Introduction of Deferred Taxes in Contract Accounting
What are Deferred Taxes?
Deferred tax is a listed liability to be paid until the future due date on a company’s balance sheet. The liability is deferred due to the different timing between accrual of tax and its due date. Simply speaking, a deferred tax liability is listed on a company’s balance sheet that records owed taxes but not yet due until the future date.
After reading this blog post, you will learn about the deferred tax from business aspects and the implementation of solutions delivered by SAP FI-CA (Financials Contract Accounting).
Comparison of Business Use Cases
1. Non-deferred taxes:
- (1.) Invoices posting: The payable tax is posted immediately with the posting of receivables and the revenue.
- (2.) Invoice clearing: Clearing of the invoices happened but without tax influence.
2. Deferred Taxes:
- (1.) Invoices posting: Taxes are not posted immediately as a “Payable of Tax”, instead it will be posted under “Deferred Taxes”.
- (2.) Invoice clearing: The invoice clearing will prepare the trigger for transferring taxes from “Deferred Tax” to a “Payable Tax” via step (3)
- (3) Tax Transfer: The “Deferred Tax” is reposted to “Payable of Tax” in monthly close via report RFKKXXDFTP.
Process of deferred taxes (On-premise & Cloud)
The process of deferred taxes includes three phases– Posting Invoice, Clearing Invoices, Reposting to Target Tax code from Deferred Tax code (running RFKKXXDFTP), and Tax payment to the Tax authority. You will learn necessary steps of each phase in the prerequisite section.
The procedure of Posting Invoices is standard. Please activate the Tax Reporting tool by checking the following section On-premise prerequisites. Then the Tax Rule will be applied to the invoices with the appointed Company Code. The invoice with purchase and tax will be stored in DFKKREP07-Tax Report Data (Clearing Time) and waiting for payment.
Clear the invoices with the payment.
For On-premise users, as the payment is conducted, they see the document transferring to the table DFKKREP06– Tax Report Data (Invoicing Time or Triggered), before the clearing of invoices, the posted document will be stored in the DFKKREP07–Tax Report Data (Clearing Time).
Reposting to Target account through Report RFKKXXDFTP
On-premise – Run the Report RFKKXXDFTP
To process deferred taxes with generic tax reporting in FI-CA, you use the report Transfer Posting for Deferred Tax (RFKKXXDFTP) to separate paid deferred tax from unpaid deferred tax before running the standard General Ledger reconciliation report.
You can run the Report by following the steps as below:
- Execute the program RFKKXXDFTP in the transaction SE38 or SA38
- Fill in the selection criteria.
- You will see the Transfer Posting Item with two lines. It marks the reposting to Target account (Payable of Tax) from the Deferred Tax Code (Deferred Tax).
Cloud – Deferred Tax Transfer Posting app
- You find Deferred Tax Transfer Posting under the Tax Authority.
- Click Create, finish the New Job steps as the below (Template Selection, Scheduling Options, and Parameters), and schedule.
- Template Selection
- Scheduling Options
Tax Payment to the Authority
After running the report, the payee will pay the tax to the tax authority to clear the tax liability.
Technical Information of Tax Reporting Tool
Prerequisites (System Set-up)
There are three customizing procedures for deferred tax: Define a Tax Code, Activate the Tax Reporting Tool, and Activate deferred Tax. By following the instructions below, you can run the process of deferred taxes smoothly.
Define a Tax Code
- You can determine the combination of company code and tax code and maintain the Tax Codes in:
- Transaction FTXP or
- Path SPRO > Financial Accounting > Financial Accounting Global Settings > Tax on Sales/Purchases > Calculations > Define Tax Codes for Sales and Purchases.
- Enter Country Key in the given field. Take France as an example, we enter FR.
- As you enter the Tax code you see the Target Tax Code in Properties.
Activate the Tax Reporting Tool
- You will define the reporting time in:
- Transaction SM30 with view V_TFK009 or
- Path SPRO > Financial Accounting > Contract Accounts Receivable and Payable > Basic Functions > Tax Reports > Define Report Times for Sales/Purchase Taxes.
- In the Report Time column, choose the Report for clearing date as the tax codes that are used for deferred tax codes. This action ensures the creation of a new line of data in Database table DFKKREP07.
Activate Deferred Tax
- You will define the reporting time in
- Transaction SM30 with view V_TFK_DF_CONF or
- Path SPRO > Financial Accounting > Contract Accounts Receivable and Payable > Basic Functions > Tax Reports > Configure Transfer for Deferred Tax
- You have to create New Entries and enter the selection criteria
When it comes to SAP S/4 HANA Cloud, you need a different tool– SSCUI for customizing. SSCUI stands for Self-Service Configuration User Interface.
- You will login in the Cloud with the appointed User.
- Follow the route, Manage Your Solution > Configure Your Solution > Application Area: Finance/ Sub Application Area: Contracting Accounting
- Choose item name “Tax Reporting”.
- Choose the configuration step Define Report Time for Sales/Purchase Tax (ID 105595) and activate the Reporting Time. Same as how we customize in SAP GUI for On-Premise, you have to select “Report for clearing date” for Deferred Taxes.
- Choose the Configure Transfers for Deferred Tax (ID 105660). Create a New Entries by entering the Company Code and criteria.
- How the report RFKKXXDFTP enables FI-CA deferred tax transferred to the final tax account (available in On-premise and Cloud) 1964663 – Deferral for FICA (Transfer Posting Report)
- To learn more about the customizing of Tax Reporting Tool – 1800621 – Tax reporting in FICA
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