|Oracle E-Business Tax Implementation Guide|
Part Number E13629-03
E-Business Tax provides a single point solution for managing your transaction-based tax requirements. E-Business Tax uniformly delivers tax services to all E-Business Suite business flows through one application interface. As a global system architecture, E-Business Tax is configurable and scalable for adding and maintaining country-specific tax content.
With E-Business Tax, you can model your tax requirements according to the needs of local and international tax requirements. This includes:
Both simple and complex country-specific tax legislation.
Local compliance requirements for recording and reporting.
Continual changes to tax legislation, such as new taxes, local law changes, special tax rates, and special exceptions for products and customers.
You can manage the entire configuration and maintenance of tax content from the one E-Business Tax application. This ensures a uniform tax setup across applications, with a centrally managed system of automated tax services and control over manual intervention and update.
E-Business Tax consists of a tax knowledge base, a variety of tax services that respond to specific tax events, and a set of repositories for tax content and tax recording.
This table lists the major components of E-Business Tax.
|Tax Content Services||This component addresses the creation, maintenance, and management of tax content.|
|Tax Content Repository||This component contains master and reference setup data. Data created via Tax Content Services is stored in the Tax Content Repository.|
|Tax Service Request Manager||This component manages the access to all tax data and services, including:
|Tax Determination Services||This component consists of two subcomponents:
|Tax Record Repository||This component contains the key attributes necessary to record a tax event. A single tax transaction can include over 600 key attributes.|
|Tax Administration Services||This component manages the accounting for all tax transactions.|
|Tax Reporting Ledger||This component manages access to the Tax Content and Tax Record Repositories for tax reporting purposes.|
Tax Content Services and Tax Determination Services are the key components in the process of determining and calculating taxes on transactions. The Tax Content Services provide the setup data that is used as the basis for tax determination. The Tax Determination Services determine the tax or taxes on the transaction line according to the tax setup details and transaction information.
Tax Content Services store and maintain the master and reference data that is needed to support the other components in E-Business Tax. You use the E-Business Tax application to model the details of the tax setup for all of your company tax requirements.
Tax Content Services include these subcomponents:
Basic tax configuration
Party tax profiles
Exemptions and exceptions
Country default controls
Basic Tax Configuration - The basic tax configuration includes the regime-to-rate flow for each tax regime:
Tax regime - The set of laws and regulations that determines the treatment of one or more taxes.
Tax - A classification of a charge imposed by a government through a fiscal or tax authority.
Tax status - The taxable nature of a product in the context of a transaction for a tax.
Tax rates - The rates specified for a tax status for a given time period. The tax rate is expressed as a percentage, a value per unit quantity, or a fixed sum per transaction.
Tax recovery rates - The full or partial reclaim of taxes paid on the purchase or movement of a product.
Tax Jurisdictions - This subcomponent provides the basis for defining tax jurisdictions. A tax jurisdiction is the geographic area where a tax is levied by a specific tax authority.
Party Tax Profiles - This subcomponent provides the basis for defining tax profiles for the parties involved in tax transactions that are set up through Legal Entity and Trading Community Architecture. Party tax profiles contain all of the tax information for each party, including tax registrations and party fiscal classifications.
Fiscal Classifications - This subcomponent provides for the definition of tax fiscal classifications. A fiscal classification is a way that a tax authority classifies each part of a transaction:
Parties and party sites involved in the transaction.
Products involved in the transaction.
Nature of the transaction.
Documents associated with the transaction.
E-Business Tax uses fiscal classifications to set up tax rules that provide one or more of these qualifications:
When taxes apply.
What the taxable basis is.
What tax exemptions and tax exceptions apply.
What the tax rate and tax rate adjustments are.
What proportion of the tax is recoverable.
Exemptions and Exceptions - Tax exemptions let you define a party/party site or product as partially or fully exempt from a tax. The details of tax exemptions are normally supported by tax exemption certificates from the tax authority. Tax exceptions let you define a special rate for specific products. This lets you define general rules for a wide classification of products, while applying a separate rule to a subset of products.
Country Default Controls - This subcomponent lets you specify certain defaults by country. These defaults are used during transaction entry.
Every tax within a tax regime has its own regulations that determine when the tax is applicable, that is, when the tax needs to be charged or paid. For each situation where the tax is applicable, further regulations may apply that further clarify tax applicability, such as the place of supply and tax jurisdiction, the tax registration party type, or the tax status and tax rate.
In some cases, different rule may apply to the calculation of the tax itself. The taxable basis on which the tax rate is calculated may differ from the transaction line amount. This requires the use of a special taxable basis formula to make this calculation. In more rare cases, the tax amount may result not by applying a tax rate to the taxable basis, but by using a different tax calculation formula entirely.
So depending on the complexity of the tax regulations that apply to a given tax, one or more decisions, or determinations, are involved in arriving at the final tax amount on a tax line. Each of these determinations is defined in E-Business Tax as a separate rule process. The aim of tax determination is to arrive at a process result for each of the rule processes that apply to a transaction. This is achieved by defining tax rules for each tax within a tax regime, according to the requirements of the tax regulations.
Tax Determination Services automate the determination of taxes on a transaction. Tax determination is the central component of the E-Business Tax architecture. This component provides the flexibility to define the rules that you need for each tax determination process.
Tax Determination Services is comprised of two main sub-components:
Tax Rules Management - A rules-based model that lets you define tax rules that reflect the tax regulations of each tax authority.
Tax Determination Management - The component responsible for calculating transaction taxes based on transaction details, the tax rules, and the tax configuration setup.
You use the tax rule engine to create rules that reflect the regulations of a tax authority for the taxes in a tax regime. As tax authority regulations change over time, you can update both the rule values and the rule processes themselves.
The components of the tax rule engine are:
Tax determining factor sets
Tax determining factors
Tax condition sets
The components work together in this way:
You define a tax rule for a combination of a tax and a rule process. Each tax rule applies to one tax within a tax regime and belonging to one configuration owner.
A tax rule makes use of a tax determining factor set. The determining factor set contains the list of determining factors that you draw from to create the tax rule.
The tax rule is composed of tax condition sets. You create tax condition sets for the tax rule, using the determining factors of the determining factor set.
Each tax condition set contains a determining factor, an operator, and a value. Each tax condition set belonging to the tax rule points to a result that is relevant to the rule process.
Each tax condition set within a tax rule is associated with a result and assigned a priority in which the rule engine considers the tax condition.
Each tax rule within a rule process is assigned a priority in which the rule engine considers the rule.
At transaction time, the rule engine examines each tax condition until it finds a result that makes the rule true and applicable to the transaction. If no tax condition is found, then the rule does not apply to the transaction. The rule engine looks to the tax rule with the next highest priority and repeats the process until a tax rule is found.
Tax Determination Management is responsible for calculating the tax on transactions. This includes determining the taxes that apply to the transaction, the calculation of the taxes, and the results of the calculation.
Tax Determination Management is organized into a hierarchy of rule processes. For a given tax, the rule engine looks at the tax rules defined for each rule process and determines which rule is true for each process. Each of these stages in the process clarifies aspects of the tax or taxes that apply to the transaction. After examining and retrieving results from each process, the rule engine calculates the tax or taxes.
The rule processes in Tax Determination Management are represented by rule types. You define one or more tax rules for each rule type that you need, using the available rule flows (Guided Entry or Expert Entry).
These are the rule processes and the order in which the rule engine examines them during tax determination:
Determine Place of Supply - Determines the location where a transaction is considered to have taken place for a specific tax.
Determine Tax Applicability - Determines the taxes that apply to a given transaction.
Determine Tax Registration - Determines the tax registration status for the applicable taxes of the parties involved in the transaction.
Determine Tax Status - Determines the tax status of each applicable tax to use on the transaction.
Determine Tax Rate - Determines the tax rate for each applicable tax status to use on the transaction.
Determine Taxable Basis - Determines the amount to use upon which to calculate the tax rate.
Calculate Tax Amounts - Calculates the tax and displays the calculation results.
Determine Recovery Rate - Determines the recovery rate to apply to each applicable tax on the transaction.
Depending on the complexity of the tax rules in a tax regime, you may or may not define a tax rule for each of the above processes. If there is no complex rule associated with any of the above processes, then the default values, as specified during setup, are used during the tax determination process.
Tax Rules in Oracle E-Business Tax, Oracle E-Business Tax User Guide
This section provides a few ideas for analyzing your tax requirements and using E-Business Tax and other E-Business Suite applications to implement a solution.
An analysis of your tax requirements begins with an analysis of yourself. So the first question to ask is, "Who am I?"
You first need to answer questions about yourself and your relationship to the legal and regulatory agencies that enable you to operate in one or more countries.
Identify the countries in which you operate. You will need to identify the country where you are legally registered, and the countries where you have subsidiary companies that are legally registered or have a legal presence.
Identify your first party legal entities in each country that you are legally registered. Use the Legal Entity Configurator to capture information about your legal entities and legal registrations.
You also need to identify your branches, divisions, and locations in the various countries where you do business that need to be registered for tax. This is typically with the local regulatory bodies. Such subdivisions of a legal entity are called legal establishments.
Next consider the types of operations and businesses that you are engaged in, in the countries where you have legal entities or establishments. The type of industries that you work under (mining, telecommunications, pharmaceuticals), the kind of operations that you engage in (trading, manufacturing, services), and the scale of your operations (your turnover, company size, growth expectations) may all impact your taxability.
You can use the classifications feature in Oracle Applications to categorize or classify your first parties and establishments under various classification schemes. For example, you can create a classification scheme called "Operation Type", and define values such as "Trading", "Manufacturing", and "Services", and associate the appropriate value for each of your establishments. You can define another classification scheme called "Size of Operations", and define values such as "Large", "Medium", "Small Scale Industry", and so on.
The businesses or operations that you have might determine how the tax regulatory environment impacts you. Manufacturing operations, for example, have different impacts than trading operations.
In analyzing your operations, you can ask three questions that correspond to the three main classifications of a transaction:
What do you do? (Transaction)
What products do you buy or sell? (Product)
Who are your customers and suppliers? (Party)
Identify and classify the transactions you enter into. For example, do you primarily sell physical goods? If you do, do you manufacture them, or do you buy and sell them without additional manufacturing? Do you sell these goods in another state or province? Do you export these goods? Do you provide or use services? And are these service local only, or are they also overseas?
Use the Trading Community Architecture (TCA) and E-Business Tax to classify and categorize your transactions in a common manner across your organization. You can classify your transactions using a five-level classification scheme that you can choose from on a transaction.
This table illustrates how you can categorize transactions, using a three-level classification structure:
The top-level values of the structure ("Purchase" and "Sale") are seeded and correspond to the high-level classification of transactions (also called "tax event classes"). You can define up to five sub-levels of classifications under the top-level.
You can define rules for a transaction business category at any level that you need. For example, in some cases it might be sufficient to distinguish between an export sale and a domestic sale. In other cases, you may need to distinguish between an inter- and an intra-state sale.
The products that you sell may impact the taxes that you are subject to. For example, you must register for (and therefore collect and remit) service taxes only if you provide taxable services. If you manufacture goods for export, you may not be subject to taxes on the purchases that go into the manufacture of such goods.
Use the TCA and E-Business Tax to classify both finished goods and raw materials and items used in the manufacture of your finished goods. You can reuse the classifications associated with Inventory items (using Oracle Inventory Item Category) for tax purposes as well. You can also create new item category sets within E-Business Tax specifically for tax.
You can structure your inventory item classifications into a five-level classification scheme, which you can then use to define rules.
This table illustrates an extract of product classifications that are used in the United Kingdom:
|055||AUTOMOTIVE ACCESSORIES FOR AUTOMOBILES, BUSES, TRUCKS|
|055||04||Air Bags, Automotive|
|055||05||Anti-theft and Security Devices, Automotive|
|055||06||Automobile Top Carriers|
|. . .|
|070||AUTOMOTIVE VEHICLES AND RELATED TRANSPORTATION EQUIPMENT|
|070||03||Ambulances and Rescue Vehicles|
|070||06||Automobiles and Station Wagons|
|. . .|
You can implement the above structure in Oracle Inventory using item categories. Create a two-segment structure called "Main Category" and "Subcategory." For the Main Category segment, define 055 and 070 as the list of choices; for the using the above example, you can classify an item by associating the identifier 055.04 with it to indicate that it belongs to the "Air Bags, Automotive" category. If an item is associated with a category 055, it means that it belongs to the broader category of "Automotive Accessories For Automobiles, Buses, Trucks." You can then use E-Business Tax to create two product fiscal classification types, one to correspond to the Main Category and the other the Subcategory. You can then define tax rules using one or both of these classifications.
The types of customers and suppliers that you do business with can impact your tax requirements, for example, the taxes that you are subject to, or the tax status or tax rate that applies.
For example, consider a company in the United Kingdom that supplies physical goods to another country that is also a member state of the European Union. The transaction rate for UK VAT is either the standard VAT rate or a zero rate, depending on whether the customer is registered for VAT in the country to which the supply is made. You can capture this information, for example, by classifying your customer as "Registered in another EU country". You can use this classification in your tax rules to derive the appropriate status for this customer (and other customers similarly classified).
Another example is a company in Argentina that sells to customers that are not registered for VAT in Argentina. In this case, the company needs to charge these customers another tax, called Additional VAT. Again, you can classify this customer as "Not Registered for VAT" and use this in your tax rules to charge the Additional VAT.
In addition to classifying your customers and suppliers for tax applicability, you can also record the tax registrations that your customers and suppliers hold with one or more tax authorities. You can also record the details of each registration, including the tax registration number, and the registration type and status.
For each of the countries in which you operate, you will need to analyze your tax environment.
Each country can have one or more systems of taxation. Each system deals with the taxation of specific aspects of a business transaction. For example, a Sales taxation system deals with the rules and regulations concerning how a sale should be taxed. Similarly, a Value Added Tax (VAT) taxation system deals with how the value addition in a manufacturing and/or sales lifecycle needs to be taxed.
A single system of taxation is called a tax regime. A tax regime is implemented by one or more distinct charges. Each such specific charge is called a tax. Therefore, a tax regime may include one tax only or several different taxes.
The imposition of a tax is limited typically by a geographical boundary. In most cases, this geographical boundary identifies a contiguous political or administrative area, such as a city or a county. In some cases, a tax may be imposed or may vary according to a non-political demarcation, such as a free-trade zone. The incidence of any tax on a specific geographical area is called a tax jurisdiction.
You can create a tax jurisdiction for a country, a state within a country, a county within a state, or a city within a county. In certain cases, a tax jurisdiction may need to encompass, for example, two or more cities, or an entire county plus one city in a neighboring county.
See: Country Setup Examples for detailed examples of setting up tax regimes and taxes in E-Business Tax.
Copyright © 2006, 2010, Oracle and/or its affiliates. All rights reserved.