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Tax Control Methods

You can control tax name defaulting in Oracle Purchasing and Oracle Payables using the Item Method or the Account Method.

Note: Although you can set up Payables to automatically default tax names to invoices, in many tax regimes the supplier invoice is a legal document that governs the tax which is due, and any defaulted tax name should by updated in accordance with the tax name shown on the supplier invoice.

Controlling Tax From Item and Destination - Item Method

Using the Item method, the tax name for a transaction defaults based on the inventory item and source (point of supply). You can select from and rank the following sources to define your tax defaulting hierarchy: PO for Matched Invoices, Supplier Site, Supplier, Account, Financials Options, Invoice Header, Template.

Typically, with the Item Method, the system searches for a tax name at all levels except the Account level. The Item Method is most suitable for implementations that are closely integrated with Oracle Purchasing, where tax names may be associated with inventory items on a purchase order and copied to the invoice during purchase order matching. See: Tax Defaults in Purchasing.

See: Defaulting Tax in Payables

Controlling Tax from Natural Account - Account Method

Use the Account Method if your chart of accounts is constructed around tax compliance. When you use the Account Method, the system assigns a tax name based on the expense or asset account, and ignores any tax names from the supplier, supplier site, or financials option. When you use this method, you assign to a tax name one or more expense or asset accounts. When you record a transaction, Payables checks if the expense or asset account has a tax name assigned to it, and if it does, Payables records the tax on that transaction in the tax account.

By validating the tax name for your invoice distributions against the tax name assigned to your account, you can ensure that the tax amounts on your tax returns reconcile to the tax control accounts and that the taxable amounts on your tax returns reconcile to the Profit and Loss accounts. The Account Method is most suitable for implementations where the chart of accounts is set up for strict tax compliance and integration with Oracle Purchasing is not required.

See: Deriving Tax From a Natural Account (Account Method)

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