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Oracle E-Business Tax User Guide
Release 12.1
Part Number E13631-03
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Managing Transactions

Transactions and Oracle E-Business Tax

E-Business Tax calculates the tax on a transaction based on the legal entity/operating unit setup, and the tax configuration and tax rules setup. The entire calculation process is transparent to the user. The tax used on the transaction belongs to the tax regime assigned to the legal entity or operating unit. The actual tax rate or rates used, and the manner in which rates are derived and calculated, depends on these factors:

Invoice tax lines capture the information that is used to determine the applicable taxes on a transaction. Depending on the details of your tax setup, you can enter new tax lines and update the calculation of existing tax lines.

Related Topics

Updating Establishments, Oracle Financials Implementation Guide

Party Tax Profiles in Oracle E-Business Tax

Managing Event Class Settings

Tax Determination Processing

Tax Handling on Transactions

E-Business Tax calculates tax on Order to Cash transactions from Projects and Receivables and on Procure to Pay transactions from Purchasing and Payables. In addition, E-Business Tax calculates tax on transactions from applications that feed data into Payables or Receivables. These applications are called source applications. E-Business Tax supports tax handling on transactions from the source application Trade Management.

A source application can feed data, for example, into Payables for the recording and payment of invoices or into Receivables for invoicing customers or handling adjustments to invoices. The tax determination process only takes place after these applications interface data into Payables or Receivables.

Transactions from source applications sometimes require different tax handling from a regular sales or purchase invoice. For example, a rebate created in Trade Management and credited to a customer account through a credit memo may not include a new tax calculation, as the tax authority may not allow you to adjust your tax liability downward. You can define tax rules for source application event classes to manage these special situations. See: Tax Rules in Oracle E-Business Tax for more information.

This section describes the details of tax handling on certain types of transactions.

Payables Invoices Matched to Purchase Orders

When you create an invoice in Payables by matching it to a purchase order, Payables copies the purchase order tax lines and tax-related information to the invoice and recalculates the tax. The tax rate that is used in tax calculation is always derived from the invoice date.

If the tax rate has not changed between the purchase order date and the invoice date, then the tax calculation results in the same tax lines on the invoice as on the purchase order shipment line. If the tax rate has changed between the purchase order date and the invoice date, then the tax calculation results in the same tax lines but using the tax rate that corresponds to the invoice date.

E-Business Tax manages the updates to tax-related information in this way:

  1. Tax applies to the purchase order but not to the invoice - The tax line appears with a zero amount.

  2. Tax applies to both the purchase order and the invoice but with different tax rate codes and tax rates - The tax line appears with the tax amount as calculated by the invoice. The tax line is created with the tax rate code and tax rate effective on the invoice date. Payables displays the tax rate variance at the distribution level.

    If the Enforce Tax From Reference Document tax option is enabled for the applicable configuration owner and event class, the tax line for the invoice inherits the corresponding tax rate code and recovery rate code (if applicable) from the purchase order, but the actual tax rate and recovery rate used in the tax calculation are the rates defined for the rate period that corresponds to the invoice date.

Prepayment Invoices

When you apply a prepayment to an invoice, the tax rate at the time of prepayment may differ from the tax rate at the time the prepayment is applied to an invoice. E-Business Tax considers the tax calculated on the prepayment according to the value assigned to the Applied Amount Handling option in the tax record. The values are Recalculated and Prorated.

For example, you apply a prepayment amount of $5000 to an invoice with a total amount of $10,000. At the time of prepayment the applicable tax rate was 5% ($250 tax on the prepayment); at the time of invoice creation the applicable tax rate is 10%. E-Business Tax calculates the tax in this way:

Note: If a particular tax is not required for prepayment invoices, you can set up a Determine Tax Applicability rule for the tax using the Transaction Generic Classification determining factor and the Transaction Business Category determining factor name of Purchase Prepayment. See: Determine Tax Applicability for more information.

Debit Memos and Credit Memos

There are two types of debit/credit memos: On Account and Applied. E-Business Tax uses a different tax calculation method for each type.

Receivables Credit Transactions

In Receivables, you can create credit transactions (applied credit memos) at the header level or the line level.

Header level - There are three options available for credit allocation:

Line level - You can credit individual lines. The tax line is credited in proportion to the line amount credit.

Payables Price Corrections

In Payables, you can create a new invoice to correct the quantity or amount of an existing invoice. The correction results in a change in line amount, either positive or negative. E-Business Tax calculates the tax on the new invoice created as a result of the price correction in proportion to the taxes on the original corrected invoice.

For example, an original invoice has a line amount of $100, and two tax lines one of $5 and $10. If the price correction reduces the line amount by $20, then the new invoice creates two tax lines of -$1 and -$2.

Intercompany Transactions

Intercompany transactions must account for tax on both the Receivables (sale) and Payables (purchase) side. If the transaction is between legal entities in different tax regimes, then you may need to account for the tax charged on the sale in a different manner from the purchase.

E-Business Tax accounts for intercompany transactions in this way:

If any special implications apply to intercompany transactions, you can use the transaction business category Intercompany Transaction to identify these transactions. See: Setting Up Transaction Fiscal Classifications for more information.

Related Topics

Entering Invoices with Matched Purchase Orders in the Invoice Workbench, Oracle Payables User Guide

Entering Prepayment Invoices in the Invoice Workbench, Oracle Payables User Guide

Debit Memos, Oracle Receivables User Guide

Credit Memos, Oracle Receivables User Guide

Price Corrections, Oracle Payables User Guide

Intercompany Balancing, Oracle Financials Implementation Guide

Setting Up Taxes

Setting Up Configuration Owner Tax Options

Entering and Updating Tax Lines

Enter and update detail and summary tax lines according to the requirements of your transactions. You can perform these operations on tax lines:

The following sections describe the settings and rules that apply to each tax line operation.

Entering a Manual Tax Line

These requirements apply to entering a manual detail or summary tax line:

  1. Enable these options for the configuration owner and application event class:

  2. The Allow Entry of Manual Tax Lines option is enabled for the tax.

    See: Setting Up Taxes.

  3. Tax regime, tax, tax status, tax rate, tax amount, and place of supply are always mandatory for tax lines.

  4. The combination of tax regime and tax is unique for each tax line that applies to the same transaction line. You cannot enter a manual tax line for a tax that already exists for the transaction line.

  5. You must enter a tax status to enter a tax rate.

  6. You must enter a tax regime, tax, tax status, and tax rate to enter a tax amount.

  7. The tax calculation on a manual tax line is the standard formula of: Tax Amount = Taxable Basis * Tax Rate. E-Business Tax does not evaluate tax rules defined for the tax for any rule type.

Entering Tax Only Tax Lines

You can enter a tax-only invoice in Payables to record tax lines that are not linked to a transaction. A tax-only invoice is used, for example, to record tax lines on purchases that are invoiced separately or to enter tax-only invoices from tax authorities or import agents that record import taxes.

The tax regimes available for selection on tax only tax lines are the tax regimes belonging to the configuration option of the applicable legal entity or operating unit.

For each tax only tax line:

See: Managing Detail Tax Lines for more information about completing tax lines.

Changing Existing Tax Line Information

These requirements apply to changing an existing detail or summary tax line:

  1. The Allow Override for Calculated Tax Lines option is enabled for the applicable configuration owner and application event class.

    If you update automatic tax calculation and you want E-Business Tax to automatically recalculate the tax on the tax lines you enter manually, then you must enable the Allow Recalculation for Manual Tax Lines option.

    If you update automatic tax calculation and you want E-Business Tax to recalculate the tax on all other tax lines on the same transaction, then you must enable the Tax Line Override Impacts Other Tax Lines option.

    See: Setting Up Configuration Owner Tax Options for information about updating event class options.

  2. The Allow Override for Calculated Tax Lines option is enabled for the tax.

    See: Setting Up Taxes.

  3. For Payables transactions, you cannot enter or change detail tax lines while you have unsaved changes to summary tax lines.

  4. E-Business Tax performs a limited evaluation of tax rules on certain updates to a tax line. See: Rule Order and Rule Evaluation for more information.

  5. You can update these fields:

  6. These requirements apply to changing tax statuses:

  7. These requirements apply to changing tax rates:

  8. These requirements apply to changing tax rate percentages or quantity rates:

  9. These requirements apply to changing tax amounts:

  10. These requirements apply to changing the Inclusive option:

Related Topics

Holds, Oracle Payables User Guide

Canceling an Existing Tax Line

These rules apply to canceling an existing detail or summary tax line:

  1. You can only cancel tax lines on Payables transactions.

  2. When you cancel a tax line, both the associated tax line and any distributions that were previously accounted are reversed. If the distributions were not accounted, then the amounts are set to zero.

  3. You cannot reverse a cancelled tax line. If applicable, enter a new manual tax line.

Managing Detail Tax Lines

Use the Detail Tax Lines interface to review and manage Payables and Receivables detail tax lines. Depending on the available settings, you can:

The operations that you can perform depend upon the related application and tax settings. See: Entering and Updating Tax Lines for information about the requirements for entering and updating tax lines.

To view and manage detail tax lines:

  1. Navigate to the applicable application and enter invoice header information.

  2. Navigate to the Detail Tax Lines interface.

  3. Set the required viewing option:

  4. Update existing tax lines or enter new tax lines according to your requirements. All entries and changes apply to a combination of tax regime and tax.

    This table describes the content and user action for each field and option for detail tax lines.

    Field/Option Description
    Tax Regime Code The tax regime for this tax line.
    Tax The tax of the tax regime that applies to this tax line.
    Tax Jurisdiction If applicable, the tax jurisdiction for this tax line. The list of values displays the tax jurisdictions derived from the tax.
    If you select a tax jurisdiction and tax rates are defined for this jurisdiction, then these tax rates are available for this tax line.
    Tax Status The tax status for this tax line. The list of values displays the tax statuses defined for the tax regime and tax.
    Tax Rate Name The tax rate name is displayed when you select a tax rate.
    Tax Rate The tax rate for this tax line. The list of values displays the tax rates defined for the tax regime, tax, tax status, and, if applicable, tax jurisdiction.
    Tax Amount The calculated tax amount for this tax line.
    Taxable Amount The calculated taxable basis amount. The tax amount is derived by applying the tax rate to the taxable amount.
    Cancel If enabled, this option indicates that this tax line is cancelled.
    Inclusive If enabled, this option indicates that the line amount is inclusive of tax.
    Self Assessed If enabled, this option indicates that the tax on this tax line is self assessed. A self-assessed tax is a tax calculated and remitted for a transaction, where tax was not levied but is deemed as due.
    Manually Entered If enabled, this option indicates that this is a manual tax line.
    Place of Supply The location where the transaction is determined to have taken place for this tax regime and tax.
    Calculated Tax Amount The original calculated tax amount, if the tax amount is manually changed.
    Tax Base Modifier Rate The value of the tax base rate modifier as defined in the taxable basis formula.
    Tax Only Line If enabled, this option indicates that this is a tax only tax line. See: Entering Tax Only Tax Lines for more information.
    HQ Registration Tax registration of the legal entity establishment for the tax regime, tax, and tax jurisdiction for this tax line.

Entering Additional Determining Factor Information on Receivables Tax Lines

Use the Additional Tax Determining Factors window to review and enter additional tax information on Receivables transaction lines. E-Business Tax calculates tax on the transaction based on the tax configuration and tax rules setup, as well as any additional tax information that you enter.

You navigate to the Additional Tax Determining Factors window from the Transactions window using the Tax Information button. Updates apply to the transaction of the legal entity and taxation country displayed in the header region. If you enter or update any fields in the Additional Tax Determining Factors window, you must update the Receivables transaction in order to recalculate the tax.

This table describes the fields and user actions in the Additional Tax Determining Factors window.

Field Description
Taxation Country The country in which the transaction is deemed to have taken place for taxation purposes. Once E-Business Tax calculates tax on the transaction, you cannot update this field.
Document Subtype A documentation classification within the application event class of the transaction.
Tax Invoice Date The date associated with the invoice for tax purposes.
Transaction Business Category Used to classify business transactions or identify specific transaction events. All transactions that call E-Business Tax must have a transaction business category assignment. See: Setting Up Transaction Fiscal Classifications for more information.
Product Fiscal Classification Identifies the taxable nature of an Inventory item for tax determination or tax reporting purposes. See: Setting Up Product Fiscal Classifications for more information.
Product Category Identifies the taxable nature of a non-Inventory based item for tax determination or tax reporting purposes. See: Setting Up Product Fiscal Classifications for more information.
Product Type Goods or Services.
Intended Use Identifies the intended use of an Inventory item or non-Inventory based product fiscal classification, when the intended use is a factor either in tax determination or tax recovery. See: Setting Up Product Fiscal Classifications for more information.
User Defined Fiscal Classification Identifies a user-defined transaction fiscal classification required by the transaction for tax determination or tax recovery. See: Setting Up Transaction Fiscal Classifications for more information.
Assessable Value Identifies a special value associated with the transaction item.

Managing Summary Tax Lines

Use the Summary Tax Lines interface to review and manage Payables summary tax lines. Depending on the available settings, you can:

The operations that you can perform depend upon the related application and tax settings. See: Entering and Updating Tax Lines for information about the requirements for entering and updating tax lines.

Note: If you enter or change a summary tax line, you cannot update detail tax lines.

To view and manage summary tax lines:

  1. Navigate to the Payables Invoice Workbench.

  2. Enter invoice header information.

  3. Navigate to the Lines region.

  4. Update existing tax lines or enter new tax lines according to your requirements. All entries and changes apply to a combination of tax regime and tax.

  5. If applicable, use the Allocations window to allocate summary tax lines to specific transaction lines.

This table describes the content and user actions for summary tax lines. This table only lists the summary line fields that apply to tax determination.

Field/Option Description
Tax Regime Code The tax regime for this tax line.
Tax The tax of the tax regime that applies to this tax line.
Tax Status The tax status for this tax line. The list of values displays the tax statuses defined for the tax regime and tax.
Tax Rate Name The tax rate name is displayed when you select a tax rate.
Tax Rate The tax rate for this tax line. The list of values displays the tax rates defined for the tax regime, tax, tax status, and, if applicable, tax jurisdiction.
Tax Jurisdiction If applicable, the tax jurisdiction for this tax line. The list of values displays the tax jurisdictions derived from the tax.
If you select a tax jurisdiction and tax rates are defined for this jurisdiction, then these tax rates are available for this tax line.
Inclusive If enabled, this option indicates that the line amount is inclusive of tax.

Viewing Inclusive Tax Lines

If an invoice is inclusive of tax, the Inclusive option is enabled on both the detail and summary tax lines. If an invoice with multiple tax lines has a mixture of both inclusive and exclusive taxes with the same rate, then the Tax Summary Lines interface displays two tax lines, one with the Inclusive option enabled and one with the option disabled.

If the Allow Override and Entry of Inclusive Tax Lines at the tax rate level is enabled , you can update the applicable Inclusive option.

See: Setting Up Tax Regimes for more information about tax inclusive handling.

Viewing Self-Assessed Tax Lines

Because self-assessed taxes are not present on a supplier invoice, Payables does not include self-assessed tax lines on the Tax Summary Lines interface. After the tax on the invoice is calculated, you can navigate to the Tax Details window to view your self-assessed/reverse charges, or in the United States the calculation of Use tax.

See: Setting Up Parties for Self-Assessment for more information about self-assessed taxes.

Allocating Summary Tax Lines

After you create summary tax lines, you can use the Allocate Summary Tax Lines page to review and allocate your manual summary tax lines to specific transaction lines. You can view the transaction line number, description, line amount, and transaction date of each transaction line.

These conditions apply to allocating summary tax lines:

Managing Tax Distributions

Use the Tax Distributions window to review and update tax distributions. You can review tax distributions and, if applicable, update the tax recovery rate on a tax distribution.

E-Business Tax creates recoverable distributions and calculates tax recovery rates when you save the line distribution, according to the Determine Recovery Rate tax rule process or the default recovery rate.

E-Business Tax creates one recoverable distribution for the primary recovery type and, if applicable, the secondary recovery type, for each tax line for each of the item distributions into which the item line or expense line is distributed. E-Business Tax displays tax distributions in this way:

You can update the recovery rate code if the Allow Recovery Rate Override option is enabled for the tax. You can update the recovery rate if the Allow Ad Hoc Rate option is enabled for the recovery rate. The update method differs according to the transaction application:

If you update the recovery rate on a tax distribution, E-Business Tax also updates the related non-recoverable rate and amount, and the distribution for the tax line.

If applicable, accounting-related setups may affect tax calculation:

This table describes the content and, if applicable, user actions for tax distributions.

Field/Option Description
Recovery Type The recovery type.
Recovery Rate Code The recovery rate associated with the tax line
Recovery/Non-Recovery Rate The recovery rate percentage associated with the recovery rate code.
Recovery Amount The calculated recovery amount.
Frozen If enabled, you cannot update this tax distribution.
Reverse Reverse a frozen tax distribution and enter a new distribution.
Account Account code combination for the distribution line. The tax calculation process derives the account code.
Status Indicates whether the distribution is validated.
Accounting
Indicates whether the accounting is completed.
Functional Amount
Indicates the distribution amount in the ledger currency. This is (invoice currency) * (exchange rate used in the invoice).

Related Topics

Entering Invoice Distributions in the Invoice Workbench, Oracle Payables User Guide

Setting Up Parties for Self-Assessment

Tax Recovery Processing

Managing Tax Exemptions

Enter and update tax exemptions on Receivables transactions according to your requirements. A tax exemption applies a discount or a replacement percentage that reduces the tax on a transaction.

Tax exemptions apply to a specific customer or to a combination of customer and specific product. You must complete the necessary setups for all of the tax exemptions that you need for each customer and customer site involved in transactions. These setups include:

See: Setting Up Tax Exemptions for more information.

Tax Exemption Status and Tax Handling

During the life of a tax exemption, the exemption status can often change. Because the status of a tax exemption affects its applicability on the transaction line, you must update the tax exemption record each time the status changes.

These rules apply to the status of a tax exemption:

  1. Tax exemptions with a status of Primary apply to all transactions of the customer or customer site.

  2. Tax exemptions with a status of Manual apply to specific transactions only of the customer or customer site.

  3. E-Business Tax considers tax exemptions with a status of Manual or Unapproved during tax calculation provided the exempt reason and certificate number entered on the transaction line match the exemption record values.

  4. Tax exemptions with a status of Discontinued or Rejected are not considered during tax calculation.

  5. If a tax exemption with a status of Primary, Manual, or Unapproved has an end date, E-Business Tax considers these tax exemptions if the transaction date is within the effective date range of the exemption.

You use the Tax Handling field to select the applicable tax exemption value for the transaction line. E-Business Tax processes tax exemptions in different ways depending upon the value you choose:

Calculating the Tax Rate

After applying the tax exemption to the transaction line, E-Business Tax calculates the tax rate in this way:

If both a tax exemption and tax exception apply to the same transaction line, E-Business Tax calculates the tax rate in this way:

Using the Oracle Tax Simulator

Use the Oracle Tax Simulator to enter transactions in order to simulate the tax determination process without creating live data. The Oracle Tax Simulator lets you preview the workings of your tax configuration before you enter transactions in an application, such as the Payables or Receivables workbench. In this way a tax manager or implementation consultant can simulate transactions to test the entire tax and related configuration. The Oracle Tax Simulator provides immediate verification that the tax configuration and tax rules were created and applied according to your requirements.

With the Oracle Tax Simulator, you can:

The Oracle Tax Simulator provides these verifications:

Important: These restrictions apply to using the Oracle Tax Simulator:

Using the Transaction Lines Window

Oracle Tax Simulator displays the Transaction Lines window for the entry of detailed transaction and tax information. The Transaction Lines window contains a Header region for entering application, party and general transaction information, and a Lines region for entering detailed information for each transaction line.

Transaction Lines Window Header Region

The list of values available in the Party, Sites, and Location tabbed regions depend on the application for which you are entering the transaction. You must select at least one location for a transaction.

Transaction Lines Window Lines Region

Tax Simulator Analysis Tools

After entering your transaction details, use the Tax Simulator tools to analyze the tax calculations for your transaction: