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Fiscal policy, Tax Rates and sensitive accounts

Tagetik’s financial planning module allows the user to calculate direct taxes for the year. The item with which income taxes and the relative rates are defined is the fiscal policy. It is possible to associate the rates that are used with an entity via the fiscal policy:

  • to calculate direct taxes in Cash Flow Planning;
  • to calculate deferred taxes in consolidation data processing.

Create a fiscal policy

The list of fiscal policies can be accessed from the administrator-user’s web interface by following the path Set-up and Admin > Data processing > Taxes > Fiscal Policies and Taxes

Navbar > Data Processing > Taxes > Fiscal Policies and Taxes

It is possible to define several fiscal policies, such as Italian fiscal policy, Foreign fiscal policy, etc.

A fiscal policy is identified by:

  • a code;
  • a description

Once a fiscal policy has been defined, it is necessary to specify what the taxes for that fiscal policy are. For example, in the case of an Italian fiscal policy, IRES (corporate income tax) and IRAP (regional tax on productive activities) must be calculated.

In order for the tax calculation to function correctly, it is necessary to relate the relative fiscal policy to each entity.

Tax Rates

It is necessary to define the rate for every tax under a fiscal policy.

The list of tax rates can be accessed from the administrator-user’s web interface following the path User > Rates > Tax rates

The user must specify:

  • the scenario to which to apply the rate. Account should be taken of the fact that the tax rate could change from one year to the next;
  • the fiscal policy to which the rate being entered relates;
  • the tax to which the rate being entered relates;
  • the percentage value of the rate for the tax.

Utilities

Copy

Tax rates can be defined manually for every scenario or it is possible to copy the definition from one scenario to another and then make the necessary changes. This copy utility is accessible from the Copy to Original scenarios wizard in the tax rate management window.

After performing the copy, it is possible to make the necessary changes.

The user must select:

  • the origin original scenario (from which to copy the tax rates);
  • the target original scenario (to which the tax rates are to be copied);

The system updates the existing data and then inserts the tax rates missing from those existing in the original scenario from which to perform the copy.

Definition of sensitive accounts

Once the settings of a certain fiscal policy and the relative rates have been defined, it is necessary to set up the accounts that are sensitive to the tax. This is how to define all of the accounts that contribute to the definition of the tax base for the calculation of the taxes on an accrual basis at the end of the year. The cumulative sum, in December, of all accounts declared to be sensitive to the tax therefore defines the tax base itself.

For example, if two taxes have been defined for the Italian fiscal policy, such as IRES and IRAP, it is necessary to tell the system which planning accounts are sensitive to IRES rather than IRAP, and the relative percentages. It is possible to distribute the subjection of a deductible account up until the seventh forecasting year.

The setup for P&L accounts sensitive to a tax can be accessed from the administrator-user’s web interface by following the path Setup & Admin > Data Processing > Taxes > Direct taxes - Input accounts.

Navbar > Data Processing > Taxes > Direct taxes - Input accounts

The user must specify:

  • the fiscal policy;
  • the tax, or the tax for which it contributes to determining the tax base;
  • the P&L account which contributes to the definition of the tax base.

In order to correctly calculate the taxes, it is necessary to enter all planning P&L accounts; therefore, if an account is not sensitive to the tax, it is necessary to define the “% not subject to” information and leave the “% subject to” as zero.

  • the % not subject to, i.e. the percentage of the account that is not subject to the tax. ;
  • the % subject to current year, i.e. the percentage of the account that is subject to the tax for the current year.

This percentage can also have a value greater than 100 so that, for the calculation of IRES on staff costs, for example, the excluded IRAP portion will be considered as taxable.

If the user wants to distribute the subjection of a deductible account over several years (up until a maximum of seven), it is necessary to specify the % subject to year n+1, up to the % subject to year n+6

During the saving phase, the system checks that the sum of the following percentages is equal to 100

  • % not subject to
  • % subject to current year
  • % subject to year n+1
  • % subject to year n+2
  • ...
  • % subject to year n+6

If the sum of the percentages entered in the “% not subject to” and “% subject to current year” fields is greater than 100 but the value of the “% not subject to” information is less than or equal to 100, then that check is not performed.

It is also possible to limit the deductibility of an account based on an account defined as a “threshold account”. In this case, the maximum value subject to tax corresponds to the value obtained by applying the specific percentage (threshold %) to the threshold account.

One typical use of the threshold % are the maintenance costs related to assets that are only deductible up to a certain percentage of the value of the asset.