The E-Business Tax tax determination process uses your tax configuration setup and the details on the transaction to determine:
Which taxes apply to the transaction.
How to calculate the tax amount for each tax that applies to the transaction.
E-Business Tax tax rules let you create a tax determination model to reflect the tax regulations of different tax regimes and the tax requirements of your business. You can create a simple tax model that makes use of default values without extensive processing, or a complex tax model that considers each tax requirement related to a transaction before making the final calculation.
During execution of the tax determination process, E-Business Tax evaluates, in order of priority, the tax rules that have defined against the tax configuration setup and the details on the transaction. If the first rule is successfully evaluated, the result associated with the rule is used. If not, the next rule is evaluated until either a successful evaluation or default value is found.
The E-Business Tax tax determination process is organized into rule types. Each rule type identifies a particular step in the determination and calculation of taxes on transactions.
The tax line determination process uses the information of the transaction header and transaction line to determine the tax lines.
The rule types and related processes used for tax line determination and tax calculation are:
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 party whose tax registration status is considered for an applicable tax on the transaction.
Determine Tax Status - Determines the tax status of each applicable tax on the transaction.
Determine Tax Rate - Determines the tax rate for each applicable tax on the transaction.
Determine Taxable Basis - Determines the amount upon which to apply the tax rate.
Calculate Tax Amounts - Calculates the tax amount for each applicable tax on the transaction.
See: Tax Determination Processing for an explanation and description of the tax determination process.
The rule type used for tax recovery determination is:
Determine Recovery Rate - Determines the recovery rate to apply to each recovery type for each applicable tax on the transaction.
See: Tax Recovery Processing for a description of each step in the tax recovery process.
The single rule type used for tax determination is:
Direct Tax Rate Determination - This is a special tax rule type that lets you specify the results of tax applicability, tax status, and tax rate for a given tax. You use this rule type for specific tax determination requirements.
See: Using Direct Tax Rate Determination for a description of the direct tax rate determination process.
Depending on the requirements of a given tax, you can either create a tax rule for each rule type or use a default value.
E-Business Tax provides two entry flows for setting up your tax rules:
Guided Tax Rule Entry - The guided tax rule entry provides a five-step flow that lets you build determining factors and tax conditions as you create the tax rule. See: Setting Up Tax Rules: Guided Rule Entry for more information.
Expert Tax Rule Entry - The expert tax rule entry provides a concise, three-step entry flow that makes use of determining factor sets and tax condition sets that you have previously defined. See: Setting Up Tax Rules: Expert Rule Entry for more information.
First determine the nature of each tax that applies to your business and the processes involved in arriving at the tax amount. Examine the regulations that govern the determination of the tax amount for each tax, from identifying the situations in which a tax applies to the determination of the tax amount. Then organize the regulations around one or more of the rule types for each tax. Whenever the regulations indicate that more than one result is possible for a given rule type, then you need to define rules under that rule type.
The complexity of tax rule setup falls into three general categories:
No tax rules required. The tax authority levies tax on all sales and purchase transactions at the same rate. Neither tax applicability nor the tax rates and recovery rates vary by: the parties to the transaction; the products or services included in the transaction; the business processes involved in the transaction.
In such cases, E-Business Tax can use the default tax status, tax rate, and tax recovery rate defined for the tax.
Simple tax rule regimes. The tax authority levies tax on your transactions at the same rate, with a simple set of identifiable exceptions. The exceptions either apply to one part of the transaction only--such as to certain parties--or to a combination of parties, products, and transaction processes that you can summarize in a simple way.
In such cases, use a simple set of tax rules, for example, to identify place of supply and tax registration, and use default values for other processes.
Complex tax regimes. Tax regimes in certain countries require a complex logic to determine the applicable taxes and rates on a transaction. Both tax applicability and tax rates can vary, for example, by place of origin and place of destination, party registration, status, service, or a combination of factors. In some cases, the taxable amount of one tax may depend upon the amount of another tax on the same transaction. And in rare cases, the tax amount itself may depend on the tax amount of another tax.
For all of these and similar situations, you set up tax rules to define the logic necessary to identify each step of the tax determination process.
See: Setting Up Country-Specific Taxes, Oracle E-Business Tax Implementation Guide for examples of tax rule setups in different tax regimes.
E-Business Tax integrates with the transactions of other E-Business Suite applications to manage all tax-related processes. The transactions pass information about the places, parties, products, and transaction processes to the E-Business Tax tax determination service. The tax determination service performs a series of process steps, according to your tax setup, to identify both the taxes that apply and, for each tax, the tax jurisdiction, tax status, tax rate, taxable amount and tax amount. The process checklist below describes the details of each process.
This section describes the sequence of tax determination processes that E-Business Tax uses to calculate taxes on transactions. Each step of the process requires the completion of a certain number of setup tasks. The number and complexity of your setups will depend upon the requirements of the tax authorities where you do business.
Use this checklist to review the details of each process and to identify the setups that you need to complete for each step in the tax determination and tax calculation process.
See: Using Direct Tax Rate Determination for a discussion of direct tax rate determination.
| Order | Process Name | Activities Included | Components Used and Corresponding Rule Type (if applicable) |
|---|---|---|---|
| 1 | Determine Applicable Tax Regimes and Candidate Taxes |
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| 2 | Determine Place of Supply and Tax Jurisdiction |
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| 3 | Determine Tax Applicability |
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| 4 | Determine Tax Registration |
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| 5 | Determine Tax Status |
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| 6 | Determine Tax Rate |
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| 7 | Determine Taxable Basis |
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| 8 | Calculate Taxes |
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This process first identifies the first party of the transaction and the countries associated with the transaction. For each country identified, the process selects the tax regimes associated with the first party and defined for the country as candidate tax regimes. The process then selects the taxes defined for each candidate tax regime as candidate taxes.
The result of the process is a list of taxes that are eligible for consideration on the transaction.
Determine the first party of the transaction. The first party is either the legal entity or operating unit:
If the party tax profile option Use Subscription of the Legal Entity is enabled for the operating unit, then use the legal entity of the transaction as the first party.
If the option is not enabled, then use the operating unit as the first party.
E-Business Tax uses the first party legal entity or operating unit to:
Identify the tax regimes to consider for the transaction.
Identify other configuration options, if defined, to use in processing taxes for the transaction.
See: Setting Up an Operating Unit Tax Profile for more information.
Determine the regime determination set:
If the first party has a configuration owner tax option setup for the event class to which the transaction belongs, use the regime determination set assigned to this setup.
If not, use the seeded regime determination set Determine Applicable Regimes (TAXREGIME) or, for migrated data, Standard Tax Classification Code (STCC).
If the regime determination set is STCC, then E-Business Tax uses a different process to determine applicable taxes. See: Tax Processing Using Standard Tax Classification Codes for more information.
Determine the applicable tax regimes:
Identify the locations that correspond to each location type on the regime determination set.
Identify the country associated with each location.
Identify all of the tax regimes associated with the country or countries to which the first party is subject. The first party is subject to the tax regimes that you defined under configuration options.
See: Setting Up Configuration Options for more information.
Derive the list of candidate taxes based on the tax regimes and the configuration option setting of the first party:
Common Configuration - Consider all taxes with the configuration owner of Global Configuration Owner.
Party-Specific Configuration - Consider all taxes with the first party as configuration owner.
Common Configuration with Party Overrides - Consider all taxes with the first party and the Global Configuration Owner as configuration owner. If a tax is defined by both the first party and the Global Configuration Owner, then E-Business Tax only uses the tax defined by the first party.
This process identifies the applicable place of supply and associated tax jurisdiction for each candidate tax. The place of supply, or situs in the United States, is the location type where the supply of goods or services is deemed to have taken place for a specific tax. If E-Business Tax cannot find a tax jurisdiction for the location that corresponds to the place of supply location type, then the tax does not apply and it is removed as a candidate tax for the transaction.
For example, the place of supply for UK VAT on goods is generally the ship from country. Thus, the place of supply of a sale or purchase within the UK is the UK itself. However, if a UK legal entity supplies goods from its French warehouse to a German customer, then the place of supply will not find a jurisdiction for UK VAT in France, and therefore UK VAT does not apply.
The result of the process is a list of applicable taxes per transaction line.
Consider the Determine Place of Supply tax rule of the first candidate tax.
Use the location type derived from the tax rule for the tax. The possible location types are:
Bill From
Bill To
Point of Acceptance (Receivables transactions only)
Point of Origin (Receivables transactions only)
Point of Payment
Ship From
Ship To
Use Bill To as Ship To, if Ship To is not found
Identify the location on the transaction that corresponds to the location type derived from step 2.
If no location applies, then use the rule default location type.
Identify the tax jurisdiction of the candidate tax to which the location identified in step 3 belongs. If the location does not belong to any tax jurisdiction of this tax, then the tax does not apply to the transaction.
See: Setting Up Tax Jurisdictions for more information.
Repeat steps 1 to 4 for each candidate tax.
Create refined list of candidate taxes.
This process determines the tax applicability of each candidate tax derived from the Determine Place of Supply and Tax Jurisdiction process, and eliminates taxes that are found to be not applicable. For example, a given tax may not apply to a domestic supply of goods to an exempt customer.
The process first attempts to derive the applicability of each candidate tax based on the rule conditions of the Determine Tax Applicability rules for the tax. If no rule applies, the process uses the default value of Applicable or Not Applicable that was assigned to the rule type for the tax. If the tax does not apply, it is removed from the list of candidate taxes.
The result of the process is the final tax or list of taxes that apply to the transaction.
Consider the Determine Tax Applicability tax rules of the first candidate tax in order of rule priority.
If the default value is Applicable, then the candidate tax is considered applicable unless an applicability rule with a value of Not Applicable evaluates successfully. If the default value is Not Applicable, then the candidate tax is considered applicable only if an applicability rule with a value of Applicable evaluates successfully.
Either use the value derived from the tax rule, or the rule type default value.
Repeat steps 1 and 2 for each candidate tax.
Identify the final tax or list of taxes by eliminating the taxes that have an applicability value of Not Applicable.
This process determines the party whose tax registration is used for each tax on the transaction, and, if available, derives the tax registration number.
Consider the Determine Tax Registration tax rule of the first tax.
Either use the party registration derived from the tax rule, or the default party registration, if there is one. A rule identifies one of these parties from which to derive the tax registration:
Bill From Party
Bill To Party
Ship From Party
Ship To Party
Use Bill To, if Ship To is not available
Repeat steps 1 and 2 for each tax, if applicable.
Identify the tax registration or registrations and stamp the transaction with the tax registration numbers.
E-Business Tax stamps the tax registration number of the first party legal establishment, and the tax registration number of the party or party site derived from the Determine Tax Registration tax rule.
E-Business Tax also considers these details of the derived tax registration for each tax:
Tax inclusive handling.
Self-assessment/reverse charge setting.
Rounding rule.
See: Setting Up a Tax Registration for more information.
This process determines the tax status of each applicable tax on the transaction.
If the process cannot find a tax status for an applicable tax, then E-Business raises an error.
Consider the Determine Tax Status tax rule of the first tax.
Use the tax status derived from the first tax rule, if the rule conditions are satisfied.
If the rule conditions are not satisfied, then consider each rule in turn until the rule conditions are satisfied.
If no rule applies, then use the default tax status of the tax.
See: Setting Up Tax Statuses for more information.
Repeat steps 1 to 3 for each tax, if applicable.
Identify the tax status or statuses.
This process determines the tax rate for each tax and tax status derived from the previous process. If applicable, the tax rate is then modified by any exception rate and/or tax exemption that applies. The result of this process is a tax rate for each applicable tax. The rate or rates are applied to the taxable basis in the Calculate Taxes process.
If the process cannot find a tax rate for an applicable tax, then E-Business raises an error.
Consider the Determine Tax Rate tax rule of the first tax status.
Use the tax rate derived from the first tax rule, if the rule conditions are satisfied.
If the rule conditions are not satisfied, then consider each rule in turn until the rule conditions are satisfied.
If the rule conditions do not apply, then use the default tax rate of the tax status.
See: Setting Up Tax Rates for more information.
Repeat steps 1 to 3 for each tax status, if applicable.
Identify the tax rate to use for each tax.
For each tax, identify the tax rate percentage to apply to the transaction:
Use the tax jurisdiction tax rate for the tax rate code derived from step 5, if one exists.
If there is no tax rate for the jurisdiction, use the tax rate of the tax with no jurisdiction specified.
See: Setting Up Tax Jurisdictions for more information.
For each tax, if a product tax exception applies to the transaction:
Look for an exception rate specific to the inventory item or fiscal classification of the item.
If an exception rate is found, then the rate derived in step 6 is either replaced or modified, depending on the type of exception.
See: Setting Up Tax Exceptions for more information.
For each tax, if a customer tax exemption applies to an Order-to-Cash transaction, then update the tax rate.
See: Managing Tax Exemptions for information about the processing of customer tax exemptions.
Identify the tax rate percentage or percentages to use on the transaction.
This process determines the taxable base amount or quantity for each tax. The tax is typically determined by applying the tax rate to the taxable base amount. In some cases, the taxable basis either can include another tax or is based on the tax amount of another tax. E-Business lets you define taxable basis formulas to manage these requirements. See: Setting Up Tax Formulas for more information.
The result of this process is the taxable basis on which the tax rate for each tax is applied.
If the process cannot find a taxable basis formula for an applicable tax, then E-Business raises an error.
Consider the Determine Taxable Basis tax rule.
Use the taxable basis formula derived from the first tax rule, if the rule conditions are satisfied.
If the rule conditions are not satisfied, then consider each rule in turn until the rule conditions are satisfied.
If the rule conditions do not apply, then use the default taxable basis tax formula.
Determine the taxable basis type and compounding details based on the taxable basis tax formula.
Consider the tax inclusive settings of the applicable taxes to display the taxable basis amount and calculated tax amount for each tax.
If specified, E-Business Tax uses the party tax profile of each tax registration party to determine the nature of tax inclusive handling.
See: Setting Up a Tax Registration for more information.
This process calculates the tax amount on the transaction. In most cases, the tax amount is computed by applying the derived tax rate to the derived taxable basis. In some exceptional cases, the tax amount is altered by adding or subtracting another tax. E-Business lets you define tax calculation formulas to manage these requirements. See: Setting Up Tax Formulas for more information.
The result of this process is the tax amount for each tax.
If the process cannot find a tax calculation formula for an applicable tax, then E-Business raises an error.
Consider the Calculate Taxes tax rule.
Use the tax calculation tax formula derived from the tax rule, if there is one.
If no rule is defined, or the rule conditions do not apply, then use the default tax calculation tax formula that is set for the tax.
See: Setting Up Tax Formulas for more information.
Calculate the tax amount based on either the tax rate percentage or the per-unit tax, if quantity based, and the taxable base amount and tax calculation tax formula.
Perform rounding operations on the calculated tax amount according to the rounding rule. E-Business Tax retrieves the rounding rule to use on the calculated tax amount using the steps described below.
Rounding Rule Retrieval Process
E-Business Tax retrieves a rounding level and a rounding rule to perform rounding operations on the calculated tax amount.
The rounding level is:
Header - Applies rounding to calculated tax amounts once for each tax rate per invoice.
Line - Applies rounding to the calculated tax amount on each invoice line.
The rounding rule is the method to use to round off taxes to the minimum accountable unit.
If you have not defined configuration owner tax option settings for the combination of configuration owner and event class, E-Business Tax uses the default rounding level of the event class and the default rounding rule of the tax.
If you defined a rounding precedence hierarchy in the configuration owner tax option settings for the combination of configuration owner and event class, E-Business Tax looks for a rounding level and rounding rule in this way:
Look for rounding details in the party tax profiles of the parties and party sites involved in the transaction, according to the rounding precedence hierarchy.
If E-Business Tax finds an applicable tax profile, then use the rounding level and rounding rule of the tax profile.
If the rounding level is Header, then use these values to perform the rounding. The process ends.
If the rounding level is Line, go to step 6.
If E-Business Tax does not find an applicable tax profile, then use the rounding level setting of the configuration owner tax option.
If the configuration owner tax option rounding level is Header, then use the rounding rule that is set at the tax level for each tax of the transaction to perform the rounding. The process ends.
If the rounding level is Line, go to step 6.
If the rounding level is Line:
For each tax line, use the rounding rule belonging to the tax registration of the party type derived from the Determine Tax Registration process.
If a registration record does not exist for the registration party type, and if you have not defined configuration owner tax option settings for the combination of configuration owner and event class, then use the rounding rule that is set at the tax level to perform the rounding. The process ends.
If a registration record does not exist for the registration party type, and if you defined a rounding precedence hierarchy in the configuration owner tax option settings for the combination of configuration owner and event class, E-Business Tax looks for a rounding rule in this way:
Refer to the party or party site of the first party type defined in the rounding precedence hierarchy.
Use the rounding rule of the party/party site tax registration, if defined.
If not defined, use the rounding rule of the party/party site account site details, if defined.
If not defined, use the rounding rule of the party/party site tax profile, if defined.
If not defined, repeat steps 1 to 4 for each rounding party in the rounding precedence hierarchy.
If a rounding rule is found, use this rounding rule to perform the rounding. The process ends.
If a rounding rule is not found, then use the rounding rule that is set at the tax level to perform the rounding. The process ends.
See: Setting Up Configuration Owner Tax Options for more information.
This process determines the recovery rate to use on Procure to Pay transactions, when the tax allows for full or partial recovery of the tax amount. In many cases, E-Business Tax uses either the recovery rate associated with the tax rate or the default recovery rate defined for the tax. However, if the tax recovery rate can vary according to determining factors, such as intended use, then use a Determine Recovery Rate tax rule to derive the recovery rate.
You can only set up a Determine Recovery Rate tax rule for taxes that have the Allow Primary Recovery Rate Determination Rules option and, if applicable, the Allow Secondary Recovery Rate Determination Rules option enabled. E-Business Tax creates one recoverable distribution for the primary recovery type and secondary recovery type for each tax line, for each of the item distributions into which the item or expense line is distributed. See: Setting Up Taxes for more information.
After E-Business Tax determines the recovery rate for each recovery type, it then determines the recoverable amounts against each recovery type for each tax line. The remaining tax amount becomes the non-recoverable tax amount for the tax line. E-Business Tax stores both the recoverable and non-recoverable amounts of reportable documents, such as Payables invoices, to include in your tax reporting.
Allocate tax amount per item distributions - While taxes are determined at the transaction line level, tax recovery is determined at the transaction line distribution, or item distribution, level. The first step, therefore, during recovery determination is to apportion the tax amount to each item distribution.
Determine recovery types - E-Business tax determines, for each tax and item distribution, whether the primary and, if defined, secondary recovery types apply. The result of this process is a tax distribution for each recovery type for each tax and item distribution.
If recovery types are not defined, go to step 5.
Determine recovery rates - For each tax distribution, E-Business tax determines the recovery rate:
For the first recoverable tax distribution, consider the Determine Recovery Rate tax rule.
Use the tax recovery rate derived from the tax rule.
If E-Business Tax cannot derive a tax rule based on the transaction values, then use the tax recovery rate associated with the tax rate for the tax line.
If there is no tax recovery rate associated with the tax rate, use the default tax recovery rate defined for the tax.
See: Setting Up Tax Recovery Rates for more information.
Repeat steps 1 to 4 for each recoverable tax distribution, if applicable.
Determine the recoverable amounts - E-Business Tax applies the recovery rates to the apportioned tax amounts to determine the recoverable tax amounts. The result of this process is a recoverable tax amount for each recoverable tax distribution.
Determine the non-recoverable amount - E-Business Tax calculates the difference between the apportioned tax amount of every tax line per item distribution and the sum of the recoverable tax distribution to arrive at the non-recoverable tax amount, and then creates a non-recoverable tax distribution for this amount.
If a primary recovery type was not defined for a tax, E-Business Tax designates the entire apportioned amount for the item distribution as the non-recoverable tax amount.
During tax determination processing, E-Business Tax considers the rules belonging to each rule type in the order that you defined them. If the configuration option for the tax regime and configuration owner is set to Common Configuration with Party Overrides, then E-Business Tax considers both the rules defined under the applicable configuration owner (legal entity or operating unit) and the Global Configuration Owner for the same tax regime, tax and rule type, arranging both sets of rules into one rule order for evaluation.
The evaluation of tax rules takes into account specific transactions for applications and source applications, and specific locations. See: Tax Handling on Transactions for more information about applications and source applications.
If one or more tax rules belonging to a tax regime, tax, and rule type are defined for specific transactions and/or specific locations only, then these rules are evaluated first regardless of the overall rule order. Because of this, you need to plan your rule order carefully. For example, consider using tax conditions to initiate a different result based on the transaction business category of a source application.
E-Business Tax evaluates tax rules for a tax regime, tax, and rule type in this order:
Source application event class - Select the rules, if any, defined for a source application event class that belong to the configuration owner and/or the Global Configuration Owner, depending on the configuration option of the tax regime:
Evaluate each of the selected rules in order of priority.
For each rule, consider whether it refers to a specific location:
If it does but the context does not match the transaction information, then the rule is not evaluated further.
If it does and the context does match the transaction information, then E-Business Tax evaluates the rule condition sets in order of condition set priority. If a condition set is successfully evaluated, then the rule is successfully evaluated
If a rule is successfully evaluated, then the result associated with the rule is used.
If no rule is successfully evaluated, then E-Business Tax considers the next group of rules for the same tax regime, tax, and rule type.
Source application tax event class - Select the rules, if any, defined for a source application tax event class that belong to the configuration owner and/or the Global Configuration Owner, depending on the configuration option of the tax regime.
E-Business Tax evaluates these rules using the same sub-steps as described in step 1.
Application event class - Select the rules, if any, defined for an application event class that belong to the configuration owner and/or the Global Configuration Owner, depending on the configuration option of the tax regime.
E-Business Tax evaluates these rules using the same sub-steps as described in step 1.
Application tax event class - Select the rules, if any, defined for an application tax event class that belong to the configuration owner and/or the Global Configuration Owner, depending on the configuration option of the tax regime.
E-Business Tax evaluates these rules using the same sub-steps as described in step 1.
No specific transactions - Select the rules, if any, that are not defined for specific transactions and that belong to the configuration owner and/or the Global Configuration Owner, depending on the configuration option of the tax regime.
E-Business Tax evaluates these rules using the same sub-steps as described in step 1.
If you enter a new tax line manually on a transaction, E-Business Tax does not evaluate tax rules defined for the tax for any rule type.
If you update a tax line that E-Business Tax generated automatically, E-Business Tax evaluates tax rules according to the procedures described in this table:
| If you update... | E-Business Tax... |
|---|---|
| Tax jurisdiction |
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| Tax status and tax rate | Performs the Determine Taxable Basis and Calculate Tax Amount tax determination processes, and evaluates the rules defined for them. |
| Tax amount | Depending on the setting of the Adjustment for Ad Hoc Amounts option in the tax rate record:
|
The performance of the tax rules engine is in inverse proportion to the number of rules and conditions that the engine needs to evaluate in order to arrive at a specific result. Use these guidelines and examples to help plan your tax rules implementation:
If the tax condition results and rule results always equal the default values, then you do not need a tax rule. You only need to define a tax rule for a result that is different from the default value. For example, if more than one tax rate is possible for a given tax and tax status, then you need to create at least one tax rule.
These qualifications apply to tax rules and default values:
If you require many different results other than the default value for a given tax and rule type, it probably means that the default value itself sometimes applies. In these cases, you should also define a tax rule for the default value. Otherwise the rules engine must always process and eliminate the rules defined for all other values before arriving at the default.
As an alternative to defining a tax rule for the default value, you can assign the least frequent result as the default value. In this way the rules engine will process the maximum number of rules on the minimum number of occasions. In this kind of an implementation, you must ensure that your rules and conditions cover all of the more common results in order to prevent the rules engine from defaulting an incorrect result.
If more than one tax rate is possible for a given tax, then you need to create at least one set of tax rules.
When you define multiple tax rules to derive distinct results for a process, assign the least frequent result as the default value for the process.
When you define tax rules for multiple rule types, do not use the same tax conditions in multiple rules. For example, if you define a Determine Tax Applicability rule for UK VAT that only applies when <Ship To> Equal To <United Kingdom>, then you do not need to repeat this condition in a rule for a subsequent tax determination process, such as a Determine Tax Status rule.
Where possible, use the tax rule header information instead of creating tax conditions that arrive at the same result.
For example, if tax rules apply to the Purchase business process, set the tax event class to Purchase Transaction rather than defining a tax condition within the rule, such as <Tax Event Class> Equal To <Purchase Transaction>.
When you order the tax condition sets within a tax rule, assign the higher priority to the set of conditions that occurs more frequently.
Similarly, when you order the tax rules within a rule type and tax, assign the higher priority to the tax rule that gives the most frequently arrived at process result.
Use product tax exceptions for special rates based on product fiscal classifications rather than defining a Determine Tax Rate rule based on product fiscal classifications.
For example, if three out of five product fiscal classifications use a special rate, define three product tax exceptions based on the three product fiscal classifications that need a special rate, and set the standard rate as the default rate.
Define the minimum number of tax conditions necessary for a rule.
For example, if a special rate applies to goods shipped outside a state as opposed to within a state, define one tax condition as <Ship From State> Not Equal To <Ship To State>, rather than defining two separate tax conditions for each Ship From and Ship To location, such as <Ship From State> Equal To <Nevada> and <Ship To State> Not Equal To <Nevada>.
For tax rules that involve the shipping to and from a tax zone, for example the European Union, define a tax condition for all Ship To countries within the tax zone rather than separate tax conditions for each country, such as <Ship To Country> Equal To <Great Britain>; <Ship To Country> Equal To <France>; and so on.
For tax rules that apply to a specific geographic area, define tax rules with the additional context of the geographic area rather than adding location-based Equal To tax conditions. For example, if you have a tax rule that only applies if the Ship To state is California, then define the rule such that it is only evaluated when the Ship To state is California.
Define rules that are common across all legal entities or operating units under the Global Configuration Owner, instead of creating the same rules for each legal entity or operating unit.
If all rules are not commonly applicable to all legal entities or operating units:
Set the configuration option of the legal entities or operating units that require additional rules to Common Configuration with Party Overrides.
Define supplementary party-specific rules under the applicable legal entities or operating units. You can set priority values for party-specific rules that complement the tax rules of the Global Configuration Owner, in accordance with the tax requirements.
This example illustrates how to set up tax rules based on the text of a tax regulation.
Consider this tax regulation for the purchase of goods by a company in the United Kingdom from a company in another country belonging to the European Community:
"If you purchase goods from a VAT-registered business in another European Community country and the goods are removed to the United Kingdom, you may be required to account for VAT in the United Kingdom on the acquisition of the goods."
This table describes the requirements contained in this tax regulation.
| Regulation | Regulation Text | Requirement |
|---|---|---|
| 1 | "If you purchase goods..." | The tax rule is limited to purchase transactions. |
| 2 | "...from a VAT-registered business in another European Community country..." | The tax rule requires that the supplier be registered in another European Community country. |
| 3 | "...and the goods are removed..." | The tax rule is limited to the Goods product type. |
| 4 | "...are removed to the United Kingdom..." | The tax rule refers to goods delivered to the United Kingdom from another country in the European Community. |
| 5 | "...you may be required to account for..." | The party must self-assess the tax. |
| 6 | "...for VAT in the United Kingdom..." | The tax is UK VAT. |
Tax regulations 1-4 become a tax condition set. This table describes the contents of the tax condition set.
| Regulation | Determining Factor Class | Class Qualifier | Determining Factor Name | Operator | Value |
|---|---|---|---|---|---|
| 1 | Transaction Generic Classification | Level 1 | Transaction Business Category | Equal To | Purchase Transaction |
| 2 | Registration | Ship From | Registration Status | Equal To | Registered in another EC country |
| 3 | Product | N/A | Type | Equal To | Goods |
| 4 | Geography | Ship From | Country | Equal To | EEC |
| 4 | Geography | Ship To | Country | Equal To | UK |
| 4 | Geography | Ship From | Country | Not Equal To | Ship To Country |
Tax regulations 5 and 6 indicate the results associated with the tax condition set. This table describes the tax regulation results.
| Regulation | Tax Rule or Process | Result |
|---|---|---|
| 6 | Determine Applicable Tax Regimes and Candidate Taxes | The tax is UK VAT in the tax regime UK VAT. |
| 5 | Determine Place of Supply | The place of supply is the Ship-To party and the tax jurisdiction is the United Kingdom. |
| 5 | Determine Tax Registration | The registration party type is the Ship-To party, and the Ship-to party must self-assess the tax. |
| 6 | Determine Tax Status and Tax Rate | The applicable status and rate for UK VAT. |
Set up tax rules to define the factors that can apply to the calculation of a tax on a transaction. You need to set up tax rules when default values alone cannot satisfy all of the potential tax requirements for the given tax.
You create a separate set of tax rules for each combination of configuration owner, tax regime, and tax. If a party configuration option is set to Common Configuration with Party Overrides, then at transaction time E-Business Tax considers the tax rules of both the party and the Global Configuration Owner for the same tax regime and tax. See: Setting Up Configuration Options for more information.
You can create one or more tax rules for each rule type, according to the requirements of the tax regime. You can also designate a default value for certain rule types to use if none of the active tax rules satisfy the requirements of the transaction.
A tax rule is defined by:
Ownership information - Identifies the tax rule configuration owner. If the configuration owner is a legal entity or operating unit, then the rule only applies to the transactions of this legal entity or operating unit. If the configuration owner is the Global Configuration Owner, then the rule applies to the transactions of all legal entities and operating units with a configuration option setting for the tax regime of either Common Configuration or Common Configuration with Party Overrides.
Context information - Identifies the tax regime, tax, and rule type for which a rule is defined.
Rule order - Identifies the order in which a rule is evaluated.
You cannot repeat a rule order for the same tax regime, tax, and rule type for the same configuration owner. If the configuration option setting is Common Configuration with Party Overrides, you cannot repeat a rule order for the same tax regime, tax, and rule type for either the same configuration owner or the Global Configuration Owner.
Additional context information - Applies further restrictions to a rule:
Transactions belonging to a specific application event class.
Transactions belonging to a specific application tax event class.
Transactions belonging to a specific location.
Determining factor set - Identifies the factors to consider when evaluating the tax rule. See: Setting Up Tax Determining Factor Sets for more information.
Tax condition set - Identifies the conditions (from one or more of the determining factors belonging to the determining factor set) to satisfy in order evaluate a tax condition set successfully. See: Setting Up Tax Condition Sets for more information.
Result - The value that results when the tax conditions are satisfied.
For the direct tax rate determination rule type, multiple results may apply to the successful evaluation of a tax condition set. See: Using Direct Tax Rate Determination for more information.
If you associated tax or legal justification reporting types with tax rules, then enter any applicable tax reporting codes.
Prerequisites
Before you can set up a tax rule, you may need to complete one or more of these tasks:
Set up tax regimes. (mandatory)
Set up taxes. (mandatory)
Set up tax statuses. (mandatory)
Set up tax jurisdictions (optional)
Set up tax rates and enable the Allow Tax Rate Rules option. (mandatory)
Set up TCA geography hierarchy structures. (mandatory, if required by the tax rule)
Set up tax zones. (mandatory, if required by the tax rule)
Set up fiscal classifications. (mandatory, if required by the tax rule)
Set up determining factor sets. (conditionally mandatory - you can set up during expert or guided tax rule entry)
Set up tax condition sets. (conditionally mandatory - you can set up during guided tax rule entry only)
Set up taxable basis tax formulas. (mandatory for the rule type Determine Taxable Basis)
Set up tax calculation tax formulas. (mandatory for the rule type Calculate Tax Amounts)
Set up tax recovery rates. (mandatory for the rule type Determine Recovery Rate)
Use the tax rules guided rule entry to set up both a tax rule and the determining factor set and tax condition set that the tax rule uses at the same time. The guided rule entry provides step-by-step guidance to build a tax rule according to the context information, determining factors, and default values that you want to use. When you are more conversant with rule concepts, you can use the expert rule entry to define tax rules more quickly.
This table indicates how to find each determining factor class in the guided rule entry: You use determining factors to enter one or more tax conditions that need to be satisfied for the result to apply. The tax conditions are separated into three tabs:
Transaction - Conditions that relate to the transaction itself.
Party - Conditions that relate to the parties of the transaction.
Product - Conditions that relate to the product that is transacted.
| Tab | Region | Determining Factor Class and Names |
|---|---|---|
| Transaction | Locations |
|
| Transaction | Additional Factors available on Transaction line |
|
| Transaction | Documentation Classification |
|
| Transaction | Transaction Business Category |
|
| Transaction | Transaction Fiscal Classifications |
|
| Party | Party Classification |
|
| Party | Legal Classification Tax Usage |
|
| Party | Registration Status |
|
| Product | Product Classification |
|
| Product | Non-Inventory based Product Classification |
|
| Product | Intended Use |
|
| Product | Account based Intended Use |
|
To set up a tax rule using the guided rule entry:
Navigate to the Tax Rules page.
Enter the configuration owner, tax regime code, and tax.
E-Business Tax displays the rule type HGrid, with the current list of tax rules and default values already defined for the tax, if any.
If applicable, set the default value for the applicable rule type. E-Business Tax uses this value if no rule provides a value that applies to the transaction.
Navigate to the Create Tax Rule: General Information page by selecting the Guided Rule Entry icon for the rule type that you want.
If applicable, enter tax law information:
Enter a code to identify the reference to the tax authority tax law on which the tax rule is based. Create a coding method that clearly identifies the tax laws that you want to reference.
Enter a description of the tax law reference.
Optionally check the "Use the Tax Law Reference and Description as Tax Rule Code and Rule Name" box to use the tax law values as the rule code and name.
If you did not use tax law information, enter a rule code and name.
Enter the effective date range for this tax rule.
You must enter a date range that is within the date range of the tax regime and tax.
If this tax rule applies to specific transactions only, select the event class category for this tax rule:
Event Class - The tax rule applies to transactions of the application that you select. You can apply the tax rule either to a Payables or Receivables application, or to a source application that feeds data into Payables or Receivables for tax processing. See: Tax Handling on Transactions for more information.
You can optionally apply the tax rule to one event class only within the application.
Tax Event Class - The tax rule applies to transactions of the tax event class that you select.
See: Managing Event Class Settings for a description of the event class categories and settings.
If this tax rule applies to a specific geographical location only, enter the geographical information:
Enter the transaction location type to consider for this tax rule. E-Business Tax uses the geography of the location type to evaluate the rule applicability.
If you use a TCA master reference geography type, enter the parent geography type and parent geography name.
Enter the geography type and name to use for this tax rule. You can enter a TCA master reference geography type or a tax zone.
See: Rule Order and Rule Evaluation for a description of how E-Business Tax evaluates tax rules for specific transactions and locations.
Navigate to the Create Tax Rule: Determining Factors and Conditions page.
Create the tax conditions for this tax rule by entering the determining factor, operator, and value for each condition.
You must enter at least one condition to create a tax rule.
Navigate to the Create Tax Rule: Condition Results page.
Enter the tax rule result to use if the conditions you entered in the previous step are satisfied.
See: Process Checklist for Tax Determination and Tax Calculation for an explanation of the available rule results for each rule type.
Navigate to the Create Tax Rule: Rule Order page:
Assign a rule order to this tax rule.
Enable the tax rule for use on transactions.
Note: The actual order in which E-Business Tax evaluates the rules belonging to a rule type also depends on the additional context information defined for the rule, if any. See: Rule Order and Rule Evaluation for more information.
Navigate to the Create Tax Rule: Rule Templates page.
Assign names and save the determining factor set and tax condition set that you created for this tax rule:
The determining factor set contains the determining factor classes, determining factor names, and class qualifiers that you selected. See: Setting Up Tax Determining Factor Sets for more information.
The tax condition set contains the tax conditions derived from the determining factors that you used to create this rule. See: Setting Up Tax Condition Sets for more information.
These sets are available for use in the creation of new tax rules of this rule type for this configuration owner, tax regime and tax.
Set up tax rules using the expert rule entry when you are more familiar with the concepts of tax rules and tax determination. To use the expert rule entry, you must set up tax determining factor sets and tax condition sets for use with the rules that you intend to create. You can optionally set up a tax determining factor set during tax rule entry.
See: Setting Up Tax Rules: Guided Rule Entry for general information about setting up tax rules.
The E-Business Tax tax determination process uses your tax configuration setup and the transaction details to determine:
Which taxes apply to the transaction.
How to calculate the tax amount for each tax that applies to the transaction.
E-Business Tax tax rules let you create a tax determination model to reflect the tax regulations of different tax regimes and the tax requirements of your business. You can create a simple tax model that makes use of default values without extensive processing, or a complex tax model that considers each tax requirement related to a transaction before making the final calculation. During execution of the tax determination process, E-Business Tax evaluates, in order of priority, the tax rules that have defined against the tax configuration setup and the details on the transaction. If the first rule is successfully evaluated, the result associated with the rule is used. If not, the next rule is evaluated until either a successful evaluation or default value is found.
The E-Business Tax tax determination process is organized into rule types. Each rule type identifies a particular step in the determination and calculation of taxes on transactions.
The tax line determination process uses the information of the transaction header and transaction line to determine the tax lines.
To set up a tax rule using the expert rule entry:
Navigate to the Tax Rules page.
Enter the configuration owner, tax regime code, and tax.
E-Business Tax displays the rule type HGrid, with the current list of tax rules and default values already defined for the tax, if any.
If applicable, set the default value for the applicable rule type. E-Business Tax uses this value if no rule provides a value that applies to the transaction.
Navigate to the Create Tax Rule: General Information page by selecting the Expert Rule Entry icon for the rule type that you want.
If applicable, enter tax law information:
Enter a code to identify the reference to the tax authority tax law on which the tax rule is based. Create a coding method that clearly identifies the tax laws that you want to reference.
Enter a description of the tax law reference.
Optionally check the “Use the Tax Law Reference and Description as Tax Rule Code and Rule Name” box to use the tax law values as the rule code and name.
If you did not use tax law information, enter a rule code and name.
Enter the effective date range for this tax rule.
You must enter a date range that is within the date range of the tax regime and tax.
If applicable, enter additional context information for the rule type:
If this is a Determine Tax Rate rule, enter the tax status code.
If this is a Determine Recovery Rate rule, enter the recovery type.
If this tax rule applies to specific transactions only, select the event class category for this tax rule:
Event Class - The tax rule applies to transactions of the application that you select. You can apply the tax rule either to a Payables or Receivables application, or to a source application that feeds data into Payables or Receivables for tax processing. See: Tax Handling on Transactions for more information.
You can optionally apply the tax rule to one event class only within the application.
Tax Event Class - The tax rule applies to transactions of the tax event class that you select.
See: Managing Event Class Settings for a description of the event class categories and settings.
If this tax rule applies to a specific geographical location only, enter the geographical information:
Enter the transaction location type to consider for this tax rule. E-Business Tax uses the geography of the location type to evaluate the rule applicability.
If you use a TCA master reference geography type, enter the parent geography type and parent geography name.
Enter the geography type and name to use for this tax rule. You can enter a TCA master reference geography type or a tax zone.
See: Rule Order and Rule Evaluation for a description of how E-Business Tax evaluates tax rules for specific transactions and locations.
Enter or create the determining factor set to use with this tax rule.
See: Setting Up Tax Determining Factor Sets for information about creating a determining factor set.
Navigate to the Create Tax Rule: Rule Conditions page.
Enter the tax condition sets for this rule:
Select a tax condition set radio button to display its fields.
Enter or update the tax conditions. You can update the tax condition set if it is not used in any other rule.
See: Setting Up Tax Condition Sets for information about creating a tax condition set.
Note: You can only use fiscal classification codes in tax conditions that are within the effective period of the tax rule.
Enter the tax rule result for each tax condition set. If you associated tax or legal justification reporting types with tax rules, enter any applicable tax reporting codes after process result.
See: Process Checklist for Tax Determination and Tax Calculation for an explanation of the available rule results for each rule type.
Enter the order in which to evaluate each tax condition set.
The condition set with the lowest number is evaluated first. If this condition set is not true for the transaction line, then E-Business Tax evaluates the next highest condition set until a true condition result is found.
If no condition sets are evaluated as true, then the tax rule does not apply to the transaction line. E-Business Tax evaluates the next tax rule, if there is one.
Navigate to the Create Tax Rule: Rule Order page.
Enter a number to indicate the order in which to consider this tax rule within this rule type for evaluation.
The rule with the lowest number is evaluated first. If this rule is not true for the transaction line, then E-Business Tax evaluates the next highest rule.
Note: The actual order in which E-Business Tax evaluates the rules belonging to a rule type also depends on the additional context information defined for the rule, if any. See: Rule Order and Rule Evaluation for more information.
Enable the tax rule to use it in tax determination.
Use the Direct Tax Rate Determination rule type for situations where you do not need to create separate rules for tax applicability, tax status, and tax rate. You set up Direct Tax Rate Determination rules using either the guided rule entry or expert rule entry.
If a Direct Tax Rate Determination rule is evaluated successfully, then the tax is applicable and the tax status and tax rate defined for the rule are used in tax determination. If a Direct Tax Rate Determination rule is not evaluated successfully, then the tax is not applicable and the tax determination process ends. With Direct Tax Rate Determination, if the rule is not evaluated successfully, the tax is not considered applicable even if the place of supply identifies a valid jurisdiction.
This table describes the differences in tax determination processing Using Direct Tax Rate Determination. See: Process Checklist for Tax Determination and Tax Calculation to compare the two processes.
| Order | Process Name | Activities |
|---|---|---|
| 1 | Determine Applicable Tax Regimes and Candidate Taxes | Same as the standard execution. |
| 2 | Determine Tax Applicability Determine Tax Status Determine Tax Rate |
|
| 3 | Determine Place of Supply and Tax Jurisdiction | E-Business Tax identifies the location type and the tax jurisdiction:
|
| 4 | Determine Tax Registration | Same as the standard execution. |
| 5 | Determine Tax Status | N/A - Already completed in step 2. |
| 6 | Determine Tax Rate |
|
| 7 | Determine Taxable Basis | Same as the standard execution. |
| 8 | Calculate Taxes | Same as the standard execution. |
If you are using migrated tax data and tax classification codes, the direct tax rate determination process differs at certain steps in the process. See: Tax Processing Using Standard Tax Classification Codes for more information.
Before you can set up a tax rule for direct tax rate determination, you may need to complete one or more of these tasks:
Set up tax regimes. (mandatory)
Set up taxes. (mandatory)
Set up tax jurisdictions (optional)
Set up tax statuses. (mandatory)
Set up tax rates and enable the Allow Tax Rate Rules option. (mandatory)
Set up fiscal classifications. (optional)
Set up and assign tax classification codes. (mandatory for migrated data)
Set up application tax options. (mandatory for migrated data)
Set up determining factor sets. (conditionally mandatory - you can set up during expert or guided tax rule entry)
Set up tax condition sets. (conditionally mandatory - you can set up during guided tax rule entry only)
To set up a Direct Tax Rate Determination tax rule:
Navigate to the Tax Rules page.
Enter the configuration owner, tax regime code, and tax.
Navigate to the Create Tax Rule: General Information page by selecting the guided rule entry.
Complete the General Information page.
Navigate to the Create Tax Rule: Rule Conditions page.
Enter the tax condition set for this rule.
If necessary, select a tax condition set and update the tax conditions.
See: Setting Up Tax Condition Sets for information about creating a tax condition set.
Enter the tax rule applicability result, status result, and rate result for the tax condition set.
Enter the order in which to consider each tax condition set to satisfy the rule.
Navigate to the Create Tax Rule: Rule Order page.
Enter a number to indicate the order in which to consider this tax rule for tax evaluation.
Enable the tax rule to use it in tax determination.
In Release 11i, the tax code provided the tax calculation services on the transaction line. Tax codes were associated with one or more levels in the tax code defaulting hierarchy. The tax code defaulted to the transaction line from the first available level in the hierarchy, and the tax engine used the tax code to retrieve the rate and apply it to the line amount. If multiple taxes applied to a transaction line, a set of tax codes, called a tax group, was added to the defaulting hierarchy and defaulted to the transaction in the same way as a tax code, The tax engine created a tax line for each of the tax codes that belonged to the tax group.
In Release 12 E-Business Tax migrates each tax code, including the tax codes within a tax group, as a tax classification code. Payables and Purchasing tax codes migrate as input tax classification codes; Receivables and Projects tax codes migrate as output tax classification codes, under two separate lookup types in E-Business Tax. You can use these lookups to define additional tax classification codes according to your requirements. See: Setting Up Lookup Codes, Oracle E-Business Tax Implementation Guide for more information.
E-Business Tax provides the Standard Tax Classification Code (STCC) approach to tax determination. The STCC approach makes use of the migrated tax classification code and defaulting hierarchy to determine the tax rate on transactions in a manner similar to the approach used in Release 11i.
In order to let you use the STCC approach with new tax data, E-Business Tax:
Creates a matching tax classification code for every new tax rate that you create in this way:
If the configuration owner is an operating unit, E-Business Tax creates a tax classification code when you create a tax rate code.
If the configuration owner is a legal entity, E-Business Tax creates the tax classification code when you define a rule condition using the tax rate code.
Creates a Direct Tax Rate Determination rule for every tax code that is part of a tax group, with the tax classification code equal to the tax group. This lets you continue to use the concept of tax groups in tax determination.
If a Release 11i Receivables tax code or tax group used a condition set or group constraint, E-Business Tax evaluates these conditions and constraints during direct tax rate determination and the completes the action associated with the successful or unsuccessful evaluation of the condition and/or constraint.
Note: E-Business Tax does not support the creation of new conditions and constraints. Use instead the tax configuration and tax rules features to set up the tax determination processes that you need.
The Release 11i tax code assignments to products, parties, and application system options are replaced by tax classification code assignments. Third party suppliers and supplier sites migrate to Trading Community Architecture (TCA) as TCA parties and party sites. For these parties E-Business Tax includes the tax classification code field as part of the supplier or supplier site party tax profile. See: Setting Up a Third Party Tax Profile for more information.
You can use the Release 11i defaulting hierarchy model to default a tax classification code to the transaction line. You can also update the tax classification code on the transaction line. During tax determination, the tax classification code on the transaction line is compared with the tax condition value of the tax rule. See: Using Application Tax Options for information about using the defaulting hierarchy for tax classification codes.
You can use the tax classification code as the only determining factor in a determining factor set, or in combination with other determining factors. You can also use the tax classification code to create rules of any rule type.
The first two steps of the Direct Tax Rate Determination process differ if you are using the Standard Tax Classification Code approach. This table describes these differences:
| Order | Process Name | Activities |
|---|---|---|
| 1 | Determine Applicable Tax Regimes and Candidate Taxes |
|
| 2 | Determine Tax Applicability Determine Tax Status Determine Tax Rate |
E-Business Tax retrieves the tax status and tax rate of each applicable tax. |
| 3-8 | Same as Direct Tax Rate Determination. |
Note: If you want to move from STCC processing to standard regime determination processing, apply an end date to the applicable configuration owner tax options and create new configuration owner tax options using a location-based regime determination set. In this way you can gradually transition operating units to the E-Business Tax tax processing model according to your requirements.
The tax classification code is a determining factor name belonging to the Transaction Input Factor determining factor class. Certain E-Business Suite products use the tax classification code as the only determining factor in tax determination. For these products, you must assign tax classification codes and make use of the Direct Tax Rate Determination tax rule to calculate taxes on transactions. These products are:
Oracle iStore
Oracle Order Capture
Oracle Order Management
Oracle Project Accounting
Oracle Service Contracts
Oracle Trade Management
Related Topics
Oracle E-Business Tax, Oracle Financials and Oracle Procurement Functional Upgrade Guide: Release 11i to Release 12
Tax Classification Codes in Oracle E-Business Tax, Oracle E-Business Tax Implementation Guide
Manage the tax rules that you define for each tax. You can use the HGrid to display the tax rules defined for each rule type, and to reorder tax rules. You can use the guided rule entry or expert rule entry to update the details of a tax rule.
Note: Once you enable a rule that you created using the guided rule entry, you can only update this rule using the expert rule entry.
You can reorder the sequence in which E-Business Tax reviews the tax rules belonging to a rule type. You may want to do this, for example, after you create a new tax rule due to changes in tax legislation.
The reordering applies to active tax rules only.
To reorder tax rules:
Select a rule type and navigate to the Reorder Rules page.
Rearrange the numbering in the Rule Order column according to your requirements.
You can update these parts of a tax rule:
Tax rule name.
Condition sets - You can perform these updates on condition sets:
Reorder condition sets - You can reorder the sequence in which E-Business Tax reviews the tax condition sets belonging to a tax rule. You can either change the numbering in the Order column, or use the Reorder Condition Sets page.
Disable a condition set - You can uncheck the Enable box of a condition set. E-Business Tax will not consider the condition set during tax rule evaluation.
Add a new condition set - You can add a new tax condition set to a tax rule, and if necessary rearrange the condition set order to accommodate the new condition set.
Disable the tax rule - You can disable a tax rule so that E-Business Tax does not consider the rule during transaction processing. You can disable a tax rule in these ways:
Uncheck the Enable box - The tax rule is no longer available for use with any transactions.
You can check the Enable box again to reactivate the tax rule.
Apply an end date - The tax rule is no longer available for use after the date you enter. However, the rule remains active for any transactions that fall within the tax rule date range.
Once you apply an end date to a tax rule, you cannot reactivate the tax rule.
Set up tax determining factor sets to group together related tax determining factors. You create determining factor sets for:
Tax rules, to associate with rule types for tax determination. You use tax determining factors as building blocks in the creation of tax conditions.
Regime determination, to identify tax regimes and candidate taxes on transactions. You use location type determining factors only to identify the eligible locations on the transaction.
A tax determining factor is an attribute that contributes to the outcome of a tax determination process, such as a geographical location, tax registration status, or a fiscal classification. Tax determining factors are categorized into logical groupings called determining factor classes, such as Accounting or Geography.
Each determining factor class contains one or more determining factor names that constitute the contents of the class. Some determining factor classes also contain class qualifiers. A class qualifier provides a more specific classification of a determining factor class, such as accounting flexfield segments or the transaction locations of a geography or party (Ship From, Ship To).
The result of a determining factor class, and its class qualifiers and determining factor names, is a list of available factors for use with tax conditions. Each tax condition within a tax condition set must result in a valid value or range of values for tax determination. See: Setting Up Tax Condition Sets for more information.
A tax determining factor is an attribute that may be used by the E-Business Tax engine to find and calculate taxes for a specific transaction. During implementation, the E-Business Tax rule engine allows you to create any number of custom tax rules that reference the tax determining factors and that satisfy the unique needs of a specific business operating within a taxing jurisdiction.
Determining factors exist in a range of categories or types (Determining Factor Classes). Within each of these exist a:
Qualifier
Factor Name
Factor Value
The following provides an example:
Determining Factor Class = Geography (The type of factor that is available).
Class Qualifier = Ship To, Bill To, POA, POO, Ship From, Ship To (The levels that you can select for evaluation).
Determining Factor Name = Country, Province, City, County, etc. (The geography types defined in TCA).
Determining Factor Value = Canada, Ontario, Toronto, and so on (The actual values associated with the factor previously selected).
Before you can set up a tax determining factor set, you must complete these setup tasks for determining factors:
For each user-defined determining factor class, set up all of the determining factor names that you need.
For each determining factor class, set up the values for each determining factor name to make available to tax conditions.
This table describes, for each determining factor class, the class qualifiers, seeded and user-defined determining factor names, and the values that are used for each determining factor name.
Note: Refer to the note in the right-hand column for examples showing how the referenced determining factor can be used. Examples referenced in these notes include screenshots and step-by-step setup instructions along with some troubleshooting steps to consider if your rule is not working as intended.
You can use the Tax Determining Factors page to view each tax determining factor class and its determining factor names, both seeded and user defined.
Important: When designing your tax rules be aware that not all Oracle Modules have completed the full uptake of the E-Business Tax features, which means that not all transactions have the determining factors available. For example, in Receivables you can select Tax Information and enter a User Defined Fiscal Classification. You can then define tax rules to use this in calculating taxes. If you use Order Management however, this field is not available when you are entering an order. Consequently, OM orders are unable to use this field in their calculation.
Use caution to ensure that the fields you select for your tax determining factors (in your tax rules) exist in all potential modules that you intend to use for invoice creation.
| Determining Factor Class | Class Qualifiers | Determining Factor Names | Values for Tax Conditions | Setup and Troubleshooting Note |
|---|---|---|---|---|
| Accounting | Accounting segments of the selected ledger | Line Account | Account combinations of the class qualifier segment; or all account combinations if there is no class qualifier. | My Oracle Support Note 1109436.1, How To Setup and Troubleshoot a Tax Rule using Accounting Segments in R12 E-Business Tax (EBTax) |
| Document | Document fiscal classification level (Levels 1-5) | Document subtype | Document fiscal classification codes of the class qualifier level; or all document fiscal classification codes if there is no class qualifier. | NA |
| Geography | Bill From Bill To Point of Acceptance (AR transactions) Point of Origin (AR transactions) Ship From Ship To |
TCA geography types | TCA geography names of the geography type belonging to the location identified by the class qualifier. | My Oracle Support Note 1110427.1, How To Setup and Troubleshoot a Tax Rule Based Upon Geography Types such as Bill To and Ship To in R12 E-Business Tax (EBTax) |
| Legal Party Fiscal Classification | First Party | Legal Activity Codes for Chile; Colombia; Peru; United Kingdom; Venezuela | Legal classification codes of the legal classification activity. | My Oracle Support Note 1109325.1, How To Setup and Troubleshoot a Tax Rule using Legal Classifications (Activity) Codes in R12 E-Business Tax (EBTax) |
| Party Fiscal Classification | Bill From Party Bill To Party Point of Acceptance Party (AR transactions) Point of Origin Party (AR transactions) Ship From Party Ship To Party |
Party fiscal classification types | Fiscal classification codes of the party fiscal classification type assigned to the party identified by the class qualifier. | My Oracle Support Note 729486.1, How to Setup and Troubleshoot a Party Fiscal Classification Tax Rule in R12 E-Business Tax (EBTax) |
| Product - Inventory linked | N/A | Oracle Inventory-based product fiscal classification types | Fiscal classification codes of the applicable product fiscal classification type. | My Oracle Support Note 1107666.1, How to Setup and Troubleshoot A Product Fiscal Classification Tax Rule in R12 E-Business Tax |
| Product - Non-Inventory linked | Product fiscal classification level (Levels 1-5) | Product Category product fiscal classification types | Product fiscal classification codes of the class qualifier level; or all product fiscal classification codes if there is no class qualifier. | My Oracle Support Note 1108547.1, How to Setup and Troubleshoot a Product Fiscal Classification (Non-Inventory Based) Tax Rule in R12 E-Business Tax (EBTax) |
| Registration | Bill From Party Bill To Party Ship From Party Ship To Party |
Registration Status | Status of Agent (withholding agent), Registered, or Not Registered (seeded values only) for the party identified by the class qualifier. You can use lookup codes to add registration statuses. See: Setting Up Lookup Codes, Oracle E-Business Tax Implementation Guide. |
My Oracle Support Note 1112412.1, How To Setup and Troubleshoot a Tax Rule using Tax Registration Status in R12 E-Business Tax (EBTax) |
| Transaction Fiscal Classification | N/A | Transaction fiscal classification types | Fiscal classification codes of the applicable transaction fiscal classification type. | My Oracle Support Note 1114923.1, How To Setup and Troubleshoot a Tax Rule using Transaction Business Categories and Transaction Fiscal Classifications in R12 E-Business Tax (EBTax) |
| Transaction Generic Classification | Classification level (Levels 1-5) | Transaction Business Category (seeded value only) | Transaction business category fiscal classification codes of the class qualifier level; or all fiscal classification codes if there is no class qualifier. | My Oracle Support Note 1114923.1, How To Setup and Troubleshoot a Tax Rule using Transaction Business Categories and Transaction Fiscal Classifications in R12 E-Business Tax (EBTax) |
| Transaction Input Factor | N/A |
|
|
|
| User Defined Geography | Bill From Bill To Point of Acceptance Point of Origin Ship From Ship To |
Tax zone types | Tax zones of the tax zone type belonging to the location identified by the class qualifier. | NA |
Tax Rules can reference as many determining factors as necessary to satisfy the criteria in your rule. This allows for multi-conditional situations to be addressed in individual rules.
Example
A rule might state, if the Ship-To is Not the same as the Ship-From and the Item being sold is a Good (as opposed to a service) then apply tax X. This can be satisfied by creating a tax rule that considers both the geography for the ship-to party, the geography for the ship-from party and the product fiscal classification (three determining factors in total).
For more information on how to create these objects, review My Oracle Support Note 1111553.1, How To Setup Condition Sets and Determining Factor Sets for Tax Rules in R12 E-Business Tax (EBTax).
Fiscal Classifications
Fiscal Classifications is a way that a tax authority classifies each part of a transaction. Fiscal Classifications can be used as follows:
Parties and party sites involved in the transaction.
Products involved in the transaction.
Nature of the transaction.
Documents associated with the transaction
Note: To learn more information on how to create a tax rule and or use expert tax rules see Setting Up Tax Rules: Expert Rule Entry
Set up tax determining factor sets to use in the creation of tax rules. A determining factor set is a grouping of determining factors that are considered together in the course of evaluating tax rules. You can maintain and reuse a tax determining factor set that you create for one rule with another rule for a different tax or a different rule type, where requirements are identical. You can set up determining factor sets in advance to use with tax rules, or set up a determining factor set during the creation of a tax rule.
A determining factor set identifies the determining factor class, class qualifier and determining factor name, for example:
Determining Factor Class: Geography
Class Qualifier: Ship To
Determining Factor Name: Country
Note: You can create only one tax rule for each combination of tax, rule type, and priority. Each rule is associated with one determining factor set.
In order to improve efficiency and reduce processing time, consider these factors when creating a determining factor set:
You can use one determining factor set as a superset of determining factors to create multiple tax condition sets. Apply this option using expert rule entry. If a determining factor is not always needed in tax conditions, set the required option to No.
Use the minimum number of determining factors necessary to process all conditions required by the tax rule.
Avoid including a determining factor that is rendered unnecessary by another, more specific, determining factor. You can use a determining factor class one time to define a determining factor set. For example, you may not need to include the Product Type and Product Category determining factors in the same determining factor set.
Use a coding and naming convention that clearly identifies the use of each determining factor set.
Ensure that you have completed the prerequisite setups for each determining factor class in the determining factor set.
After you set up a determining factor set, you can set up tax condition sets. See: Setting Up Tax Condition Sets for more information.
Note: Once you use a tax determining factor set to create a tax condition set, you can no longer update the determining factor set.
Before you can set up determining factor sets for tax rules, you may need to complete one or more of these tasks. Some optional tasks are mandatory, if required by the determining factor class:
Set up tax regimes. (optional)
Set up ledgers. (optional)
Set up TCA geography hierarchy structures. (optional)
Set up TCA party classifications. (optional)
Set up party tax profiles. (optional)
Set up fiscal classifications. (optional)
Set up tax classification codes. (optional)
Set up tax zones types and tax zones. (optional)
There are two methods to create a determining factor set. You can either create the set manually or you can use the Guided Rule Entry which will dynamically create the set for you as part of the flow. This example will focus on Manual Creation as it more clearly demonstrates the process and the structure of a determining factor set.
To set up a determining factor set for tax rules:
Navigate to the Create Tax Determining Factor Set page.
Enter a code and name for the tax determining factor set.
Select the set usage Tax Rules.
If you intend to use the Accounting determining factor class, enter the ledger to use with this determining factor set.
The ledger accounting segments become available for use as tax condition values.
If you intend to use the Party Fiscal Classification, Product - Inventory Linked or Transaction Fiscal Classification determining factor class, enter the tax regime code to use with this determining factor set.
You must enter a tax regime code that is assigned to the party fiscal classification, Inventory-based product fiscal classification, or transaction fiscal classification that you intend to use with this determining factor set. Each of these determining factor classes must have the same tax regime assignment.
Enter the tax determining factors for this determining factor set. See: Determining Factor Classes and Tax Condition Values for information about the contents and usage of each determining factor class.
Each determining factor must have a determining factor class and determining factor name. In addition, if it is possible to associate a determining factor class with more than one value on the transaction, then you must enter a class qualifier. A class qualifier is mandatory for these determining factor classes:
Geography
Party Fiscal Classification
Registration
You can optionally specify a class qualifier for these determining factor classes:
Accounting
Document
Product - Non-Inventory linked
Transaction Generic Classification
Determining factors mainly refer to class qualifiers and determining factor names. Therefore, you can use the same determining factor class as often as necessary to include all of the class qualifiers and determining factor names you need. For example, a determining factor set may require both the Ship From and Ship To class qualifiers of the Geography determining factor class.
Set the Required option for each determining factor:
Yes - The determining factor applies to all tax condition sets that use this determining factor set.
No - The determining factor is optional for all tax condition sets that use this determining factor set.
Tax regime determination is the first step in the tax determination process. A regime determination set differs from tax rule determining factor sets in that the determining factors are location types only. E-Business Tax compares the location types in the active regime determination set to the locations specified on the transaction to identify the countries associated with each location and the tax regimes associated with each country. See: Determining Applicable Tax Regimes and Candidate Taxes for more information.
This table lists the determining factor class and determining factor names available for regime determination sets:
| Determining Factor Class | Determining Factor Name |
|---|---|
| Transaction Input Factor | Bill From Location |
| Transaction Input Factor | Bill To Location |
| Transaction Input Factor | Internal Organization Location |
| Transaction Input Factor | Ship From Location |
| Transaction Input Factor | Ship To Location |
| Transaction Input Factor | Paying Location |
By default, the active regime determination set for all Payables and Receivables transactions for all configuration owners is Determine Applicable Regimes (TAXREGIME). This regime determination set contains all location types except Paying Location.
You can set up alternative regime determination sets and assign them to specific configuration owners and application event class combinations. You may want to do this, for example, if you know that the transactions of an event class require fewer location types to derive the eligible tax regimes.
E-Business Tax also provides the seeded regime determination set STCC (Standard Tax Classification Code) for use with tax classification codes and migrated data. The STCC regime determination set uses the single determining factor Tax Classification Code instead of the Transaction Input Factor and location types. See: Using Tax Classification Codes for more information.
Before you can set up a regime determination sets, you may need to complete one or more of these tasks:
Set up tax regimes. (mandatory)
Set up tax zones types and tax zones. (optional)
To set up a regime determination set:
Navigate to the Create Tax Determining Factor Set page.
Enter a code and name for the tax determining factor set.
Select the set usage Tax Regime Determination.
Enter the location types to use as determining factors for this regime determination set.
Include only the location types that appear on transactions for the applicable configuration owner/event class combination.
Set the regime determination level for each determining factor:
Country - Regime determination occurs at the country level for this location type.
Zone - Regime determination occurs at the tax zone level for this location type.
Assign the regime determination set to the configuration owner and event class. See: Setting Up Configuration Owner Tax Options for more information.
Set up tax condition sets to group together the tax conditions that constitute a tax rule. You can set up tax condition sets in advance and apply them to a tax rule, or you can set up a tax condition set during tax rule creation.
The tax condition set is the logic of the tax rule. It specifies the factors to consider, and the resulting value that must exist for each factor, in order for the result of the tax rule to be true.
Each tax condition in a tax condition set consists of a tax determining factor (determining factor class/class qualifier/determining factor name), an operator, and a value. These examples illustrate the use of tax conditions.
Example 1
Tax regulation: If a customer and supplier are not registered for Tax A, then Tax A does not apply to the transaction.
Tax conditions:
| Tax Condition | Determining Factor Class | Class Qualifier | Determining Factor Name | Operator | Value |
|---|---|---|---|---|---|
| 1 | Registration | Ship From Party | Registration Status | Equal To | Not Registered |
| 2 | Registration | Ship To Party | Registration Status | Equal To | Not Registered |
Example 2
Tax regulation: State Tax B applies to intrastate sales of Products 11 and 12.
Tax conditions:
| Tax Condition | Determining Factor Class | Class Qualifier | Determining Factor Name | Operator | Value |
|---|---|---|---|---|---|
| 1 | Geography | Ship From | State | Not Equal To Determining Factor | Ship To |
| 2 | Product - Non-Inventory Linked | Level 2 | Product Category | Range | From Range: Product 11 To Range: Product 12 |
Example 3
Tax regulation: Tax C applies to all export sales.
Corresponding tax conditions:
| Tax Condition | Determining Factor Class | Class Qualifier | Determining Factor Name | Operator | Value |
|---|---|---|---|---|---|
| 1 | Geography | Ship To | Country | Not Equal To Determining Factor | Ship From |
| 2 | Transaction Generic Classification | Level 1 | Transaction Business Category | Equal To | Sales Transaction |
A tax condition set should reflect both the tax regulations of a tax authority and your business requirements, for the application of a specific tax to a specific set of circumstances. When the elements of the transaction meet all of the tax regulations, then the rule result is true and the rule applies to the transaction.
See: Translating Tax Regulations into Tax Rules for more information about using tax conditions in tax rules.
See: Setting Up Country-Specific Taxes, Oracle E-Business Tax Implementation Guide for complete examples of tax conditions used in tax rules.
Important: Due to performance issues, you should use a maximum of ten determining factors in one tax condition set.
Before you can set up tax condition sets, you may need to complete one or more of these tasks:
Set up determining factor sets. (mandatory)
Set up values for the applicable determining factor classes. (mandatory)
To set up a tax condition set:
Navigate to the Create Tax Condition Set page.
Enter a code and name for the tax condition set.
Enter or create the determining factor set to use with this tax condition set.
See: Setting Up Tax Determining Factor Sets for information about creating a determining factor set.
If the determining factor set uses the Accounting determining factor class, enter the ledger to use with this tax condition set.
If this tax condition set is for the tax regimes of a specific country, enter the country name.
Navigate to the Create Tax Conditions page.
E-Business Tax displays all of the determining factors belonging to the determining factor set. From the point of view of the tax condition set, each determining factor--together with the operator and value that you define--becomes a tax condition.
If you do not want to use a tax condition, check its Ignore Condition box.
If a determining factor has the Required option enabled in the determining factor set, then you must use the tax condition in the tax condition set.
Set the operator to use for the tax condition:
Equal To/Not Equal To - Either the condition is equal to a single value, or the condition excludes a single value.
Equal To/Not Equal To Determining Factor - Either the condition is equal to a class qualifier of the determining factor class, or the condition excludes a class qualifier of the determining factor class.
Range - The condition is equal to a range of values, any one of which makes the condition true.
Enter the value or range of values for the tax condition:
If the operator is Equal To/Not Equal To, enter a determining factor name value in the Value/From Range field.
If the operator is Equal To/Not Equal To Determining Factor, enter a class qualifier of the determining factor class in the Value/From Range field.
If the operator is Range, enter the determining factor name value range in the From and To fields.
E-Business Tax refers to the code associated with the determining factor name to determine a range of values. A code range is a numeric value in ascending order.
Note: Once you use a tax condition set to create a tax rule, you can no longer update the condition set.
Set up tax formulas to use in tax rules for taxable basis determination and tax calculation. You set up tax formulas in cases where the tax amount is other than the line amount multiplied by the tax rate.
If a tax does not require a more complex formula for taxable basis determination or tax calculation, you can set up E-Business Tax to use the standard formulas.
You can set up a tax formula for these tax rules:
Determine Taxable Basis. This rule determines the amount or quantity on the transaction line that E-Business Tax uses to apply the tax rate. The standard taxable basis formulas are Taxable Basis = Line Amount and, for quantity-based rates, Taxable Basis = Quantity. If the tax requires a taxable basis other than the line amount or the line quantity, then create a taxable basis tax formula, and either associate it with a Determine Taxable Basis tax rule for the applicable tax regime and tax or set it as the default taxable basis for a tax.
For example, if the tax requires compounding with other taxes, then define a taxable basis formula and specify these taxes in the formula. If the taxable basis needs to be multiplied by a factor, you can specify this as a base rate modifier.
Calculate Tax Amounts. This rule determines the calculation E-Business Tax uses to calculate the tax amount on the transaction line. The standard tax calculation formula is Tax Amount = (Taxable Basis) * (Tax Rate). If the tax amount is to be altered by adding or subtracting the tax amount of another tax , then create a tax calculation tax formula, and either associate it with a Calculate Tax Amounts tax rule for the applicable tax regime and tax or set it as the default tax calculation formula for a tax.
The formula details of a taxable basis tax formula specify how the information on the transaction line is used to derive the taxable base amount. E-Business Tax then calculates the tax amount using the taxable base amount. Taxable basis tax formulas always apply to a specific tax regime and tax.
A tax calculation tax formula first applies the tax rate percentage to the taxable basis and alters the resulting (provisional) tax amount by adding or subtracting the tax amounts of taxes you entered in the compounding details. You can create a tax calculation tax formula for a specific tax regime and tax, or you can create a generic tax calculation tax formula without a tax assignment. At transaction time, E-Business Tax selects the tax calculation formula to use based upon a successfully evaluated tax rule.
Before you can set up a tax formula, you may need to complete one or more of these tasks:
Set up tax regimes. (mandatory)
Set up taxes. (mandatory)
Enable the applicable cross-regime compounding and compounding precedence. (optional)
To set up a tax formula:
Navigate to the Create Tax Formula page.
Enter the configuration owner for this tax formula.
All tax formulas refer to the tax regimes and taxes of the configuration owner.
Enter the tax formula code and name to identify this tax formula.
Use a naming convention that identifies both the use and ownership of this tax formula. This can include the formula type, the taxable basis, the tax regime, and the tax.
If applicable, enter the regime code to associate with this tax formula. You must enter a regime code if:
Configuration owner is a legal entity or operating unit, that is, the tax formula is not shared with other configuration owners.
Tax formula applies to a specific tax regime only.
This is a taxable basis tax formula.
If applicable, enter the tax to associate with this tax formula. These rules apply to entering a tax:
Enter a tax if the tax formula applies only to a specific tax within a tax regime.
Enter a tax if this is a taxable basis tax formula.
Enter the effective date range for this tax formula.
Depending upon the use of the tax formula, enter a date range that is within the date range of the tax regime, tax, and the tax rules that use this formula.
Select the formula type of Tax Calculation or Taxable Basis.
If this is a taxable basis tax formula, select the taxable basis type:
Assessable Value - Taxable base amount is the special value associated with the transaction item.
Line Amount - Taxable base amount is:
Transaction line amount.
Line amount plus any associated charges and/or minus any associated discounts.
Line amount plus the calculated tax amount of another tax or taxes.
Prior Tax - Taxable base amount is based on the calculated tax amount of a another tax or taxes not part of the line amount.
Quantity - Taxable base amount derives from the number of units per measure for a tax associated with a quantity-based rate.
If the taxable basis type is Line Amount, complete the Line Amount Options region. If you leave the region fields blank and do not enter compounding details, E-Business Tax uses the standard formula Taxable Basis = Line Amount:
Base Rate Modifier - Enter the percentage rate (without using the percent sign) by which the line amount is increased or decreased. Enter a negative base rate to decrease the line amount. For example:
To increase the taxable basis from 1000 to 1500, enter 50.
To decrease the taxable basis from 1000 to 400, enter -60.
Subtract Cash Discount - Subtract any cash discount specified on the transaction line from the line amount (Receivables transactions only).
If the taxable basis type is Line Amount or Prior Tax, or if this is a tax calculation tax formula, enter the compounding regime code and compounding tax in the Create Tax Formula Compounding Details region:
If the tax regime entered in the formula header region does not have cross-regime compounding enabled, then you can only enter this tax regime. The available taxes are limited to the taxes in this tax regime with a lower compounding precedence than the compounding precedence of the tax entered in the formula header region.
If the tax regime entered in the formula header region has cross-regime compounding enabled, then you can enter any tax regime that has a lower compounding precedence than the tax regime entered in the header region.
If the taxable basis type is Line Amount, the tax is calculated based on the transaction line amount plus the compounding tax amount.
If the taxable basis type is Prior Tax, the tax is calculated based on the calculated tax amount of the compounding tax.
If this is a tax calculation tax formula, use the compounding rule to add or subtract the tax amount of a compounding process to or from the standard or provisional tax amount. (The standard or provisional tax amount is arrived at by applying the tax rate to the taxable basis.)
If applicable, enter any additional tax regimes and taxes. Taxes are compounded in ascending order, beginning with the first tax regime and tax entered.
Set the Enforce Compounding option to Yes if you want E-Business Tax to display an error message if, during tax calculation, this compounded tax is not considered applicable to the transaction line.
Use the Update Tax Formula page to update the details of a tax formula. By default, a tax formula is enabled for use according to the effective date range. If an active tax rule is using the tax formula, then you can only disable the tax formula, or apply an end date if one did not exist. A disabled tax formula also disables all parts of the tax rules that use this formula.
These rules apply to updating the other fields of a tax formula:
If you change the formula type, then complete the required setup for the new formula.
If you change the tax and/or tax regime assigned to the tax formula, then update any cross-regime compounding according to the new tax regime/tax assignment.