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Oracle E-Business Tax User Guide
Release 12.1
Part Number E13631-03
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Setting Up and Using Tax Rules

Tax Rules in Oracle E-Business Tax

The E-Business Tax tax determination process uses your tax configuration setup and the details on the transaction to determine:

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:

  1. Determine Place of Supply - Determines the location where a transaction is considered to have taken place for a specific tax.

  2. Determine Tax Applicability - Determines the taxes that apply to a given transaction.

  3. Determine Tax Registration - Determines the party whose tax registration status is considered for an applicable tax on the transaction.

  4. Determine Tax Status - Determines the tax status of each applicable tax on the transaction.

  5. Determine Tax Rate - Determines the tax rate for each applicable tax on the transaction.

  6. Determine Taxable Basis - Determines the amount upon which to apply the tax rate.

  7. 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:

See: Tax Recovery Processing for a description of each step in the tax recovery process.

The single rule type used for tax determination is:

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:

Tax Authority Regulations and Tax Rules

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:

See: Setting Up Country-Specific Taxes, Oracle E-Business Tax Implementation Guide for examples of tax rule setups in different tax regimes.

Tax Determination Processing

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.

Process Checklist for Tax Determination and Tax Calculation

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
  • Determine the first party of the transaction.

  • Identify location types to derive candidate tax regimes.

  • Identify tax regimes.

  • Identify taxes using subscriber configuration option.

  • Party Tax Profile

  • Regime Determination Set

  • Configuration Options

2 Determine Place of Supply and Tax Jurisdiction
  • Identify location type.

  • Identify jurisdiction.

  • Tax Rule: Determine Place of Supply, or the default value for Place of Supply for the tax.

  • Tax Jurisdictions

3 Determine Tax Applicability
  • Consider candidate taxes from the previous process.

  • Eliminate taxes based on tax applicability rule for each tax.

  • Tax Rule: Determine Tax Applicability and the default value for applicability for the tax.

4 Determine Tax Registration
  • Determine the party type to use to derive the tax registration for each applicable tax.

  • Tax Rule: Determine Tax Registration, or the default value for the tax.

  • Party Tax Profile

  • Tax Registration

5 Determine Tax Status
  • Consider tax statuses of applicable taxes.

  • Consider tax status rules or use default tax status.

  • Tax Rule: Determine Tax Status, or the default value defined for the tax.

6 Determine Tax Rate
  • Consider tax rates of each applicable tax status of each applicable tax.

  • Determine the tax rate code to use for the tax status, for each applicable tax.

  • Determine the tax rate percentage or per-unit tax amount for a quantity based tax.

  • If a tax exception applies, update the tax rate for each applicable tax.

  • If a tax exemption applies, update the tax rate.

  • Tax Rule: Determine Tax Rate, or the default value defined for the tax status derived in the previous process.

  • Tax Rates

  • Product Tax Exceptions

  • Customer Tax Exemptions

7 Determine Taxable Basis
  • Identify the taxable basis formula for each applicable tax.

  • Determine the taxable basis and compounding details based on the taxable basis formula.

  • Consider the Tax Inclusive settings of the applicable taxes.

  • Tax Rule: Determine Taxable Basis, or the default value for the tax.

  • Taxable Basis formula

  • Tax Inclusive settings at the tax rate level

8 Calculate Taxes
  • Identify the tax calculation formula.

  • Calculate taxes using the tax calculation formula.

  • Perform applicable tax rounding.

  • Tax Rule: Calculate Tax Amounts

  • Calculate Tax formula (if applicable)

  • Tax Rounding Rule from registration, account site, party tax profile, or tax

  • Configuration Owner Tax Options

Determine Applicable Tax Regimes and Candidate Taxes

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.

  1. Determine the first party of the transaction. The first party is either the legal entity or operating unit:

    E-Business Tax uses the first party legal entity or operating unit to:

    See: Setting Up an Operating Unit Tax Profile for more information.

  2. Determine the regime determination set:

  3. Determine the applicable tax regimes:

  4. Derive the list of candidate taxes based on the tax regimes and the configuration option setting of the first party:

Determine Place of Supply and Tax Jurisdiction

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.

  1. Consider the Determine Place of Supply tax rule of the first candidate tax.

  2. Use the location type derived from the tax rule for the tax. The possible location types are:

  3. 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.

  4. 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.

  5. Repeat steps 1 to 4 for each candidate tax.

  6. Create refined list of candidate taxes.

Determine Tax Applicability

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.

  1. 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.

  2. Either use the value derived from the tax rule, or the rule type default value.

  3. Repeat steps 1 and 2 for each candidate tax.

  4. Identify the final tax or list of taxes by eliminating the taxes that have an applicability value of Not Applicable.

Determine Tax Registration

This process determines the party whose tax registration is used for each tax on the transaction, and, if available, derives the tax registration number.

  1. Consider the Determine Tax Registration tax rule of the first tax.

  2. 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:

  3. Repeat steps 1 and 2 for each tax, if applicable.

  4. 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:

    See: Setting Up a Tax Registration for more information.

Determine Tax Status

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.

  1. Consider the Determine Tax Status tax rule of the first tax.

  2. 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.

  3. If no rule applies, then use the default tax status of the tax.

    See: Setting Up Tax Statuses for more information.

  4. Repeat steps 1 to 3 for each tax, if applicable.

  5. Identify the tax status or statuses.

Determine Tax Rate

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.

  1. Consider the Determine Tax Rate tax rule of the first tax status.

  2. 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.

  3. 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.

  4. Repeat steps 1 to 3 for each tax status, if applicable.

  5. Identify the tax rate to use for each tax.

  6. For each tax, identify the tax rate percentage to apply to the transaction:

  7. For each tax, if a product tax exception applies to the transaction:

    See: Setting Up Tax Exceptions for more information.

  8. 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.

  9. Identify the tax rate percentage or percentages to use on the transaction.

Determine Taxable Basis

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.

  1. Consider the Determine Taxable Basis tax rule.

  2. 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.

  3. If the rule conditions do not apply, then use the default taxable basis tax formula.

  4. Determine the taxable basis type and compounding details based on the taxable basis tax formula.

  5. 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.

Calculate Taxes

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.

  1. Consider the Calculate Taxes tax rule.

  2. Use the tax calculation tax formula derived from the tax rule, if there is one.

  3. 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.

  4. 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.

  5. 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:

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:

  1. 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.

  2. If E-Business Tax finds an applicable tax profile, then use the rounding level and rounding rule of the tax profile.

  3. 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.

  4. If E-Business Tax does not find an applicable tax profile, then use the rounding level setting of the configuration owner tax option.

  5. 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.

  6. If the rounding level is Line:

    1. For each tax line, use the rounding rule belonging to the tax registration of the party type derived from the Determine Tax Registration process.

    2. 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.

    3. 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:

      1. Refer to the party or party site of the first party type defined in the rounding precedence hierarchy.

      2. Use the rounding rule of the party/party site tax registration, if defined.

      3. If not defined, use the rounding rule of the party/party site account site details, if defined.

      4. If not defined, use the rounding rule of the party/party site tax profile, if defined.

      5. If not defined, repeat steps 1 to 4 for each rounding party in the rounding precedence hierarchy.

      6. If a rounding rule is found, use this rounding rule to perform the rounding. The process ends.

      7. 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.

Tax Recovery Processing

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.

  1. 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.

  2. 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.

  3. Determine recovery rates - For each tax distribution, E-Business tax determines the recovery rate:

    1. For the first recoverable tax distribution, consider the Determine Recovery Rate tax rule.

    2. Use the tax recovery rate derived from the tax rule.

    3. 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.

    4. 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.

    5. Repeat steps 1 to 4 for each recoverable tax distribution, if applicable.

  4. 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.

  5. 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.

Rule Order and Rule Evaluation

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:

  1. 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:

    1. Evaluate each of the selected rules in order of priority.

    2. 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

    3. If a rule is successfully evaluated, then the result associated with the rule is used.

    4. 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.

  2. 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.

  3. 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.

  4. 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.

  5. 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.

Rule Evaluation on Updated Tax Lines

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
  1. Retrieves the rate for the rate code that is specific to the jurisdiction, if one exists.

  2. If a rate does not exist for the jurisdiction, retrieves the rate for the rate code without a jurisdiction specified.

  3. Performs the Determine Taxable Basis and Calculate Tax Amount tax determination processes, and evaluates the rules defined for them.

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:
  • Changes the taxable basis by dividing the new tax amount by the rate; or

  • Derives the tax rate by dividing the new tax amount by the taxable amount.

Tax Rules and System Performance

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:

Translating Tax Regulations into Tax Rules

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.

Setting Up Tax Rules: Guided Rule Entry

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:

Prerequisites

Before you can set up a tax rule, you may need to complete one or more of these tasks:

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:

Tab Region Determining Factor Class and Names
Transaction Locations
  • Geography: TCA geography types

  • User-Defined Geography: Tax zone types

Transaction Additional Factors available on Transaction line
  • Transaction Input Factor: Intended Use

  • Transaction Input Factor: Line Class

  • Transaction Input Factor: Product Type

  • Transaction Input Factor: TAX_CLASSIFICATION_CODE

  • Transaction Input Factor: User Defined Fiscal Classification

Transaction Documentation Classification
  • Document: Document subtype

Transaction Transaction Business Category
  • Transaction Generic Classification: Transaction Business Category

Transaction Transaction Fiscal Classifications
  • Transaction Fiscal Classification: Transaction fiscal classification types

Party Party Classification
  • Party Fiscal Classification: Party fiscal classification types

Party Legal Classification Tax Usage
  • Legal Party Fiscal Classification: Legal activity codes

Party Registration Status
  • Registration: Registration Status

Product Product Classification
  • Product - Inventory linked: Oracle Inventory-based product fiscal classification types

Product Non-Inventory based Product Classification
  • Product - Non-Inventory linked: Product Category product fiscal classification types

Product Intended Use
  • Transaction Input Factor: Intended Use

Product Account based Intended Use
  • Accounting: Line Account

To set up a tax rule using the guided rule entry:

  1. Navigate to the Tax Rules page.

  2. 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.

  3. 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.

  4. Navigate to the Create Tax Rule: General Information page by selecting the Guided Rule Entry icon for the rule type that you want.

  5. If applicable, enter tax law information:

  6. If you did not use tax law information, enter a rule code and name.

  7. 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.

  8. If this tax rule applies to specific transactions only, select the event class category for this tax rule:

  9. If this tax rule applies to a specific geographical location only, enter the geographical information:

    See: Rule Order and Rule Evaluation for a description of how E-Business Tax evaluates tax rules for specific transactions and locations.

  10. Navigate to the Create Tax Rule: Determining Factors and Conditions page.

  11. 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.

  12. Navigate to the Create Tax Rule: Condition Results page.

  13. 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.

  14. Navigate to the Create Tax Rule: Rule Order page:

    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.

  15. Navigate to the Create Tax Rule: Rule Templates page.

  16. Assign names and save the determining factor set and tax condition set that you created for this tax rule:

    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.

Setting Up Tax Rules: Expert Rule Entry

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:

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:

  1. Navigate to the Tax Rules page.

  2. 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.

  3. 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.

  4. Navigate to the Create Tax Rule: General Information page by selecting the Expert Rule Entry icon for the rule type that you want.

  5. If applicable, enter tax law information:

  6. If you did not use tax law information, enter a rule code and name.

  7. 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.

  8. If applicable, enter additional context information for the rule type:

  9. If this tax rule applies to specific transactions only, select the event class category for this tax rule:

  10. If this tax rule applies to a specific geographical location only, enter the geographical information:

    See: Rule Order and Rule Evaluation for a description of how E-Business Tax evaluates tax rules for specific transactions and locations.

  11. 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.

  12. Navigate to the Create Tax Rule: Rule Conditions page.

  13. Enter the tax condition sets for this rule:

  14. 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.

  15. 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.

  16. Navigate to the Create Tax Rule: Rule Order page.

  17. 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.

  18. Enable the tax rule to use it in tax determination.

Using Direct Tax Rate 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
  • If the Direct Tax Rate Determination rule is not evaluated successfully, then the tax is not considered applicable.

  • If the rule is evaluated successfully, the tax is applicable and E-Business Tax retrieves the tax status and, if specified, the tax rate from the rule.

3 Determine Place of Supply and Tax Jurisdiction E-Business Tax identifies the location type and the tax jurisdiction:
  • If a jurisdiction is found, go to step 4.

  • If a jurisdiction is not found and it is not a migrated tax, then the tax is eliminated and the process ends.

  • If a jurisdiction is not found and it is a migrated tax without multiple jurisdictions, go to step 4.

4 Determine Tax Registration Same as the standard execution.
5 Determine Tax Status N/A - Already completed in step 2.
6 Determine Tax Rate
  • If a tax rate was not specified in step 2, then use the standard execution.

  • If a tax rate was specified in step 2, then identify the tax rate percentage to apply to the transaction and continue with the standard execution.

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.

Prerequisites

Before you can set up a tax rule for direct tax rate determination, you may need to complete one or more of these tasks:

To set up a Direct Tax Rate Determination tax rule:

  1. Navigate to the Tax Rules page.

  2. Enter the configuration owner, tax regime code, and tax.

  3. Navigate to the Create Tax Rule: General Information page by selecting the guided rule entry.

  4. Complete the General Information page.

  5. Navigate to the Create Tax Rule: Rule Conditions page.

  6. Enter the tax condition set for this rule.

  7. 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.

  8. Enter the tax rule applicability result, status result, and rate result for the tax condition set.

  9. Enter the order in which to consider each tax condition set to satisfy the rule.

  10. Navigate to the Create Tax Rule: Rule Order page.

  11. Enter a number to indicate the order in which to consider this tax rule for tax evaluation.

  12. Enable the tax rule to use it in tax determination.

Using Tax Classification Codes in Tax Rules

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:

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.

Tax Processing Using Standard Tax Classification Codes (STCC)

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
  1. Set up configuration owner tax options for the combination of configuration owners and application event classes that you need, and assign them the STCC regime determination set.

    The STCC regime determination set uses the single determining factor Tax Classification Code, instead of location types.

  2. At transaction time, E-Business Tax does not look at the location types, but uses the tax classification code on the transaction line to look up the Direct Tax Rate Determination rules defined for the configuration owner that has conditions matching the tax classification code.

  3. E-Business Tax also looks for a tax with a tax rate code that matches the tax classification code. If one exists, then this tax is added to the list of 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.

Products that Require Tax Classification Codes

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:

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

Managing Tax Rules

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.

Reordering Tax Rules

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:

  1. Select a rule type and navigate to the Reorder Rules page.

  2. Rearrange the numbering in the Rule Order column according to your requirements.

Updating Tax Rules

You can update these parts of a tax rule:

Setting Up Tax Determining Factor Sets

Set up tax determining factor sets to group together related tax determining factors. You create determining factor sets for:

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.

Determining Factor Classes and Tax Condition Values

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:

The following provides an example:

Before you can set up a tax determining factor set, you must complete these setup tasks for determining factors:

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
  1. Line Class (LC)

  2. Product Type (PT)

  3. Intended Use (IU)

  4. Tax Classification Code (TCC)

  5. User Defined Fiscal Classification (UDFC)

  1. LC = Transaction event classes and activities.

  2. PT = Goods or Services (seeded values only).

  3. IU = Product Intended Use fiscal classification codes

  4. TCC = Tax classification codes.

  5. UDFC = User defined fiscal classification codes.

  1. LC = WIP

  2. PT = WIP

  3. IU = WIP

  4. TCC = My Oracle Support Note 801535.1, How To Setup and Troubleshoot a Tax Rule using Tax Classification Codes in R12 E-Business Tax

  5. UDFC = WIP

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:

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

Setting Up a Determining Factor Set for Tax Rules

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:

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:

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.

Prerequisites

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:

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:

  1. Navigate to the Create Tax Determining Factor Set page.

  2. Enter a code and name for the tax determining factor set.

  3. Select the set usage Tax Rules.

  4. 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.

  5. 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.

  6. 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:

  7. Set the Required option for each determining factor:

Setting Up a Regime Determination 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.

Prerequisites

Before you can set up a regime determination sets, you may need to complete one or more of these tasks:

To set up a regime determination set:

  1. Navigate to the Create Tax Determining Factor Set page.

  2. Enter a code and name for the tax determining factor set.

  3. Select the set usage Tax Regime Determination.

  4. 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.

  5. Set the regime determination level for each determining factor:

  6. Assign the regime determination set to the configuration owner and event class. See: Setting Up Configuration Owner Tax Options for more information.

Setting Up Tax Condition Sets

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.

Prerequisites

Before you can set up tax condition sets, you may need to complete one or more of these tasks:

To set up a tax condition set:

  1. Navigate to the Create Tax Condition Set page.

  2. Enter a code and name for the tax condition set.

  3. 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.

  4. If the determining factor set uses the Accounting determining factor class, enter the ledger to use with this tax condition set.

  5. If this tax condition set is for the tax regimes of a specific country, enter the country name.

  6. 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.

  7. 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.

  8. Set the operator to use for the tax condition:

  9. Enter the value or range of values for the tax condition:

Note: Once you use a tax condition set to create a tax rule, you can no longer update the condition set.

Setting Up Tax Formulas

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:

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.

Prerequisites

Before you can set up a tax formula, you may need to complete one or more of these tasks:

To set up a tax formula:

  1. Navigate to the Create Tax Formula page.

  2. Enter the configuration owner for this tax formula.

    All tax formulas refer to the tax regimes and taxes of the configuration owner.

  3. 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.

  4. If applicable, enter the regime code to associate with this tax formula. You must enter a regime code if:

  5. If applicable, enter the tax to associate with this tax formula. These rules apply to entering a tax:

  6. 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.

  7. Select the formula type of Tax Calculation or Taxable Basis.

  8. If this is a taxable basis tax formula, select the taxable basis type:

  9. 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:

  10. 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:

  11. If applicable, enter any additional tax regimes and taxes. Taxes are compounded in ascending order, beginning with the first tax regime and tax entered.

  12. 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.

Updating a Tax Formula

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: