4Advanced Tax Configuration

This chapter contains the following:

Manage Tax Geographies

Place Information

All tax regimes need information about place or geography. Use place information for determining factors within tax rules in the tax determination process. Also, use place information while defining tax regimes, tax geography, and tax jurisdictions.

Information about place or geography is required to determine:

  • Where the tax is applicable

  • What tax rules to apply to a transaction when goods are:

    • Delivered to another country

    • Delivered inside or outside an economic region such as, the European Community (EC)

  • What the specific regions are, such as:

    • City, county, and state for US Sales and Use Tax

    • Provinces in Canada

To support these requirements, define and use geography regions and tax zones. Geography regions and tax zones provide a conceptual model to use place information on transactions and information related to the transaction.

The following types of places are supported for tax purposes:

  • Country information

  • Geography elements

  • Tax zones

Country Information

Country is a required field in all of the tax-related address locations. The country fields are supported by a predefined ISO 3166 country name and two-character country code. For more information on country names and codes, see http://www.iso.org/iso/english_country_names_and_code_elements.

You don't set up a country as a specific geography level in Trading Community Model geography because country is an inherent part of all tax-related address locations.

Tip: Use the highest level of geography, typically country, wherever possible.

Geography Elements

Define geography elements as part of Trading Community Model geography. They control the use of geography and addresses. Oracle Fusion Tax commonly uses the following features:

  • Geography or tax zones

  • Geography levels

  • Address controls

  • Geography name referencing

Use geography levels to define the levels of geography that are used within a country. It's only relevant elements of the address that are referenced for tax purposes. For example, state, county, and city are used for US Sales and Use Tax. County in the UK isn't relevant from a tax perspective and therefore, you don't need to set it up.

Tip: When address elements are needed for tax purposes, such as county and city for US Sales and Use Tax, set these address levels as mandatory within Trading Community Model geography. This ensures that these elements are always present on all applicable addresses. Setting address levels as mandatory also ensures that amended or newly applicable addresses are validated and that the level is either derived or entered.

When you're setting up migrated addresses ensure that they're compliant with the mandatory levels being present. This should be validated and any address levels added as part of the migration process.

The geography name referencing process within Trading Community Model geography links specific addresses to the levels defined in the geography setup. This process is typically automatic. However, when you encounter issues, you may need to trigger this process to ensure that all addresses are correctly linked to their applicable levels.

Tax Zones

Use the tax zone functionality when you need to identify a group of geography elements while calculating tax. Tax zones are defined as part of Trading Community Model geography.

For example, in the EC it's important to know whether goods and services are being delivered within the EC. Use the tax zone functionality to create a tax zone, which defines the membership to the EC as well as, the dates on which a country became the member.

Tip: Create a generic tax zone so that you create a tax zone type that can be used in multiple situations. For example, for a tax zone type needed to identify EC, create a generic tax zone type for all economic communities, which can later be used in other situations where economic communities or trade agreements affect tax determination.

You can also use the tax zone functionality to group postal codes to provide useful groupings that can identify some higher-level tax regions such as, cities or counties.

Use geography determination factors to specify country information in tax rules. A combination of determination factor class, class qualifier, and determining factor represent these determination factors. Specify the taxation country at transaction time which is used, along with the tax rules, during the tax determination process.

Country Information in Tax Rules

To set up tax rules based on country information, use:

  • Geography as the determining factor class

  • Location type on the transaction as the class qualifier

  • Country as the tax determining factor.

You can also use country as a tax rule qualifier.

The tax determining factors for locations are given generic names such as ship-to and bill-from, depending on the transaction types.

The transaction types are

  • Order-to-cash: For Oracle Fusion Order Management and Oracle Fusion Receivables transactions.

  • Procure-to-pay: For Oracle Fusion Purchasing and Oracle Fusion Payables transactions.

These generic locations are mapped into specific locations based on the transaction as shown in the following table:

Generic Party Order-to-Cash Party Procure-to-Pay Party

Bill-from party

Location assigned to the business unit for the transactions

Supplier

Bill-to party

Customer

Location assigned to the business unit for the transactions

Ship-to party

Customer (ship-to) party site

Ship-to location on the line

Ship-from party

Warehouse on the line. If there is no warehouse on the line, such as with services, the location from the item validation organization in the Receivables system parameters is used.

Supplier (ship-from) party site

Point of acceptance party

Customer point of acceptance party

Not applicable

Point of origin party

Customer point of origin party

Not applicable

Country Information at Transaction Time

Specify the taxation country on the transaction to identify the country in which the transaction is deemed to have taken place for taxation purposes. The default value is the country of the legal entity.

Use the country name to search for country defaults, which control the:

  • Fiscal classification defaults

  • Party tax profile defaults

  • Tax regime defaults

  • Tax defaults

Use the country name to select the following fiscal classifications associated with that specific country:

  • User-defined fiscal classifications

  • Product categories

  • Intended use fiscal classifications

  • Transaction business categories

Example of Using Country Information in Tax Rules

For many regimes, it is important to know if the supply of goods is exported. The easiest way of doing this is to ensure that the ship-from location is from the country in question and the ship-to location is a different country.

The following scenario illustrates setting up tax rule components to identify if the goods are exported from the United States.

Creating Tax Rule Components

Create a tax determining factor set as follows:

Determining Factor Class Class Qualifier Determining Factor Name

Geography

Ship from

Country

Geography

Ship to

Country

Create a condition set that refers to this geography determining factor as follows:

Determining Factor Class Class Qualifier Determining Factor Name Operator Value

Geography

Ship from

Country

Equal to

United States

Geography

Ship to

Country

Not equal to

United States

Use this combination of determining factors in any situation where you need to identify exports from the United States.

How Geography Elements Work in Tax Rules

Geography determination factors allow you to use geography elements in tax rules. A combination of determination factor class, class qualifier, and determining factor represent these determination factors.

Geography Elements in Tax Rules

To set up tax rules based on geography elements, use:

  • Geography as the determining factor class

  • Location type on the transaction as the class qualifier

  • Geography level, such as county, province, or city, as the tax determining factor

You can also use the geography level as a tax rule qualifier.

The tax determining factors for locations are given generic names such as ship to and bill from, depending on the transaction types. The transaction types are:

  • Order-to-cash: For Oracle Fusion Order Management and Oracle Fusion Receivables transactions.

  • Procure-to-pay: For Oracle Fusion Purchasing and Oracle Fusion Payables transactions.

These generic locations are mapped to the specific location, based on the transaction as shown in the following table:

Generic Party Order-to-Cash Party Procure-to-Pay Party

Bill-from party

First-party legal entity

Supplier

Bill-to party

Customer

First-party legal entity

Ship-to party

Customer (ship to) party site

First-party legal entity

Ship-from party

First-party legal reporting unit

Supplier (ship from) party site

Point of acceptance party

Customer point of acceptance party

Not applicable

Point of origin party

Customer point of origin party

Not applicable

Example of Using Geography Levels in Tax Rules

Use the geography element in tax rules to identify a specific geography region when taxes in a country need to identify geography elements for the country level. For example, in US Sales and Use Tax, you may need to create tax rules for a specific state.

The following scenario describes how you can set up tax rule components to identify when goods are being delivered to a specific state, such as Ohio.

Creating Tax Rule Components

Create a tax determining factor set with the following geography elements:

Determining Factor Class Tax Class Qualifier Determining Factor Name

Geography

Ship to

State

Create a condition set that refers to a specific state value as follows:

Determining Factor Class Class Qualifier Determining Factor Name Operator Value

Geography

Ship to

State

Equal to

Ohio

You can use this combination of determining factors in any situation where you need to identify specific deliveries to a specific state.

Manage Tax Zones

How Tax Zones Work in Tax Rules

Geography determination factors allow you to use geography elements in the tax rules. The determination factors include a combination of determination factor class, class qualifier, and determining factor.

Tax Zones in Tax Rules

Use geography as the determining factor class, location type on the transaction as the class qualifier, and tax zone type such as county, as the determining factor.

The tax determining factors for locations are given generic names such as ship-to and bill-from, depending on the transaction types.

These generic locations are mapped to the specific location based on the transaction as shown in the following table:

Generic Party Order-to-Cash Party Procure-to-Pay Party

Bill-from party

First-party legal entity

Supplier

Bill-to party

Customer

First-party legal entity

Ship-to party

Customer (ship to) party site

First-party legal entity

Ship-from party

First-party legal reporting unit

Supplier (ship from) party site

Point of acceptance party

Customer point of acceptance party

Not applicable

Point of origin party

Customer point of origin party

Not applicable

You can also use tax zones as tax rule qualifiers.

Example of Using Tax Zones in Tax Rules

For the European Community (EC) or the European Union (EU), it's important to know whether goods and services are being delivered within the EC. Use the tax zone functionality to create a tax zone that defines the membership of the EC and the dates on which a country became a member.

The following scenario describes the use of a partial condition set that you can use within tax rules to define when a delivery is being made to an EC from the United Kingdom.

Scenario

Use geography as the determining factor class, ship-to as the class qualifier, and all economic communities and country as the determining factors of the tax zone type as shown in the following table:

Determining Factor Class Class Qualifier Determining Factor Name

Geography

Ship-to

All Economic Communities

Geography

Ship-to

Country

Geography

Ship-from

Country

Create the condition set as follows:

Determining Factor Class Class Qualifier Determining Factor Name Operator Value

Geography

Ship-to

All Economic Communities

Equal to

European Community

Geography

Ship-to

Country

Not equal to

United Kingdom

Geography

Ship-from

Country

Equal to

United Kingdom

You can use this combination of determining factors in any situation where you need to identify the deliveries that are made from the UK to other EU countries.

Manage Tax Statuses

Set up the required tax statuses that you need for each tax that you create for a combination of tax regime, tax, and configuration owner. Define a tax status for a tax and a configuration owner, and define all applicable tax rates and their effective periods for the tax status. The tax status controls the defaulting of values to its tax rates.

Defining Controls and Defaults

The following table describes the defaults and controls available at the tax status level.

Header Region

Field Description Default Derived from Default Appears on Controls

Set as default tax status

Controls whether this tax status is defined as the default tax status for this tax

None

None

If selected then this tax status is defined as the default tax status for this tax. Where no tax status rules are applicable then the tax determination process selects this tax status as the applicable tax status for transactions in the date range defined.

Tax Information Region

Field Description Default Derived from Default Appears on Controls

Default Settlement Option

Lookup code to indicate whether an input tax is recovered when an invoice is recorded or only when the invoice is paid and whether an output tax is due for settlement when the invoice is issued or only when the payment is received against it

Tax

Tax rate

None

Allow tax exceptions

Controls whether tax exceptions are allowed for this tax

Tax

Tax rate

None

Allow tax exemptions

Controls whether tax exemptions are allowed for this tax

Tax

Tax rate

None

Allow tax rate override

Controls whether you can override the tax rate at transaction time

None

Tax rate

None

Manage Tax Formulas

Tax formulas are used in the tax calculation process. They help determine the taxable basis of a transaction line and the calculation methodology that must be applied to obtain the tax amount.

When the parameters available on a transaction don't satisfy the rule conditions, the default tax formulas defined for the tax are applicable.

There are two types of tax formulas:

  • Taxable basis tax formula

  • Tax calculation tax formula

Taxable Basis Tax Formula

The taxable basis tax formula is used in the tax calculation process. They help determine the amount or quantity that should be considered as the taxable basis of a transaction line. The tax rate is applied on the taxable basis amount to derive the basic tax amount on a transaction line.

The taxable basis type, defined in the taxable basis formula, decides the characteristics of the taxable basis amount. The various taxable basis types are:

  • Assessable value

  • Line amount

  • Prior tax

  • Quantity

The following standard predefined taxable basis tax formulas are available:

  • STANDARD_QUANTITY

  • STANDARD_TB

  • STANDARD_TB_DISCOUNT

Assessable Value

Use Assessable value when the transaction line amount doesn't reflect the correct taxable basis from the tax calculation perspective. The assessable value given on the transaction line is considered as the taxable basis amount to calculate tax.

Line Amount

Use Line amount when the transaction line amount is to be treated as the taxable basis to calculate tax.

The transaction line amount is considered as the taxable basis. This is done after

  • Deducting the associated discounts, or after proportionately enhancing or reducing it by a certain percentage.

  • Adding other applicable taxes available on the transaction line

These adjustments on the line amount are controlled through the following parameters that are defined on the tax formula:

  • Subtract cash discount: The cash discount applicable on the transaction, derived through the attached payment terms, is deducted from the transaction line amount. This option is considered only for Receivable transactions.

  • Base rate modifier: The transaction line amount is increased or decreased based on the percentage value given.

  • Tax formula compounding: The tax details specified in the tax formula compounding region are added to the transaction line amount to determine the taxable basis amount. These tax details are also enforced by selecting the Enforce Compounding option. If a compounded tax is enforced but it's not calculated on the transaction, the tax associated with this tax formula also doesn't become applicable.

Prior Tax

Use Prior tax if the taxable basis is one or more than the other taxes calculated on the transaction line. The option to compound the prior taxes that are calculated on the transaction line are also available.

Quantity

Use Quantity if you want to calculate tax on transactions based on the number of units or items involved in the transaction.

Tax Calculation Tax Formula

The tax calculation tax formula is used to determine the calculation methodology that is applied to derive the basic tax amount on a transaction line. The tax amount on a transaction is generally calculated by multiplying the derived tax rate by the taxable basis. However, in some cases the tax amount is required to be altered by adding other taxes that are applicable on the same transaction line. Use a tax calculation formula defined with compounding criteria to address this requirement.

The tax details specified in the tax formula compounding region are added to the calculated tax that is associated with the tax formula. These compounded tax details can also be enforced when you select the Enforce Compounding option. When the compounded tax is enforced and when it is not calculated on the transaction, the tax to which this tax formula is associated with also does not become applicable.

The tax calculation process uses the taxable basis tax formula to determine the amount or quantity that should be considered as the taxable basis of a transaction line. The tax rate is applied on the taxable basis amount to derive the basic tax amount on a transaction line.

Taxable basis type that is defined in the taxable basis formula is a key factor that decides the characteristics of the taxable basis amount. The taxable basis types are:

  • Assessable value

  • Line amount

  • Prior tax

  • Quantity

Taxable Basis Formula Based on Assessable Value

The tax formula that is based on assessable value is used as the taxable basis for calculating tax when the tax authority doesn't consider the transaction amount to reflect the true sale consideration, from the tax perspective.

Consider a sales transaction between two companies, A and B. The item value on the invoice is 1000 USD. However, if they're related companies, that is, within the same group, the tax authority can mark the item value as 5000 USD for the purpose of tax based on the average market price. The tax authority can choose to collect the tax based on that value instead of the actual sales value of 1000 USD.

The tax amount is calculated from the transaction details and tax setup as follows:

  • Invoice line amount: 1000 USD

  • Assessable value: 5000 USD

  • State tax rate: 10%

  • Taxable basis type: Assessable value

  • Taxable Basis: 5000 USD

The state tax is equal to the taxable basis multiplied by the state tax rate (5000 USD * 10% = 500 USD).

Taxable Basis Formula Based on Line Amount

In this case, the amount given on the transaction line is considered for deriving the taxable basis.

Consider a situation when two taxes, state tax and county tax, are applicable on a transaction. In this situation, the transaction details and tax setup is as follows:

  • Invoice line amount: 1000 USD

  • Payment terms: 2/10, Net 30

  • State tax rate: 20%

  • County tax rate 10%

  • Taxable basis type: Line amount

  • Subtract cash discount: Yes

  • Base rate modifier: 50%

  • Compounding tax regime: Sale and use tax

  • Compounding tax: State tax

The tax calculation is as follows:

  • The state tax is equal to the invoice line amount multiplied by the state tax rate (1000 USD * 20% = 200 USD).

  • The taxable basis for the county tax is equal to the line amount plus the base rate modifier less the cash discount at 2% plus the state tax (1000 USD + 500 USD - 20 USD + 200 USD = 1680 USD).

    The country tax is equal to the taxable basis multiplied by the county tax rate (1680 USD * 10% = 168 USD).

Taxable Basis Formula Based on Prior Tax

In this case, the previous tax that is calculated on a transaction is considered as the taxable basis.

Consider a situation when two taxes, state tax and county tax, are applicable on a transaction. In this situation, the transaction details and tax setup is as follows:

  • Invoice line amount: 1000 USD

  • State tax rate: 20%

  • Country tax rate: 10%

  • Taxable basis type: Prior tax

  • Compounding regime: Sale and use tax

  • Compounding tax: State tax

The tax calculation is as follows:

  • The state tax is equal to the invoice line amount multiplied by the state tax rate (1000 USD * 20% = 200 USD).

  • The taxable basis for the county tax is the tax calculated for the state tax (200 USD).

    The country tax is equal to the taxable basis multiplied by the county tax rate (200 USD * 10% = 20 USD).

Taxable Basis Formula Based on Quantity

In this case, the quantity of the goods or serviceable units is considered as the taxable basis.

Consider a scenario in which liquor is transacted between two organizations in Canada. In this situation, when excise tax is levied on it, the transaction details and tax setup is as follows:

  • Line amount: 1000 CAD

  • Quantity: 50 liters

  • Price per liter: 20 CAD

  • Excise tax: 11.69 CAD per liter

  • Taxable basis type: Quantity

The tax calculation is as follows:

  • The taxable basis for the excise tax is the quantity given on the invoice (50).

  • The excise tax is equal to the taxable basis multiplied by the excise tax (50 * 11.69 CAD = 584.5 CAD).

The tax calculation tax formula is used to determine the calculation methodology that is applied to derive the basic tax amount on a transaction line.

Scenario

Consider a situation when two taxes, state tax and county tax, are applicable on a transaction. In such a situation, the transaction details and tax setup is as follows:

  • Line amount: 1000 USD

  • State tax rate: 20%

  • County tax rate: 10%

  • Compounding regime: Sale and use tax

  • Compounding tax: State tax

The tax calculation is as follows:

  • The state tax is equal to the invoice line amount multiplied by the state tax rate (1000 USD * 20% = 200 USD).

  • The county tax is equal to the invoice line amount multiplied by the county tax rate plus the state tax ((1000 USD * 10%) + 200 USD = 300 USD).

Manage Transaction Fiscal Classifications

Use transaction fiscal classifications to categorize transaction business categories so that multiple transaction business categories can be classified and a single transaction fiscal classification can be used within the tax rules. This facilitates all of the applicable transaction business categories to trigger the relevant tax rule.

Transaction fiscal classifications provide a hierarchy of up to five levels. Each grouping of 1 to 5 levels is given a fiscal classification type group, which is used to retrieve all of the associated levels of one transaction fiscal classification type.

Assign each level a fiscal classification type code and name with associated start and end dates. Use the fiscal classification type code as the determining factor when you create tax rules. The start date must be before or equal to the earliest transaction date that use a tax rule associated with the applicable transaction fiscal classification.

Associate each fiscal classification type record with a tax regime that is used to create tax rules. This ensures that the list of values of the transaction fiscal classification is restricted by the tax regime for which the tax rule is being created.

Tip: Set the transaction fiscal classification start date to the earliest tax regime start date of any tax that uses the given transaction fiscal classification.

To create these transaction fiscal classifications:

  1. On the Create Transaction Fiscal Classification Types page:

    1. Save the current transaction fiscal classification type values.

    2. Create transaction fiscal classification codes.

    3. Associate business categories.

    4. Specify tax reporting codes.

  2. Use the Edit Transaction Fiscal Classification Codes page to create the level 1 fiscal classification code nodes.

    1. Select the level 1 node.

    2. Click the Create Child Node to create the subordinate levels. Create the subordinate levels up to the maximum levels defined for the transaction fiscal classification type group.

  3. Associate the fiscal classification type record with one or more transaction fiscal classification codes. These codes are used to group the transaction business category, which is used in the tax rule as the condition set value.

Tip: While setting up the transaction fiscal classification, use different levels so that all of the necessary tax rules are defined at the highest level possible. This facilitates in minimizing the needed number of tax rules.

Associate and form a relationship between the transaction fiscal classification codes and the transaction fiscal classification. This relationship is used during transaction time to derive the transaction fiscal classification that validates the tax rules that use the transaction fiscal classification.

Use the Associated Codes Details region to define the relationship between transaction fiscal classification codes, the transaction business category codes, and the tax reporting codes. Use the Transaction Business Category Codes and the Tax Reporting Codes tab to define the relationship.

Transaction Fiscal Classifications in Tax Rules

The transaction fiscal classification tax determination factors allow you to use the transaction fiscal classifications in tax rules. A combination of determination factor class and determining factor represent these determination factors.

Use the transaction fiscal classification as the determining factor class and the specific transaction fiscal classification type as the determining factor.

Transaction Fiscal Classifications at Transaction Time

During transaction time, use the transaction business category entered on the transaction line to classify the transaction line. The application derives the transaction fiscal classification using the defined relationship between the transaction business category and the transaction fiscal classification.

The tax determination process uses the derived transaction fiscal classification and any associated parent records for the higher levels to compare against the relevant tax rules.

A transaction fiscal classification groups multiple transaction business categories into a single transaction fiscal classification that is used with tax rules. This helps in triggering all the applicable transaction business categories with relevant tax rules.

The following scenario illustrates how you can use transaction fiscal classifications for tax determination and reporting in Brazil.

Scenario

In Brazil, you need to identify a transaction correctly to be able to report and determine the correct applicable taxes. Create specific transaction business categories as children of the sales transaction. The transaction business categories include:

Level Fiscal Classification Code Fiscal Classification Name Country Start Date

1

SALES_TRANSACTION

Sales Transaction

Not applicable

1-Jan-1951

2

INTERSTATE MNFTRD FOR SALE

Interstate Manufactured for Sale

Brazil

The earliest transaction date or start date of tax.

2

INTERSTATE MNFTRD FOR MANUFACTURE

Interstate Manufactured for Manufacture

Brazil

The earliest transaction date or start date of tax.

Tip: Specify the country name while creating transaction business categories. This ensures that a limited applicable list is presented while entering the transaction fiscal classification during transaction or tax rule creation.
Tip: In this classification and many other tax classifications, classify the nonstandard items of your business as standard items. This can be modeled as a default tax rule and therefore, doesn't require an explicit classification or an explicit rule. Classify only exception items and define specific tax rules for them. For a standard item, none of the explicit tax rules apply except the default rate.

The tax rules that apply to sales transactions also apply to purchase transactions. In this case, you need equivalent set rules to represent the purchase side of the same transaction type. Therefore, create the following additional transaction business categories:

Level Fiscal Classification Code Fiscal Classification Name Country Start Date

1

PURCHASE_TRANSACTION

Purchase Transaction

1-Jan-1951

2

INTERSTATE MNFTRD FOR SALE

Interstate Manufactured for Sale

Brazil

The earliest transaction date or start date of tax.

2

INTERSTATE MNFTRD FOR MANUFACTURE

Interstate Manufactured for Manufacture

Brazil

The earliest transaction date or start date of tax.

In the given scenario, instead of creating separate tax rules for sales and purchase transactions, create a single transaction fiscal classification and link it to both the applicable sales and purchase transactions.

Create the following specific transaction fiscal classification with the relevant tax regime and transaction business category associations. In addition, create appropriate tax rules against this transaction fiscal classification.

Level Transaction Fiscal Classification Code Fiscal Classification Name Start Date

1

BRAZIL MNFTRD (O2C and P2P) FOR SALE

Brazil Manufacture

1-Jan-1951

At transaction time, the tax determination process derives this transaction fiscal classification whenever you use related transaction business categories on the transaction.

Manage Tax Determining Factor Sets and Tax Condition Sets

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. Determining factors are represented in tax rules as the following concepts:

  • Determining factor class: Tax determining factors are categorized into logical groupings called determining factor classes, such as Accounting or Geography.

  • Tax class qualifier: Use a class qualifier with a determining factor class when it is possible to associate a determining factor class with more than one value on the transaction. For example, you need to specify which location type, such as ship-to party, a specific geography level, such as country, is associated with.

  • Determining factor name: Each determining factor class contains one or more determining factor names that constitute the contents of the class.

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.

Conceptually, determining factors fall into four groups: party, product, process, and place. The following figure expands upon the determining factors within each grouping.

This figure expands upon the determining factors within
each grouping. The determining factors and their relationship to party,
product, process, and place are discussed in detail in the table in
the following section.

The relationship between the determining factor and condition sets and the party, product, process, and place is shown in the following table. The relationship value is a concept to group tax drivers and not an element in the tax rule definition. The determining factor, determining factor class, tax class qualifier, determining factor name, condition set operator, and condition set value are all components of tax rule setup.

Relationship Determining Factor Determining Factor Class Tax Class Qualifier Determining Factor Name Condition Set - Operator Condition Set - Value

Process

Accounting

Accounting

 

Line Account

Equal to

Flexible with range of qualifiers and segment or account values

Process

Document

Document

Document fiscal classification level (1-5) or blank

Document Fiscal Classification

  • Equal to

  • Not equal to

  • Is blank

  • Is not blank

Document fiscal classification codes of the class qualifier level or all document fiscal classification codes if there is not class qualifier

Place

Geography

Geography

Location type which can be one of the following:

  • Bill from

  • Bill to

  • Point of acceptance

  • Point of origin

  • Ship from

  • Ship to

Geography type from Oracle Fusion Trading Community Model

  • Equal to

  • Equal to determining factor

  • Not equal to

  • Not equal to determining factor

  • Range

  • Is blank

  • Is not blank

Trading Community Model geography names of the geography type belonging to the location identified by the class qualifier, for example, country or state.

If the operator is Equal to determining factor or Not equal to determining factor then the values are:

  • Bill from

  • Bill to

  • Point of acceptance

  • Point of origin

  • Ship from

  • Ship to

The available values do not include the tax class qualifier value.

Party

Legal Party Classification

Legal party fiscal classification

First party

Legal activity codes for:

  • Chile

  • Colombia

  • Peru

  • United Kingdom

  • Venezuela

  • Equal to

  • Not equal to

  • Is blank

  • Is not blank

Legal classification codes of the legal classification activity

Party

Party Fiscal Classification

Party fiscal classification

Location type which can be one of the following:

  • Bill-from party

  • Bill-to party

  • Point of acceptance party

  • Point of origin party

  • Ship-from party

  • Ship-to party

Party fiscal classification type

  • Equal to

  • Not equal to

  • Is blank

  • Is not blank

Fiscal classification codes of the party fiscal classification type assigned to the party identified by the class qualifier

Product

Product Inventory Linked

Product inventory linked

 

Name of a specific level of a product fiscal classification

  • Equal to

  • Not equal to

  • Is blank

  • Is not blank

Fiscal classification codes of the applicable product fiscal classification type

Product

Product Noninventory Linked

Product noninventory linked

Product fiscal classification level (1-5) or blank

Product category product fiscal classification type

  • Equal to

  • Not equal to

  • Is blank

  • Is not blank

Product classification codes of the class qualifier level or all product fiscal classification codes if there is no class qualifier

Party

Registration Status

Registration

Location type which can be one of the following:

  • Bill-from party

  • Bill-to party

  • Ship-from party

  • Ship-to party

Registration Status

  • Equal to

  • Equal to determining factor

  • Not equal to

  • Not equal to determining factor

  • Is blank

  • Is not blank

The registration status defined in the registration status lookup.

If the operator is Equal to determining factor or Not equal to determining factor then the values are:

  • Bill-from party

  • Bill-to party

  • Ship-from party

  • Ship-to party

Process

Transaction Fiscal Classification

Transaction fiscal classification

 

Transaction fiscal classification type

  • Equal to

  • Not equal to

  • Is blank

  • Is not blank

Specific transaction fiscal classification code

Process

Transaction Business Category

Transaction generic classification

Classification level (1-5) or blank

Transaction Business Category

  • Equal to

  • Not equal to

Transaction business category fiscal classification codes of the class qualifier level or all fiscal classification codes if there is no class qualifier

Process

Transaction Type

Transaction generic classification

Classification level (1-5) or blank

Transaction Business Category

  • Equal to

  • Not equal to

Transaction business category fiscal classification codes of the class qualifier level or all fiscal classification codes if there is no class qualifier

Process

Intended Use

Transaction input factor

 

Intended Use

  • Equal to

  • Not equal to

  • Is blank

  • Is not blank

Product intended use fiscal classification codes

Product

Line Class

Transaction input factor

 

Line Class

  • Equal to

  • Not equal to

  • Is blank

  • Is not blank

Transaction event classes and activities

Code list of line transaction types such as:

  • Procure-to-pay

  • Credit memo order-to-cash

  • Miscellaneous cash

Process

Product Type

Transaction input factor

 

Product Type

  • Equal to

  • Not equal to

  • Is blank

  • Is not blank

Predefined goods or services

Process

Tax Classification Code

Transaction input factor

 

Tax Classification Code

  • Equal to

  • Not equal to

  • Is blank

  • Is not blank

Tax classification codes

Process

User-Defined Fiscal Classification

Transaction input factor

 

User-Defined Fiscal Classification

  • Equal to

  • Not equal to

  • Is blank

  • Is not blank

User-defined fiscal classification codes

Place

User-Defined Geography

User-defined geography

Location type which can be one of the following:

  • Bill from

  • Bill to

  • Point of acceptance

  • Point of origin

  • Ship from

  • Ship to

Tax zone types

  • Equal to

  • Equal to determining factor

  • Not equal to

  • Not equal to determining factor

  • Is blank

  • Is not blank

Tax zones of the tax zone type belonging to the location identified by the class qualifier

Tip: Do not mix the interpretation of the party, product, process, and place and the associated determining factors if possible. For example, if the information you need to model concerns the geography associated with the locations on the transaction do not use party classifications to model this type of requirement.
Tip: Whenever possible, use automatically determined or derived determining factors, such as party classifications, product fiscal classifications, or geography instead of using those that are reliant on information entered at transaction time, such as product category, intended use, or user-defined fiscal classifications. Those entering information at transaction time may not be familiar with the impact this information has on tax determination.

You can use multiple party and product fiscal classifications at the same time. However, only the primary product fiscal classification, as defined in the country defaults is displayed on the transaction line. When you override the product fiscal classification at transaction time that value is used in preference to the default product fiscal classification.

Determining factors are the key building blocks of the tax rules. They're are the variables that are passed at transaction time derived from information on the transaction or associated with the transaction. They're used within tax rules logic to determine the conditions under which specific tax rules are applicable to a specific transaction.

Conceptually they fall into four groups as shown in the following figure:

This figure shows the groupings of party, product, place,
and process.

The four groups are described as:

  • Party: Information about the parties on or associated with a transaction such as party fiscal classification, tax registration, and tax exemptions.

  • Product: Information of the types and classifications of the goods and services on or associated to items on a transaction.

  • Place: Information on the addresses of the locations associated to the party and party locations on the transaction.

  • Process: Information on the type of tax services that are being requested such as purchase invoice and debit memo.

How Tax Is Determined Using Party, Product, Place, and Process Transaction Attributes

The following table describes how the party, product, place, and process transaction attributes contribute to the outcome of the tax determination process:

Group Transaction Attributes Process

Place

  • Ship from

  • Ship to

  • Bill from

  • Bill to

  • Point of acceptance

  • Point of origin

Restrict your tax rules based on the location where the transaction took place. For example, you may only want to apply a tax rule to goods that are delivered from an EC country into the UK.

The tax determination process uses the countries associated with the transaction to select the tax regimes associated with the first parties defined for those countries.

The tax determination process also uses the transaction location corresponding to the location type derived from the tax rule for the candidate tax or the rule default location type. It then identifies the tax jurisdiction of the candidate tax to which the location identified belongs. If the location doesn't belong to any tax jurisdiction of this tax, then the tax doesn't apply to the transaction.

Party

  • First-Party legal entities

  • Ship from or ship to parties and bill from or bill to parties

  • Tax registration and registration statuses of each party

  • Type or classification of a party

Restrict your tax rules based on the party of the transactions. For example, the supplier must be registered in another EC country for this tax rule to be applied.

The tax determination process determines the first party of the transaction which is either the legal entity or business unit. It uses the first-party legal entity or business unit to identify the tax regimes to consider for the transaction. It also identifies other configuration options, if defined, to use in processing taxes for the transaction.

The tax determination process also determines the party whose tax registration is used for each tax on the transaction, and, if available, derives the tax registration number. If the tax registration or registrations are identified, the process stamps the transaction with the tax registration numbers.

Product

  • Designation of physical goods or services

  • Type or classification of a product

Restrict your tax rules to apply to a specific product in the transaction. The tax determination process then applies these rules to transactions with those specific attributes. For example, the product type must be goods for this tax rule to apply.

For each tax, the tax determination process determines if a product tax exception applies to the transaction. It looks for an exception rate specific to the inventory item or fiscal classification of the item and adjusts the rate appropriately.

Process

  • Procure-to-pay transactions, such as purchases, prepayments, and requisitions

  • Order-to-cash transactions, such as sales, credit memos, and debit memos.

  • Type of sale or purchase, such as retail goods, manufactured goods, intellectual property, and resales.

Restrict your tax rules to apply to a specific type of transaction. The tax determination process then applies these rules to transactions with those specific attributes. For example, the tax rule is limited to purchases.

For each tax, the tax determination process determines if a customer tax exemption applies to an order-to-cash transaction and updates the tax rate accordingly.

The following scenarios illustrate when you set up tax determining factor sets and condition sets to meet your tax requirements.

Scenario

There is a tax requirement for a state tax, Intrastate A, to apply to any intrastate transactions for a specific product category of items. When defining this tax, the typical transaction scenario is that this tax isn't applicable. So when defining this tax, the tax applicability default value is Not Applicable. Create a tax rule for the exception scenario when this particular product is sold in an intrastate transaction.

Create the determining factor set as follows:

Determining Factor Class Class Qualifier Determining Factor Name

Geography

Ship from

State

Product noninventory linked

Level 2

Product Category

Create the condition set as follows:

Determining Factor Class Class Qualifier Determining Factor Name Operator Value

Geography

Ship from

State

Equal to determining factor

Ship to

Product noninventory linked

Level 2

Product Category

Equal to

Product A

Define the set with the result of Applicable. If the conditions defined match the respective transaction values, the tax rule evaluates to true and the tax is considered applicable. When the conditions aren't met and if there are no other condition sets or tax rules to evaluate, the determination process looks to the default value of Not Applicable as the result and the tax is not calculated.

Scenario

Determining factors represent the and part of the evaluation process. The determination process evaluates every element of the determining factor class unless it is set to ignore in the condition set definition. This feature allows for reusability of determining factor sets with some flexibility not requiring the use of all determining factors in each tax rule definition. The condition set is the or condition of a tax rule when there are multiple condition sets defined.

For example, a tax law may indicate that a specific state tax is applicable to certain products or specific services from specific supplier types that are considered to have environmental impacts. Analysis determines there are two separate supplier party classifications and one product category defined that meet the requirement for applicability.

Create the determining factor set as follows:

Determining Factor Class Class Qualifier Determining Factor Name

Party fiscal classification

Ship from

Party Fiscal Classification Type Code

Product noninventory linked

Level 2

Product Category

Create the condition set 1 as follows:

Determining Factor Class Class Qualifier Determining Factor Name Operator Value

Party fiscal classification

Ship from

Party Fiscal Classification Type Code

Equal to

Category A

Product noninventory linked

Level 2

Product Category

Equal to

Product A

Create the condition set 2 as follows:

Determining Factor Class Class Qualifier Determining Factor Name Operator Value

Party fiscal classification

Ship from

Party Fiscal Classification Type Code

Equal to

Category B

Product noninventory linked

Level 2

Product Category

Equal to

Product A

The tax determination process evaluates all of the determining factors in the determining factor set: party fiscal classification and product noninventory linked. However, using multiple condition sets offer an or evaluation to the tax rule. The tax determination process evaluates either of the following:

  • Party fiscal classification type code is equal to category A and product category is equal to product A

  • Party fiscal classification type code is equal to category B and product category is equal to product A

You define a result for each condition set that is applied if the condition evaluates to true. Condition sets are numerically ordered to specify the sequence in which they need to be evaluated during rule processing. Optionally, you can disable them for processing depending on a change in tax law.

Note: It is important to carefully evaluate condition set order since a change in order can impact the result of a tax rule.

Also, numerically order tax rules defined for a rule type to specify the sequence in which they are to be evaluated during the rule processing. The rule order, along with the specific applicability criteria like event class, defines the rule evaluation sequence for a rule type.

FAQs for Manage Tax Determining Factor Sets and Tax Condition Sets

Why are party, product, place, and process important?

Party, product, place, and process are important because they help us analyze and identify the determining factors used within tax rules for a specific business transaction tax situation. By viewing the requirements of how the tax should be determined, party, product, place, and process can provide you a way of abstracting complex business requirements so that you can identify the setup to support those requirements.

Manage Tax Reporting Types

Use tax reporting types to capture additional tax information on transactions for your tax reports. You can use tax reporting types for your internal reporting needs and to fulfill country-specific reporting requirements. Create tax reporting codes for a tax reporting type to provide additional granularity for tax reporting.

A tax reporting type identifies a specific unit of information, such as a date or a text comment, to associate with a specific tax usage, such as a fiscal classification or tax jurisdiction. You can:

  • Define tax reporting types at a generic level, tax regime level, or tax level.

  • Define the validation for the tax reporting type to add tax reporting codes such as data type and a minimum and maximum length. Data types include Date, Numeric value, Text, and Yes or no indicator.

  • Use tax reporting codes you create under one tax reporting type across various entities, such as tax, tax status, tax rate, party tax profiles, and fiscal classifications.

    Note: To use a tax reporting type for a particular entity, associate that entity to the tax reporting type in the Reporting Type Uses region on the Create Tax Reporting Type page.

There's no impact of the tax reporting type on tax calculation. The tax reporting codes are used in the tax reports.

Tax configuration facilitates the association between various entities and tax reporting codes. The entity details are stored as part of the tax repository. During tax report generation, necessary tax codes are derived based on the entities associated with the tax line. The Tax Reporting Ledger handles the functionality to include the reporting type code.

Tax Reporting Type Uses

Some reporting type uses have a one to one relationship of tax reporting type use to an entity, such as tax, tax jurisdiction, tax rate, and tax status. For example, the tax reporting type use of Tax defines tax reporting type codes for association to taxes you define and the Tax Jurisdiction tax reporting type use defines tax reporting type codes for association to the tax jurisdictions you define.

The Fiscal Classification tax reporting type use defines tax reporting type codes for association to the following classifications:

  • User-defined fiscal classifications

  • Product category fiscal classifications

  • Document fiscal classifications

  • Transaction fiscal classifications

The Party Tax Profile tax reporting type use defines reporting type codes for association to the following party tax profiles:

  • Legal entity tax profiles

  • Legal reporting unit tax profiles

  • Business unit party tax profiles

  • Third-party tax profiles

  • Third-party site tax profiles

The Process Result tax reporting type use defines reporting type codes for association to the following rule types:

  • Direct tax rate determination rules

  • Place of supply rules

  • Tax applicability rules

  • Tax registration rules

  • Tax status rules

  • Tax rate rules

  • Taxable basis rules

  • Tax calculation rules

Tax Reporting Types and Codes and Their Use in Tax Reporting

The following table describes key predefined tax reporting types and codes, their association and use in tax reporting:

Country Reporting Type and Code Associated to Use

Italy and Spain

  • REPORTING_STATUS_TRACKING

  • Y

Tax

Used to track tax lines that aren't yet finally reported

Italy and Spain

  • EMEA_VAT_REPORTING_TYPE

  • VAT

Tax

Used in the EMEA VAT selection process

Italy

  • EMEA_VAT_REPORTING_TYPE

  • Custom bill

Tax rate code

Used in the Italian Purchase VAT Register definition program to recognize customs invoices

Italy

  • EMEA_VAT_REPORTING_TYPE

  • Self invoice

Tax rate code

Used in the Italian Purchase VAT Register definition program to recognize self invoices

Italy

  • EMEA_VAT_REPORTING_TYPE

  • Nontaxable

Tax rate code

Used in the Italian Purchase VAT Register definition program to recognize nontaxable invoices

Italy

  • EMEA_VAT_REPORTING_TYPE

  • Exempt

Tax rate code

Used to identify invoice lines with exemption limit groups

Spain

  • EMEA_VAT_REPORTING_TYPE

  • Services

Tax rate code

Used for VAT reporting

Legal justification tax reporting types are introduced to support the European Union (EU) value-added tax (VAT) changes for the year 2010. The changes intend to modernize and simplify rules relating to cross-border supply of services and recovery of input tax. These are the most far-reaching changes to VAT law since the introduction of the Single European Market in 1993. This impacts all businesses, which supply and purchase services across EU countries. Companies must rethink their service flow, as well as, their compliance and reporting obligations.

The new rule for place of supply of services, for tax determination in a business-to-business transaction, is where the customer is established and not where the supplier is established, as is the case before January 1, 2010. Therefore, if services are supplied in another EU member state, they are taxable in the recipient's country. For business-to-customer supply of services, the general rule for place of supply continues to be the place where the supplier is established. There are exceptions to the new rule for certain types of services. Examples include: services provided for immovable property, passenger transport services, cultural, and educational events. It also includes ancillary services, short term hiring of means of transport, and restaurant and catering services carried out on board a ship, aircraft, or train within the EU.

Legal Messages

A legal message specifying that the customer of such services must self-assess the relevant tax, should be printed on Receivables (intra-EU services) invoices. Create a Bill Presentment Architecture template to print the legal justification message on the Receivables invoice. The exact text of the message is defined by the country-specific legislation. The reporting code is also a selection parameter to display the intra-EU services invoice lines on the European Union Sales Listing report.

Configure these messages using the Create Tax Reporting Types page. Associate these messages to invoices with a tax rate definition and a tax rule result. When defining these tax reporting codes, the tax reporting purpose is the Legal justification message type. The applicable reporting type uses are Process Result and Tax Rate. Enter the legal justification text which should be as defined by legislation.

Manage Location of Final Discharge

Tax Point Basis

Comply with tax regulations by assigning the correct tax point basis for a tax. The value you select determines the event at which the taxes for an invoice are reported.

The following table describes the tax point basis values:

Tax Point Basis Result

Payment

If a tax on a purchase invoice has Payment as the tax point basis, then the recoverable tax is debited to an interim account on invoice accounting. On accounting for the corresponding payment, a proportionate tax amount is recovered and the same is reported as of that payment date.

The approach is the same for the tax liability on a sales invoice.

Invoice

A tax point basis of Invoice is the default where the tax recovery and liability are reported as of the invoice date.

Accounting

Specify the tax point basis as Accounting for a tax when the tax authorities mandate that tax recovery and liability occur on accounting for an invoice. You must report on the accounting date for the invoice.

Delivery

For taxes you can claim tax recovery on receipt of corresponding goods, specify the tax point basis as Delivery. Taxes on the invoice are calculated with the tax rate as of the receipt date. These tax lines are reported as of the receipt date.

For the sales transactions, the shipment date is be used as a basis for tax rate determination and accounting.

If the tax authorities mandate that the recovery is accounted on the goods receipt event, then:

  • Enable the Allow delivery-based tax calculation option for the configuration owner tax options that you created for the relevant business unit or legal entity.

  • Specify the Report Delivery-Based Taxes on option as Receipt.

This configuration enables recoverable taxes with tax point basis of Delivery to be accounted on receipt accounting.

For consigned purchases, consumption of goods is the event at which ownership changes. Consumption of goods is the event at which recoverable delivery-based taxes is accounted.

Exception Configuration for Tax Point Basis

If tax regulations require tax point basis to vary based on party registration, then specify tax point basis at the tax registration or a tax registration rule. You can also specify tax point basis at tax rate to meet specific needs. When these exceptions are configured, then the tax calculation process considers the following order of evaluation, with tax being the most generic option when the prior specific options aren't configured.

  • Tax registration rule

  • Tax rate

  • Party tax registration

  • Tax

Tax Point Basis Hierarchy

The tax point basis is used to identify the appropriate date to account and report your transaction taxes to the tax authorities. During tax calculation, the application determines the tax point basis based on what level you defined the tax point options.

The following table describes the order used for processing the tax point basis on a tax line. The application considers the tax point basis at the first level and if the tax point basis is blank, the process moves to the next level in the hierarchy.

Level Action

Tax registration rule

The rule conditions based on various transaction attributes are considered in determining the required tax point basis value for the tax.

Tax rate

The tax rate period processed for a tax from the tax rate rule is considered in determining the tax point basis value for the tax.

The tax point basis is driven by the legal requirements specified for different tax rate types.

Tax registration

The tax registration of the registration party is considered in determining the required tax point basis value for the tax. The registration party is derived from the tax registration rules. However, first the application determines:

  • The corresponding tax registration based on the registration number on the transaction header.

  • If no registration number exists, then uses the available registration records for that party.

The tax point basis is dependent on specific requirements driven by the registration number provided by the tax authorities.

Tax

The tax point basis value specified for the tax is considered. All tax rate codes you define for this tax use this tax point basis value.

To apply a tax point basis across all transactions within an event class and for a specific business unit or legal entity, define the tax point basis as part of the configuration owner tax options.

Manage Tax Profile Options

Set values for Oracle Fusion Tax profile options to control the availability of certain tax options.

Defining Controls and Defaults

The following table describes the defaults and controls available at the tax profile options level.

Field Description Default Derived from Default Appears on Controls

Transaction Tax Line Override

Controls whether you can update automatically calculated tax lines at transaction time

None

None

Use this option along with the ALLOW_TAX_OVERRIDE_FLAG for the tax to allow you to override tax lines at transaction time. This excludes you from updating the Inclusive option and tax rate on the tax line.

Use this option along with the Allow override and entry of inclusive tax lines option on the tax record to allow you to override the Inclusive option on the tax line.

Tax Classification Code Override

Controls whether you can override the tax classification on the tax line at transaction time

None

None

If you select this option, you can override the tax classification code at transaction time.

Tax Exemption Override Control

Controls whether you can override tax exemptions at transaction time

None

None

If you select this option, you can override tax exemptions at transaction time where tax exemptions are allowed.

Manage Tax Box Allocation Rules

You are often required to submit tax returns in a format that groups taxable transactions by applying specific grouping rules defined by the tax authorities. In most cases, the grouping rules are based on the location where the transaction took place, transaction type, tax rate, product type, and tax recovery.

Tax box allocation supports definition of tax grouping rules and complex tax reporting by providing transactional and accounting information, segregated by tax boxes.

Define two sets of rules to report periodic and annual allocations: periodic and annual.

You can:

  • Define tax box allocation rules on two different levels to support specific needs.

  • Share the rules across legal entities or define them for a specific legal entity.

In most tax regimes, legal entities that reside within the same tax regime share the same set of tax grouping rules defined by the tax authorities. Tax box allocation provides you the flexibility to define tax box allocation rules once, and share them across legal entities.

For each tax reporting period, transactions are processed and based on the tax determining factors, tax box numbers are assigned to the transaction lines.

Tax box allocations support periodic and annual reporting. It enables you to separate:

  • Purchase and sales transactions

  • Recoverable and nonrecoverable taxes

  • Domestic and foreign transactions

  • Goods and services

Tax box allocation comprises of:

  • Tax Box Allocation Rules

  • Tax Allocation Process

  • Tax Box Allocation Reports

Tax Box Allocation Rules

Tax box allocation rules are user-defined rules. They set the correspondence between tax box number and a set of transaction attributes based on which tax or taxable amount is reported in the tax box.

A tax box represents a tax declaration cell in which tax or taxable amount is reported. It may also represent a group of transactions in tax registers or other tax reports.

Tax Allocation Process

The Tax Allocation Process:

  • Checks whether the tax box allocation rule condition is met

  • Allocates applicable tax box numbers to taxable transactions

  • Verifies whether the rules are defined at the legal entity or global level. If more than one rule is applicable to a transaction, all the rules are applied. However, all the applicable rules must be at the same level, either at the legal entity or global level. Rules at the:

    • Legal entity level are given higher precedence than the rules you define at the global level.

    • Global level are processed and applied only when no rules are defined at the legal entity level.

Note: Run the Tax Allocation Process for a period only after the Tax Reporting Selection Process is executed for the period.

Tax Box Allocation Reports

Oracle Fusion Tax provides various generic reports that are associated with tax box allocations. These reports provide details on tax computation and tax returns.

The following reports are provided:

  • Tax Allocations Listing Report

  • Tax Allocation Exceptions Report

  • Tax Box Return Preparation Report

Run the Tax Box Return Preparation Report to list taxable and tax amounts grouped by tax declaration box numbers for periodic or annual allocations.

Run the Tax Allocation Listing Report and Tax Allocation Exceptions Report to:

  • Verify the tax boxes allocated to the transaction lines

  • Check the transaction lines that don't have any tax boxes allocated

Tax box allocation rules represent the association between tax determining factors and user-defined reporting categories called tax boxes.

Tax or taxable amount is allocated a specific tax box number based on tax determining factors and rules applied to transactions. This number is used for tax box reporting.

You can also define the tax box allocation rule to be used for annual allocations or periodic allocations by determining the reporting frequency for which the tax boxes are used. The possible values are Periodic and Annual. For the implementations with the same set of tax boxes for periodic and annual reporting and the same rules of their designation, create the tax box allocation rules with the Report Periodicity either Periodic allocation or Annual allocation. In this case the tax box allocation rules defined with the Report Periodicity Annual allocation becomes valid for periodic reporting and the other way around.

The following figure illustrates the steps involved in defining the tax box allocation rules for transactions. This involves defining the tax reporting type and codes, selecting the tax determining factors, defining the tax determining factor sets, defining tax condition sets, and finally creating the tax box allocation rules.

Illustrating the steps involved in defining tax
box allocation rules.

Tax Reporting Type and Tax Reporting Codes

Tax reporting codes represent tax box numbers that are used in the tax box allocation rules. These tax reporting codes are assigned to taxable transactions.

Define tax box numbers as tax reporting codes. For example, assume you have to report recoverable tax amount to the tax authority. Therefore, define tax reporting type with tax reporting type purpose as tax box allocation. Create tax reporting code with box type as recoverable tax box, for example, 11 - Tax Recoverable Box.

Tax Determining Factors and Tax Determining Factor Sets

Select the tax determining factors you want to use for defining tax box allocation rules. For our example, define tax box allocation rules that are based on the following tax determining factors:

  • Country: Helps you determine the country from which goods are shipped and the country to which goods are shipped.

  • Transaction Business Category: Helps you determine the type of transaction, such as purchase or sales transaction.

These tax determining factors together are called tax determining factor set.

Tax Condition Sets

Assign the values to the tax determining factors. For our example, determine the recoverable tax amount on standard purchase invoices from Italy. Assign the following values to the tax determining factors:

  • Ship-to Country = Italy

  • Ship-from Country = Italy

  • Transaction Business Category = Standard Purchase Invoice

Tax Box Allocation Rules

Create the tax box allocation rules. For our example, create a rule that assigns the tax box 11 when the following conditions are met:

  • Country from where the goods are shipped is Italy

  • Country to which goods are shipped is Italy

  • Transaction type is a standard purchase invoice

Tax reporting type is used to specify the tax reporting codes. Tax reporting codes are tax box numbers used in the tax box allocation rules. These codes are assigned to taxable transactions.

For tax box allocation rules, use Tax Box Allocation as the tax reporting type purpose on the Create Tax Reporting Type page.

Using Tax Reporting Type

  • To define tax reporting type that must be shared across several countries, leave the Country field blank.

  • To restrict the usage of tax reporting type to just one country, enter the country name in the Country field.

Use the Tax Reporting Codes section to specify the tax box numbers that are used in the tax box allocation rules.

The following table explains the required fields for tax box allocation rules:

Field Description

Tax Reporting Code

Specify the tax box numbers that are assigned to the transactions, and used for reporting.

Amount Sign

Select a positive or negative sign to indicate whether the amounts must be displayed as positive or negative in the reports.

Box Type

Specify the type of tax box on which the tax box rule applies such as:

  • Recoverable Taxable Amount

  • Nonrecoverable Taxable Amount

  • Recoverable Tax Amount

  • Nonrecoverable Tax Amount

  • Total Amount

Many European countries commonly record domestic purchase or sales transactions with a particular tax rate. They then report the transaction taxable and tax amounts to the tax authorities. They use a specific tax box according to the tax rate that applies to the transaction.

This example illustrates how to configure tax box allocation rules and allocate tax box numbers to domestic purchase transactions.

This table summarizes key decisions for this example:

Decisions to Consider In this example

Tax reporting codes

These factors determine the transactions that are reported:

  • Country where you register your business for tax purposes

  • Country of the suppliers with whom you do business

  • Transaction type you want to report

  • Tax rate applicable on the transactions

Tax condition set

These values must be assigned to the tax determining factors:

  • Goods are shipped from and shipped to Italy

  • Standard VAT rate applies to the goods

  • Transaction is a purchase transaction

Tax box allocation rules

Define a rule that assigns tax box number 11 when these conditions mentioned are met.

In this example, your company is registered in Italy for tax purposes, and does business with Italian suppliers. You must report the recoverable taxable amount for purchase transactions from Italian suppliers that are taxed on the standard VAT rate. The tax authority requires that you report these amounts using tax box number 11.

Define Tax Reporting Codes

Use the Create Tax Reporting Type page to define tax boxes. Use these tax boxes to report the tax and taxable amounts of all eligible transactions to the tax authorities.

Perform these steps to create a tax reporting type:

  1. Go to the Manage Tax Reporting Types page.

  2. Click the Create icon.

  3. Enter the tax reporting type code and name.

  4. In the Tax Reporting Type Purpose field, select Tax box allocation.

  5. In the Tax Reporting Codes section, click the Add Row icon and then enter these values:

    Tax Reporting Codes Description Amount Sign Box Type Effective Start Date

    11

    Provide a description for the tax reporting code.

    Plus

    Recoverable taxable amount box

    1/1/70

Define a Tax Determining Factor Set

Various Determining Factor Classes, such as Derived, Registration, and Geography, are used to define the tax determining factor sets.

Here's what you do to define a tax determining factor set:

  1. Go to the Manage Tax Determining Factor Sets page.

  2. Click the Create icon.

  3. Enter the tax determining factor set code and name.

  4. In the Set Usage field, select Tax box allocation rule.

  5. Enter these values in the Associate Tax Determining Factors table:

    Determining Factor Class Tax Class Qualifier Determining Factor

    Derived

     

    Tax Rate Name

    Geography

    Ship from

    Country

    Geography

    Ship to

    Country

    Registration

    Bill-from party

    Registration Status

    Transaction generic classification

    Level 1

    Transaction Business Category

Define a Tax Condition Set

Tax condition sets help you map the Tax Determining Factor Set using specific values.

In this example, you provide specific values that are associated with the determining factors defined in the previous step.

Perform these steps to define a tax condition set:

  1. Go to the Manage Tax Condition Sets page.

  2. Click the Create icon.

  3. Enter the tax condition set code and name.

  4. In the Tax Determining Factor Set Code field, select the tax determining factor set you defined earlier.

  5. Enter these values in the Tax Condition Set Details table:

    Tax Determining Factor Class Tax Class Qualifier Tax Determining Factor Name Operator Value or From Range

    Transaction generic classification

    Level 1

    Transaction Business Category

    Equal to

    PURCHASE_TRANSACTION

    Registration

    Bill-from party

    Registration Status

    Equal to

    REGISTERED

    Geography

    Ship to

    Country

    Equal to

    Italy

    Geography

    Ship from

    Country

    Equal to

    Italy

    Derived

     

    Tax Rate Name

    Equal to

    IT VAT STANDARD RATE

Define Tax Box Allocation Rules

Finally, you can define the tax box allocation rules. Use the tax reporting type and tax determining factor set you defined in the earlier steps.

Here's what you do to define tax box allocation rules:

  1. Go to the Manage Tax Box Allocation Rule page.

  2. Click the Create icon.

  3. Enter these values in the Rule Details section on the Tax Determining Factors page:

    Field Value Notes

    Configuration Owner

    Global configuration owner

    Decide whether you want to define rules globally or for a specific legal entity.

    Tax Regime Code

    IT VAT

     

    Tax

    IT VAT

     

    Rule Code

    TBA Domestic purchase rate

     

    Report Periodicity

    Periodic allocation

     

    Rule Name

    TBA Domestic purchase transaction

     

    Start Date

    1/1/70

     

    Tax Reporting Type

     

    Select the name of the tax reporting type that you gave while defining tax reporting type.

  4. In the Tax Determining Factor Set section, select the tax determining factor set that you defined in the previous step as the Code.

    You can see the tax determining factor set details that you provided earlier in the Tax Determining Factor Set Details table.

  5. Click Next.

    Use the Tax Condition Set page to associate the Tax Condition Set created in the previous step with the tax box allocation rule.

  6. Select the Tax Condition Set Code that you specified while defining the tax determining factor set in the previous step.

  7. Enter the New Condition Set Order as 1.

  8. Click the Selected Results button.

    Select the tax boxes you defined while creating the tax reporting type. This action associates these tax boxes to the tax box allocation rule.

  9. Select the Enabled check box.

  10. Click Save and Next.

    Use the Rule Status and Order page to set the order of the tax box allocation rules.

  11. Select the Enabled check box for the rules you want to apply.

    You can also enter new rule order for the tax box allocation rules you see, or leave the order unchanged.

  12. Click Submit.

    Run the Tax Box Allocation process. It applies the tax box allocation rule to the invoice and assigns tax box number 11 to the invoice. You can review this using the Tax Allocation Listing Report.

Manage Tax Exemption Limits for Italy

In Italy, export transactions are exempted from value-added tax (VAT). Companies classified as regular exporters have more input VAT than output VAT. They can request their suppliers to not charge VAT on transactions for export-related goods. Italian law lets you claim an exemption if you meet certain legal requirements.

These legal requirements are:

  • Your regular exporter ratio is higher than 10 percent.

  • The value of goods and services purchased without VAT charges is lower or equal to your exemption limit.

  • You declare all export activities to your tax authorities.

The exemption limit is the total VAT exemption amount that a regular exporter can claim to its suppliers. A regular exporter can avoid purchasing and importing of goods and services without VAT up to the determined amount or ceiling. This exemption process is considered the Letter of Intent process.

For each year, the initial exemption limit is the sum of all reported export invoices of the previous year. You can allocate your yearly exemption limit among different suppliers. To each supplier:

  • Send a Letter of Intent indicating the exemption amount.

  • Request them not to charge tax when they send the invoices.

At the end of the year, if your total exempt purchases of goods and services is higher than your exemption limit, you incur administrative sanctions and penalties.

Exemption Limit Types

Exemption limits are of two types:

  • Annual: The exemption is manually calculated at the beginning of the year. The calculation is based on the sum of exemption limits for all the reported export invoices of the previous year. Companies can allocate the yearly exemption limit among different suppliers. Send Letters of Intent to each supplier that indicate the exemption amounts and request that they do not charge tax when they send the invoices.

  • Monthly: The exemption is manually calculated at the beginning of each month. The calculation is based on operations in the previous 12 months. This method is used frequently by regular exporters as it allows for progressive increase of exports since it's calculated monthly.

Once exemption limits are defined for a legal entity, the exemption limit type cannot be changed during a calendar year.

Exemption limits can be adjusted during the year to:

  • Reflect the increase or decrease in export activities.

  • Changes in the VAT exemption amount as agreed with the tax authorities.

Exemption Process

The following outlines the steps in the process:

  1. Define the exemption type and exemption limit for the legal entity and calendar year.

  2. For a supplier, create and print a Letter of Intent specifying the limit. The Letter of Intent can also be suspended or revoked, and sent to the supplier requesting that the supplier charge VAT on invoices. An inactive letter can be returned into active status if needed.

    Note: A Letter of Intent can be created for a particular supplier site or for all sites. Define a Letter of Intent:
    1. Select the Manage Tax Exemptions task.

    2. Search for third-party tax profiles for which you want to define the Letter of Intent.

  3. As a customer, receive and register the Letter of Intent. You can set the status of the letter to active, revoked, suspended, or inactive.

    Note: Register the Letter of Intent on a particular site or on all the sites.
  4. Generate Letter of Intent registers and reports to track the exemption amount consumed by the suppliers.

FAQs for Tax Exemption Limits for Italy

Create a tax reporting type and codes for exemption letters. Select Tax exemptions as the tax reporting type. When you create letters of intent, assign a letter of intent to each tax reporting type and code you defined. At the invoice distribution level, assign a letter of intent number to all appropriate invoice lines. When you run the Letter of Intent reports, the report logic selects all invoices with the related tax reporting codes.

Use the Adjust Exemption Limit dialog box to modify, add or subtract either the monthly exemption limit or annual exemption limit. For example, you want to reduce the current month limit by 25,000 EUR. Enter -25,000 in the Adjustment field. The application subtracts 25,000 from the current month amount.

To assign exemption limits to the supplier, enter a letter type in the Letter Type field.

Here are the letter types you can use:

  • Exempted Amount: Exemption letter with exemption limit printed.

  • Exempted Period: Exemption letter with a date range.

  • Specific Operation: Customs letter for a single transaction.

Note: The default type is Exempted Amount, which is the only type that also prints the exemption limit amount.