A country-specific update for India is available for point of taxation in case of associate enterprises in Microsoft Dynamics AX 2012 R2

Introduction

This article describes a country-specific update for India that is available for point of taxation in case of associate enterprises in Microsoft Dynamics AX 2012 R2.

More Information

Point of taxation (POT) was a new regulatory requirement on India service tax, which was introduced in 2011. Compared with previous existing cash basis service tax, "point of taxation" is fundamental described as follows:

Determination of point of taxation - For the purposes of these rules, unless otherwise provided, "point of taxation" shall be:

(a) The time when the invoice for the provided service or to be provided is issued:
If the invoice is not issued within 14 days of the completion of the provision of the service, the point of taxation shall be date of such completion.

(b) in a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment.
And under reverse charge mechanism, the recipient of the service has been made liable to pay service tax partly or fully. More details about the concept can be found in the business document (link).
As per POT and reverse charge, when an invoice is issued before payment, tax amounts accrue to "interim recoverable" account and "interim payable" account, which will be transferred to recoverable and payable respectively later when invoice is settled with payment or when payment is made to tax authority. However, per the law tax should be paid to tax authority if payment is not made within 6 months. Therefore, the flexibility to accrue payable amount at invoicing for reverse charge scenarios is needed.
One typical practical scenario is associate enterprise. Associate enterprise: an enterprise, which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise is considered as an 'associated enterprise'.
This feature is explicitly to support the flexibility to accrue payable amount at invoicing for reverse charge scenarios is needed. It will affect accounts payable scenarios where service tax reverse charge are applicable including project accounting.
As POT and reverse charge are not integrated with centralized payment, there will be on effect on centralized payment scenarios. In addition, there should be no effect on India withholding tax.

Status

Microsoft has confirmed that this is a problem in the Microsoft products that are listed in the "Applies to" section.

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