Taxes can be charged on deals when:
A deal is entered into
Periodic income is earned or paid while holding an investment
A deal is concluded
Treasury lets you calculate and apply two types of taxes on your Treasury deals: one on the principal component, either on a flat or annual basis, and one on the income component of the same deal.
You can apply taxes to the following deal types and components:
Equities (STOCK): consideration amount and dividend income.
Fixed Income Securities (BOND): principal amount and coupon.
Short Term Money (ONC): principal amount and interest.
Discounted Securities (NI): principal amount and interest.
Wholesale Term Money (TMM): principal amount and interest.
To use taxes in Treasury, you must set up the following:
Tax rate: The tax rate is the rate the tax authority imposes on your deals.
Tax schedules: The tax schedule defines the relationship between a tax rate, payee, deal type, and calculation type. You use tax schedules to calculate the appropriate taxes for a particular deal type and payee. You can also define what rounding rule and precision you want to apply to calculated tax amounts and how you settle the taxes.
Tax categories: The tax category defines which default tax schedule is applied to a particular combination of deal type, deal subtype, product type, and counterparty. Tax categories can be generic (for a particular deal type, deal subtype combination) or more specific. For example, you can set up a tax schedule to apply to all equity sales, or you can set up a schedule to apply to all equity sales with a specific counterparty. You have the ability to override the default tax schedules during deal input.
Settlement codes: The tax settlement codes are used as exposure types for tax exposure transactions and let you define the GL accounts that your tax exposure transactions are posted to.
Tax rates that are effective on the deal's start or settlement date are used in the calculations. If a tax rate changes after a deal is saved, the changed rate does not affect the saved deal, only future deals. For dividends of Equity deals, the tax rate effective on the dividend declaration date is used. If the tax rate changes, the changed rate does not affect existing dividends, but only future dividends.
Once a deal is saved, you cannot insert or update the tax schedule for the deal.
Use tax rates to define the rates and effective dates for the taxes that you want to apply to your Treasury deals. You must define at least one tax rate before you can define a tax schedule.
Navigate to the Tax Schedule and Details window.
In the Rate Codes tab region, select a blank row and enter a unique code for the tax rate.
In the Effective From field, select the first date you want the tax rate to be effective.
In the Percentage Rate field, enter the tax rate as a percentage.
Save your work.
Use tax schedules to define how you want to calculate the taxes for a unique combination of tax rate, payee, deal type, and calculation type. You must define at least one tax rate before you can define a tax schedule.
Define a tax rate. See: Defining Tax Rates.
Navigate to the Tax Schedule and Details window.
In the Schedule field of the Schedule tab region, enter a unique name for the tax schedule in a blank row.
In the Rate Code field, select a tax rate code.
In the Payee field, select the party who will receive the tax payments.
In the Deal Type field, select a deal type that you want to apply the tax schedule to. For the list of deals that you can create tax schedules for, see: Tax Schedules and Details.
In the Calculation Type field, select a calculation type. Note that the list of available calculation types differs depending on the deal type you selected.
Equities (STOCK): Tax on consideration amount (CON_F), tax on dividend amount (DIV_F).
Discounted Securities (NI): Flat tax on interest amount (INS_F), annual tax on consideration amount (CON_A), flat tax on consideration amount (CON_F), annual tax on maturity amount (MAT_A), flat tax on maturity amount (MAT_F).
Fixed Income Securities (BOND): Flat tax on interest amount (INS_F), flat tax on consideration amount (CON_F), flat tax on maturity amount (MAT_F), annual tax on maturity amount (MAT_A).
Short Term Money (ONC): Flat tax on interest amount (INS_F), annual tax on principal amount (PRN_A), flat tax on principal amount (PRN_F).
Wholesale Term Money (TMM): Flat tax on interest amount (INS_F), annual tax on outstanding principal (PRN_A), flat tax on starting principal amount (PRN_F), flat tax on starting principal and subsequent principal increases (PRN_INC_F), flat tax on principal repayments (PRN_DEC_F), flat tax on maturity amount (MAT_F).
In the Rounding Rule field, choose how you want to round your calculated taxes. The possible choices are: Nearest, Round Up, or Round Down.
In the Precision field, choose the type of precision you want to use to calculate your taxes. The possible choices are:
Units: Rounds to the last digit or decimal place according to the decimal accuracy of the deal currency. This is the default precision for all schedules.
Ones: Rounds to the first digit before the decimal.
Tens: Rounds to the second digit before the decimal.
Hundreds: Rounds to the third digit before the decimal.
Thousands: Rounds to the fourth digit before the decimal.
Tenths: Rounds to the first decimal place.
Hundredths: Rounds to the second decimal place.
Note: The level of precision is affected by the level of precision that is possible for the currency of the deal. For example, if you choose a precision of Hundredths, and the deal currency is Japanese Yen (a currency that does not have decimal places) then the precision you select in this field will be overridden by the nearest precision possible for the currency (Ones).
In the Settlement Method field, choose the method that you want to use to settle the tax for the schedule. The possible choices are:
One-Step Gross Amount (for principal and income): Settle gross principal and tax amount directly from the Settlements window.
This method creates tax exposure transactions automatically based on the details of the amount that the tax is calculated on. Such exposure transactions have the same settlement party, settlement date, and settlement account as on the deal.
In order to have the exposure transaction created automatically, you need to assign one-step settlement codes to your companies and tax schedules. If you do not assign one-step settlement codes to your companies and tax schedules, the one-step gross amount settlement method operates like the two-step gross amount settlement method. This means that you need to create the exposure transactions manually in the Tax/Brokerage Settlements window. See: Defining Tax Settlement Codes.
Two-Step Gross Amount (for principal and income): Settle the tax amount in the Tax/Brokerage window and settle the gross income or principal amount in the Settlements window. You create the tax exposure transactions in the Tax/Brokerage Settlements window by defining the settlement party, settlement date, and settlement account. This is the default settlement method for all tax schedules.
Netted Income Amount (for income): Settle net income amount in the Settlements window. If necessary, settle the tax amount in the Tax/Brokerage window. This method automatically deducts the tax from the interest coupon income amount. The amount that is settled is net of the tax. This settlement method is only available for taxes on the income component of a INS_F deal.
To authorize the tax schedule for use, check the Authorized check box.
Save your work.
Use tax categories to define the default tax schedules that you want to apply to a combination of deal type, deal subtype, product type, and counterparty. Categories can be as generic or as specific as you want. You must define at least one tax schedule before you can define a tax category. After you define and assign a category to your counterparty, the tax schedule defaults in on the deals you conduct with that specific counterparty. You can override the default schedule in the Deal window.
Define a tax schedule. See: Defining Tax Schedules.
Navigate to the Tax Schedule and Details window.
In the Code field of the Categories tab region, enter a unique tax category code. In the Description field, enter a description for the category.
In the Tax Details region, define the details of the tax category by selecting a deal type and a deal subtype. Optionally, you can also select a product type and counterparty for the tax category. Only counterparties that are defined as FX, MM, and Equity counterparties, and all companies appear in the list of values for counterparty.
If you want to apply tax to the principal amount, in the Principal Schedule field, select the tax schedule that you want to apply. The tax rate for the schedule appears in the Principal Rate field. There must be a value either in this field or in the Income Schedule field to save the tax category.
If you want to apply tax to the income component (interest or dividend amount) in the Income Schedule field, select the tax schedule that you want to apply. The tax rate for the schedule appears in the Income Rate field. There must be a value either in this field or in the Principal Schedule field to save the tax category.
Save your work.
If you want to assign the tax category as the default tax category for a counterparty, do the following:
Choose the Allocate to Counterparties button. The Counterparty Profiles window appears.
Query the counterparty that you want to assign the tax category to.
Choose the Tax/Brokerage Detail button. The Tax/Brokerage Details window appears.
In the Categories Tax field, choose the tax category. You can override this default tax category during deal input.
Save your work.
Use the Settlement Codes tab region of the Tax Schedule and Details window to define settlement codes. You use settlement codes when you generate exposure transactions for tax settlements.
Tax exposure transactions that are created either automatically under the one-step settlement method, or manually in the Tax/Brokerage Settlements window, are posted to the GL accounts that are defined in the Settlement Codes tab region. An exposure transaction becomes eligible for journal entry creation only after the settlement is authorized in the Main Settlements window. The journal date is the settlement date of the transaction.
Navigate to the Tax Schedule and Details window.
In the Company field of the Settlement Codes tab region, select a company whose settlement details you want to define.
In the Settlement Code field, enter a unique code for the settlement.
In the Description field, enter a description for the tax settlement.
In the GL Account field, select which GL Account you want to apply the tax settlement to.
If you defined a tax schedule with the One-Step Gross Amount settlement method, choose the One-Step Settlement Codes button and do the following:
In the Company field of the One-Step Settlement Codes window, choose the company, the tax schedule, and the tax settlement code that you want to use to settle your tax amount. You can define a generic settlement code by leaving the tax schedule field blank. If you leave the tax schedule field blank, the generic settlement code is used for all your tax schedules with one-step gross amount settlement method.
For more information on the different ways that you can settle deals (one-step, two-step, and netted income amount) in Treasury, see: Defining Tax Schedules.
Save your work.