Tax

At the AA product level, tax can be defined either at Property Class Level or at Property Level. For example, a value INTEREST in the Property Class field means if a deposit product has one or more properties of Interest property class (deposit interest, commission), tax is calculated for each of these properties. The corresponding tax code has to be entered in the Tax Code field which should hold value from TAX table or a TAX.TYPE.CONDITION can be given.

If the user chooses to restrict tax to any of the properties of the product, this can be achieved by entering the Property in the Property field and corresponding values in Prop Tax Code, Prop Tax Cond, and Prop Tax Context fields. These fields can be populated with a valid record from the TAX or TAX.TYPE.CONDITION or AA.CONTEXT.TYPE tables respectively. In the case of Prop Tax Context, only context types which has System Defined Type field set to either Amount or Rate is allowed.

Only Interest, Charge and Periodic charge property classes can be defined. Only Interest, Charge, Periodic charge, Tax (Transaction Property Type) or Account Properties can be defined. It is mandatory to specify a value in:

• Tax Code or Tax Condition for the Property Class
• Prop Tax Code or Prop Tax Cond or Prop Tax Context for the Property

The Property Class field is an associated multi-valued field, which allows to define the property classes on which the tax can be collected. Any financial property classes can be defined in this field. Financial property classes include Interest, Charge, and Periodic charge.

The Tax Code field represents a reference on the TAX table, which indicates the rate used for computation of taxation for the associated Property Class. Either Tax Code or Tax Condition fields can be allowed.

The Tax Condition field accepts a valid TAX.TYPE.CONDITION value to calculate TAX for the associated Property class. Either Tax Code or Tax Condition fields can be allowed.

The Property field is an associated multi-valued field which defines the properties on which tax can be collected for the product. Any financial property can be defined in this field. Financial properties include interest, charge, periodic charge, tax (with Property Type Transaction) and account properties.

If defined, the associated Prop Tax Code, Prop Tax Cond, and Prop Tax Context fields take precedence over Tax Code or Tax Condition fields for the related Property Class.

The Property Tax Code field represents a reference on the TAX table, which indicates the rate to be used for computation of taxation for the associated Property. Either Prop Tax Code or Prop Tax Cond or Prop Tax Context fields can be allowed.

The Property Tax Condition field accepts a valid TAX.TYPE.CONDITION to calculate tax for the associated property. Either Prop Tax Code or Prop Tax Cond or Prop Tax Context fields is allowed.

The Property Tax Context field accepts a valid user defined context type (from the AA.CONTEXT.TYPE application) which has the System Defined Type field set to either Amount or Rate. When this field is set, the system uses the values defined in the associated multi value set of fields namely Tax Context, Context Tax Code and Context Tax Condition, to calculate tax for the associated tax or account property.

This field can be defined only when the corresponding property is a Tax property. This field is restricted for periodic charge, interest, account and charge properties.

The following three fields are used to provide the tax code or tax condition to be used by the Property Tax Context for calculating the tax amount.

• Tax Context – This field is used to define Prop Tax Context for which the tax code and tax condition has to be configured. This field accepts a valid user defined context type (from the AA.CONTEXT.TYPE application) which has the System Defined Type field set to either Amount or Rate. This field is mandatory when the Prop Tax Context is defined, and context type defined here must be one of the context types defined in the Prop Tax Context fields.
• Context Tax Code – This field is used to define the tax code for Prop Tax Context based on which the tax amount is calculated. This can be a valid record from the TAX application. This field is mandatory when Tax Context is defined. Either Context Tax Code or Context Tax Condition can be defined.
• Context Tax Condition - This field is used to define the tax condition for Prop Tax Context based on which the tax amount is calculated. This can be a valid record from the TAX.TYPE.CONDITION application. This field is mandatory when Tax Context is defined. Either Context Tax Code or Context Tax Condition can be defined.

The Net Tax field enables tax netting. It is used in connection with the Property Net Tax field to control netting of tax calculation.

In the Tax Property, the Net Tax field enables the functionality and in the Property Net Tax field user can define the Interest Properties that are included for netting. A minimum of two interest Properties are needed but there is no limitation to the maximum. A combination of multiple credit or debit interest Properties is allowed as well as only two credit or two debit Properties.

The Property Net Tax field is a multi-value field, which is used to define the Properties that needs to be selected for tax netting. At least two Properties must be selected. Used in connection with the Net Tax field.

Bill amounts for the properties selected here is netted before tax calculation is applied. Netting only happens for bills having matching payment dates, payment methods (PAY or DUE or CAPITALISE) as well as matching defer dates.

Interest Properties with negative rates are not netted.

• At arrangement level, it is possible to remove the values of the TAX or TAX.TYPE.CONDITION defaulted from the product level allowing for zero or no tax calculation.
• On reaching the interest schedule AA.BILL.DETAILS holds the information related to interest paid to the customer and the tax, which is charged on the interest portion.
• AA.INTEREST.ACCRUALS holds the interest accruals for the period on which the tax gets calculated. The entry for the tax is debited from the customer’s account and then credited to the category given in AC.ALLOCATION.RULE.

For annuity payment calculation, tax can be both included and excluded during calculation. The calculation is based on the settings on the Tax Inclusive field in Payment Type. If set to Yes, then the annuity is calculated including the principal, interest and the tax.

This Property Payment Method attribute is used for defining whether the tax has to be raised as a due bill or capitalised to the account balance. This is a mandatory field when the Tax property is of type 'Transaction'. When a tax is based on bill amount, the payment method of the generated bill takes precedence and the value in this field is ignored.

Tax condition is used to group customers based on their demographics. The Tax Group for the customer is updated in the customer record. The APPL.GEN.CONDITION application allows account level grouping based on Contract attributes. The AA application supports account level grouping based on attributes defined in the AA.ARRANGEMENT table.

Tax can be calculated and processed using either Net or Gross method. The tax calculation method is defined using the system defined context type TAX.CALC.METHOD. By default, the tax calculation method used is Net method.

This is applicable only for the activity classes which are of Type Gross.tax or Gross.Net.Tax. The tax amount for all other activity classes is calculated using the default method Net only.

When more than one transaction tax property (within a container tax) is defined to calculate tax for the same activity (Trans Activity) and the tax calculation method is set as Gross, it is recommended to use the same source type (Trans Source Type) for the activity in all of these transaction tax properties. This is because providing different source types can lead to different source amounts being used for tax calculation and this can result in an incorrect tax calculation when the method is set as Gross.

• All other Temenos Transact Modules besides AA,
  • Although the solution is generic, scope of this functionality is confined to AA. Other modules may need to be enhanced to provide relevant information to the Tax Engine in order for the Tax Engine to calculate the split.
• Back dated Tax Rate Changes
  • These do not trigger any Reverse and Replay on the arrangements and therefore it does not impact the Tax, which is already calculated.
• Forward dated tax rate changes to be reflected in Schedule Projection
• Tax on Charges
• Tax Rate Changes as a result of,
  • Change of Ownership of the Arrangement
  • Change of Product of the Arrangement
  • Change of applicable Tax bucket of the Owner of the Customer
  • Effectively these may result in the Tax Code applicable for the Arrangement itself being changed during the Interest Period – but they will not have any impact. The system will only determine the Tax Code applicable as on the Interest Payment Date and will look for any Rate Changes only under that Tax Code.
• Proportional Calculation on Interest calculated based on Compounding Interest instead of Simple Interest.
  • This is supported only if the Tax Rate change happened mid-period. Then the base amount is calculated on a pro-rated basis based on the number of days. There will be minor differences because this Pro-rata is linear and not compounded.