Deferred Recoverability feature of AP in 12i

Deferred Recoverability:

Deferred Recoverability refers to an accounting process where tax recovery is reported when the invoice is paid. The accrual (and therefore the settlement and/or reporting) of recoverable taxes is delayed due to special tax rules either enforced by the Tax Authority, or allowed with the agreement of the Tax Authority.

Features:
•Accurate reporting and accounting of pending recoverable tax amounts for the recoverable portion of the tax.
•When payment is made, whether fully or partially, the corresponding tax is automatically recorded as recoverable and reversed from the interim recoverable account.

Benefits:
1. This feature allows you to meet the challenge of adhering to local tax laws that require deferred recoverability whether you need this feature now or plan to expand into new, international markets in the future.
2. Streamlined operations and operational excellence both contribute to lower costs. Automatic accrual means less time spent accruing accounts manually, providing better control over accounting and reducing the propensity for manual errors.
3. Fiscal Discipline is improved as General Ledger accounts reflect transactions that have occurred and automated accounting reduces auditing time

Deferred Recoverability Process Part 1: Set Up and Invoice:
You must first configure E-Business Tax Service for deferred recoverability and optionally tailor the Subledger Accounting definition if needed for accounting.
•During Invoice Entry, Validation, and Import, Payables gathers information known as tax drivers that are entered on the invoice header and lines and passes that information to the new e-Business Tax module.
•Based on these tax drivers and additional information derived by e-Business Tax such as the supplier’s party tax profile and buyer’s and supplier’s tax registrations, the engine determines the applicable tax, returns both recoverable and non-recoverable amounts and, in the case of deferred recoverability, the interim tax General Ledger account for recoverable taxes.
•Payables displays the tax amount in a column on the Invoice Header and in the Summary region, creates the tax lines in the Lines tab, and records the Distributions including the interim recoverable tax account.
•When the Invoice is Accounted, the interim recoverable tax account is posted to General Ledger.

Deferred Recoverability Process Part 2: Set Up and Payment:
At payment time, Payables determines if the invoices being paid are subject to deferred recoverability. If so, Payables requests the distribution accounts for the recoverable tax from E-Business Tax.

Payables determines how much is recoverable based on how much of the invoice is paid, then records the amount and corresponding distribution account.

When the payment is accounted, the interim recoverable tax account is reversed and the recoverable tax is posted to General Ledger.

Setup Taxes with Deferred Recoverability:
•Responsibility: Payables
•Navigation: Setup > Tax > E Business Tax Home > Task List > Task Configuration > [Tax Regime, Tax, Tax Status, Tax Rate] > Create > Controls and Defaults > Allow Tax Recovery
To enable taxes with deferred recoverability, enable the Allow Tax Recovery and the Default Recovery Settlement options at the Regime, Tax, Tax Status, or Tax Rate levels. Set the Default Recovery Settlement option to Deferred.
In addition, when you set up a Tax with deferred recoverability, ensure that you define the following Tax Accounts for that tax:
•Tax Expense
•Recoverable Tax
•Interim Tax (used only for Accrual Based accounting)
The default account for recoverable taxes in Subledger Accounting is Accounts Payable deferred. You can change this account if necessary.

Implementation Considerations:
E-Business Tax is a common module available with Oracle Financial Applications.
•The e-Business Tax engine is responsible for calculating tax amounts applicable to invoices.
•E Business Tax configuration qualifies taxes with attributes to meet tax compliance requirements
Subledger Accounting is also a common module available with Oracle Financial Applications. Subledger Accounting is not specific to this feature but a general tool to configure accounting entries and to provide accounting reports to meet your needs.