the withholding tax code and the withholding tax ID.

Additional Notes

In the withholding tax master data of the company code and the business partner (customer/vendor), you define which withholding tax types are relevant for a business transaction.

A withholding tax type is relevant if the following conditions apply:

The withholding tax type is entered in the master record of the business partner and defined as subject to withholding tax (vendor) or entitled to deduct withholding tax (customer).
For this withholding tax type, the company code is defined as entitled to deduct withholding tax for vendors, and subject to withholding tax for customers.
The posting date is within the validity period for the deduction authorization (customer master record or withholding tax data for the company code).

Due to the validity periods that you have to define, the withholding tax master data is time-dependent. This means that the withholding tax information saved in an open item may be different to the current relevant withholding tax types.

In the document display, the system displays appropriate warnings about the validity of the withholding tax information in the withholding tax dialog box.

If, between the time a document is entered and the time it is cleared, you have changed the list of relevant withholding tax types, the system will not clear the document.

The following situations can occur:

A withholding tax type is no longer relevant

This is the case where the company code is no longer authorized to deduct tax for a withholding tax type, although it was authorized to do so at the time the document was entered. The item in question is displayed in the withholding tax dialog box with all the withholding tax data stored in the database. The system displays a message telling you that this withholding tax type is no longer relevant.

A withholding tax type is new

This is the case if you have entered a new withholding tax type for a company code since the time of document entry. The system displays the withholding tax data not yet saved to the database in the dialog box with a message that the withholding tax type is new.

You have the following options for clearing documents despite these warnings:

Change the posting date for clearing, so that the relevant withholding tax types are the same on the posting date and on document entry.
Change individual documents using the document change function: To do this, you delete the withholding tax code in withholding tax types that are no longer relevant, and then save new withholding tax types.

Start report RFWT0010.
Once you have changed the relevant withholding tax types, this report adjusts the open items to take account of the current relevant withholding tax types. It either creates new withholding tax information, or changes existing information.