The tax is calculated during the monthly royalty run, based on the effective date onwards. The system uses the royalties accrued to work out the withholding tax that is applicable. As an example the system will work out the royalty accrued from the effective period till the processing period to work out the tax that is applicable. This amount depends on the limit and applicability period.
The method is based on the cumulative accrual and the amount of tax already calculated. If the royalty rate is adjusted, the system re-calculates the royalty that is applicable and makes the necessary changes to the royalty accruals. However it calculates the effective tax based on the total accruals to date and the withholding tax that has already been paid. It writes negative or positive amounts based on the amount of tax that has already been posted.
Applicability of taxes depends on the following.
- All accrued royalties across all contracts that have earned royalties.
- Withholding taxes that have already been calculated.
- The process runs after all the royalties have been calculated as a separate process.
- It is applicable by royalty group.
It is necessary to ensure that this form of calculation is applicable by country (royalty group) when the databases are consolidated.
The monthly royalty run results in the following:
- The system checks the applicable tax period, and works out the withholding tax that is applicable to the period.
- The applicable tax is then the difference between posted tax (if any) and the newly calculated tax. The tax calculated is posted to the current period of the G/L.
- If the period being processed belongs to a royalty paid period, then postings appear in the next unpaid royalty period.
- The above could be common occurrence since the royalty contract period and the tax period, has a partial overlap.
