Invoicing is made with reference to the intercompany sales order 16152 illustrated above. Figure 1: Overview of intercompany cost entries using the business breakdown example If you incur costs on behalf of another company, you can reload them. It can be an external company – for example, a customer or employee, or a company within your group. The collection of administrative fees is perhaps the clearest example of centralized costs charged to local authorities in Rule 2. Issue detailed intercompany invoices with documents describing the fees (no one-liners without explanation). When a Japanese tax advisor files the corporate income tax return and financial statements of a Japanese subsidiary or office, he must include (and must certainly have verified) invoices and details supporting those invoices for all intercompany management fees and top-ups. Indeed, one of the first tests that the algorithms of the National Tax Agency apply to the tax returns of a Japanese subsidiary in the search for possible tax evasion is to deduct the value of intercompany management fees and intercompany supplements from the net income of the Japanese subsidiary or office to determine whether it would have been profitable (or more profitable) without them. This is especially true if the Japanese company generates high sales revenue. A simple one-line invoice stating “Total intercompany management fees and top-ups for October 2020, JPY 1,920,000” is not sufficient to support the details; in fact, it could again trigger a revision of the National Tax Agency`s manual. An invoice for intercompany management fees should indicate what the management services were, who provided them and at what hourly rate.
An intercompany top-up invoice should indicate which expenses have been recharged, with receipts for each expense (as planned for expenses incurred directly by the Japanese subsidiary or office) and what administrative surcharges or costs are associated with those expenses charged. Why do such detailed information need to be attached to the financial statements and tax returns submitted? According to the National Tax Administration, intra-group administrative costs and fees for administrative services that have never been provided or for expenses that have never been incurred are one of the most common ways in which foreign companies attempt to manipulate the tax liability of their Japanese subsidiary or office. For financial reporting purposes, revenue recognition principles require that costs and revenues be reported gross in your income statement. This means that you reserve the top-up as part of your income and your costs as part of your overhead costs in the income statement – instead of paying the costs with the top-up in a single expense or revenue account, which shows sales and gross costs. The tax – in this case, the sales tax – is only relevant to its supplier and expense item in the supplier`s billing company. The display of intra-group CO is not relevant for tax purposes. In Figure 14, you say, “There is only one element that is assigned an intra-group billing profile.” The assigned customer “10401010” represents the recipient company. For Intercompany, there is a separate sales order document type SO03 and a separate item type PS04.
Only one item is required to which an intra-group time and material billing profile is assigned. Note: You can also publish intercompany issues by using the Publish General Journal Entries app. However, it is not necessary for companies to belong to the same tax group and intercompany entries are not selected in the periodic invoicing. As noted in the S/4HANA cloud community, the derivation of the billed hardware is independent of the hardware used in the intercompany sales order. The sales order is only used to trigger the invoice and set the recipient company. As with T&M customer billing, the invoiced hardware is derived from G/L accounts for expenses. This feature is independent of the range element. The content of intercompany clearing accounts and intercompany invoicing is enabled with project scenarios 16T and 4AU. If you are using another intercompany scenario (for example. B approval scenario 1M1), you must use CE2005 to ensure that one of them is enabled. Article 1. Issue monthly intercompany invoices (not a single aggregated line at the end of the year).
It is highly unlikely that the national tax administration will undoubtedly accept a “last day of the financial year” intercompany invoice in the financial statements of a Japanese subsidiary or office with a one-line fee for “intercompany management fees and supplements”. This is especially a problem if the invoice almost cancels the taxable income of the Japanese company (minimum profit), accurately cancels (break-even point) or more than cancels (loss). There are Japanese accountants (会計士) and tax advisors (税理士) who take a “I`m not the client`s representative manager, so I just let them dig into an audit hole” view and allow such an invoice in the final financial statements and tax returns. Problems can then arise because part of a standard Japanese business tax return is a simple one-line summary of monthly expenses, in which an increase in expenses during 12 months can cause the National Tax Agency`s automated system to report the tax return for manual review. Three months later, when the National Tax Agency calls to start an audit, the same tax advisor will be happy to tell you that their fee for participating in tax audits is JPY 120,000 per day (or much more) plus excise tax. To avoid unnecessary review, intercompany management fees and charges should be billed and billed monthly to the Japanese subsidiary or office. This is not tax avoidance advice, because if your company charges its subsidiary or Japanese office excessive intercompany management fees and fees, the Sophisticated Algorithms of the National Tax Agency will always detect a potential problem and trigger a manual review, regardless of the distribution of costs throughout the fiscal year. If such an invoice for “last day of the year” intercompany fees is subject to reasonable arm`s length fee calculations, the national tax authority will of course accept it, although an auditor can always call to validate the fees. For management accounting purposes – there is no reason why you should not summarize reloadable and additional costs in the income statement – the balance should be reduced to zero, confirming that you have reloaded all costs you have incurred on behalf of others. Present an overview of the process in Figure 1.
A complete scenario for end-to-end intercompany CO allocation consists of two parts: business-to-business cost accounting and periodic business-to-business billing. First, let`s take a look at the distribution of costs between companies. Compared to a scenario in which costs are first collected in the supplier company and then billed periodically to the customer, direct business-to-business secondment has several advantages from a cost analysis perspective: Note: The scope item 3ZB Cost accounting between affiliates is not part of the processes mentioned here. In this process, there is no inter-company CO display. The intercompany transaction is an intercompany settlement – costs collected in the code of the sending company. (1) Periodic billing does not have an account assignment. There is no information about the purpose associated with the account in the recipient company. Settlement elements are highly aggregated.
There is no link between intercompany income items and a cost object. For reporting purposes, we also provide the personnel number and WBS element on the P&L element of the supplier company. The WBS element is only mapped (not the real account assignment), but is available for reporting. . . .