3Tax Configuration

This chapter contains the following:

Define Tax Configuration

Regime to rate setup contains the details of a tax regime, including all taxes, tax jurisdictions, tax statuses, and tax rates. You can update existing records or create new records at any point in the tax regime hierarchy.

Regime to rate setup tasks include:

Tax Regimes

Set up tax regimes in each country and geographical region where you do business and where a separate tax applies. A tax regime associates a common set of default information, regulations, fiscal classifications, and optionally, registrations, to one or more taxes. For example, in the US, create a Sales and Use Tax tax regime to group taxes levied at the state, county, and district levels. For the UK, create a tax regime for GB VAT.

Taxes

Set up details for the taxes of a tax regime. Each separate tax in a tax regime includes records for the tax statuses, tax rates, and tax rules that are used to calculate and report on the tax.

For example, for US Sales and Use Tax define a tax for each state, county, and city. For the UK, set up a tax for GB VAT.

Tax Jurisdictions

Set up tax jurisdictions for geographic regions or tax zones where a specific tax authority levies a tax. A tax jurisdiction specifies the association between a tax and a geographic location.

You also use tax jurisdictions to define jurisdiction-based tax rates. A tax jurisdiction tax rate is a rate that's distinct to a specific geographic region or tax zone for a specific tax.

For example, for US Sales and Use Tax create a county jurisdiction for every county in the parent geography type of State and in the parent geography name of California. For the UK, create a tax jurisdiction for the country of United Kingdom.

Tax Statuses

Set up the tax statuses that you need for each tax that you create for a combination of tax regime, tax, and configuration owner. A tax status is the taxable nature of a product in the context of a transaction and specific tax on the transaction.

For example, for US Sales and Use Tax create a tax status for standard and exempt. For the UK set up separate tax statuses for standard, zero, exempt, and reduced rates.

Tax Rates

Set up tax rates for your tax statuses and tax jurisdictions. For tax statuses, set up a tax rate record for each applicable tax rate that a tax status identifies. For tax jurisdictions, set up tax rate records to identify the tax rate variations for a specific tax within different tax jurisdictions.

For example, for US Sales and Use Tax create a tax rate for each tax jurisdiction (jurisdiction-based rates). For the UK, set up separate tax rates for standard, zero, exempt, and reduced (tax status-based rates).

Tax Recovery Rates

Set up tax recovery rate codes for the recovery types identified on the taxes within a tax regime. A tax recovery rate code identifies the percentage of recovery designated by the tax authority for a specific transaction.

For example, organizations that produce VAT-applicable goods and services are allowed to recover 100% of the VAT they pay on typical purchases. They would use a default 100% recovery rate.

Organizations, such as financial institutions, which create services that are exempt from VAT, are not able to recover VAT on their normal purchases. They would use a default 0% recovery rate.

Set up tax regimes in each country and geographical region where you do business and where a separate tax applies.

The tax regime provides these functions:

  • Groups similar taxes together

  • Designates the geography within which taxes apply

  • Applies as defaults the settings and values that you define for each tax in the tax regime

  • Defines for which taxes the configuration options apply and a specific subscription option applies

  • Provides a single registration for all taxes associated with the tax regime

  • Defines the use of fiscal classifications as follows:

    • Transaction fiscal classifications

    • Product fiscal classifications

    • Party fiscal classifications

Tax Regime Setup

Define a tax regime:

  • Per country per tax type, with the tax requirements administered by a government tax authority for the entire country.

  • For standard geographical types or subdivisions within a country, such as a:

    • State

    • Province

    • County

    • City

    In these cases, you base the tax regime on the Oracle Fusion Trading Community Model standard geography.

  • Based on disparate parts of a country or more than one country.

    In these cases, you can create one or more tax zones and set up tax regimes for these tax zones. You can also set up a tax regime as a parent tax regime to group related tax regimes together for reporting purposes.

You must set up a tax regime before you set up the taxes in the tax regime. Some tax regime values appear as defaults on the taxes that belong to the tax regime in order to help minimize tax setup.

You must associate a tax regime with all of the first-party legal entities and business units that are subject to the tax regulations of the tax regime. You can set up tax configuration options when you create or edit a tax regime or when you create or edit a first-party legal entity tax profile. Both setup flows appear and maintain the same party and tax regime configuration options.

Set up details for the taxes of a tax regime. Each separate tax in a tax regime includes records that are used to calculate and report on the tax, including:

  • Tax statuses

  • Tax rates

  • Tax rules

Identify what taxes you must define. Each tax appears as a single tax line on a transaction. If you need to show or report more than one tax line per transaction line on a transaction, then you should set up more than one tax. For example, for US Sales and Use Tax you would define a tax for each state, county, and city.

Tax Setup

Oracle Fusion Tax applies as defaults tax information from the tax regime to each tax that you create for a tax regime. You can modify this information at the tax level according to your needs, as well as add additional defaults and overrides. For tax rule defaults, specify values that apply to the majority of your transactions. Use tax rules to configure exceptions to the tax rule defaults.

You can create a new tax, or create a tax that's based on an existing tax within the tax regime. You do this to minimize setup by sharing tax jurisdictions and tax registrations. When you create a new tax based on an existing tax, the attributes that remain constant for all taxes derived from the source tax are not available for update. Attributes that are copied and are display only include:

  • Tax regime

  • Tax

  • Geography definition

  • Tax jurisdiction settings

Note: The enable tax settings are not selected, in the same way that they are not selected when you access the Create Tax page.

You can enable a tax for simulation or for transactions only after you have completed all of the required setup.

Set up tax jurisdictions for geographic regions or tax zones where a specific tax authority levies a tax. A tax jurisdiction specifies the association between a tax and a geographic location.

At transaction time, Oracle Fusion Tax derives the jurisdiction or jurisdictions that apply to a transaction line based on the place of supply.

Tax Jurisdiction Setup

You must set up at least one tax jurisdiction for a tax before you can make the tax available on transactions.

You can use tax jurisdictions to define jurisdiction-based tax rates. A tax jurisdiction tax rate is a rate that's distinct to a specific geographic region or tax zone for a specific tax.

You can also create multiple jurisdictions at once using the mass create functionality for taxes that relate to specific Trading Community Model geographic hierarchies. For example, create a county jurisdiction for every county in the parent geography type of State and in the parent geography name of California.

The tax within a tax jurisdiction can have different rates for the parent and child geographies. For example, a city sales tax rate can override a county rate for the same tax. In this case, you can set up an override geography type for the city and apply a precedence level to the city and county tax jurisdictions to indicate which tax jurisdiction takes precedence.

In addition, in some cities a different city rate applies to the incorporated area of the city, called the inner city. In these cases, you can set up an inner city tax jurisdiction with its own tax rate for the applicable customers and receivables tax. Inner city tax jurisdictions are often based on postal code groupings.

Set up the tax statuses that you need for each tax that you create for a combination of tax regime, tax, and configuration owner. A tax status is the taxable nature of a product in the context of a transaction and specific tax on the transaction.

Tax Status Setup

Define a tax status to group one or more tax rates that are the same or similar in nature.

For example, one tax can have separate tax statuses for standard, zero, exemptions, and reduced rates. A zero rate tax status may have multiple zero rates associated with it, such as Intra-EU, zero-rated products, or zero-rated exports.

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.

The minimum tax configuration to meet the basic tax requirements of your transaction and withholding taxes comprise of defining a tax regime and associated taxes.

The two steps in defining the minimum tax configuration are:

  1. Define tax regime: This step includes the tax regime definition as well as the subscription by the appropriate legal entity or business unit.

  2. Define transaction and withholding taxes: This step includes the basic tax definition, controls and defaults, direct and indirect tax rule defaults, and tax accounts.

The following prerequisite setups must be completed for minimum tax configuration:

  • First parties, such as legal entities and business units

  • Tax geographies and zones

  • Ledger and accounts

A legal entity tax profile is automatically created when a legal entity is defined in the implementation. Similarly, a business unit tax profile is automatically created when a business unit is defined. For the business unit, indicate whether it uses the subscription of the legal entity instead of creating its own.

Define Tax Regime

The first step includes the tax regime definition and subscription by an appropriate legal entity or business unit. While creating your tax regime, you can minimize configuration and maintenance costs by creating content that can be shared by more than one entity. For example, legal entities can subscribe to the shared reference data instead of creating separate and repetitive data. If the subscribing legal entities have some variations in their setup, you can create override data to meet the specific exceptions that are applicable to these organizations.

Define Transaction and Withholding Taxes

The second step includes basic tax definition, such as:

  • Geographic information

  • Controls and defaults

  • Direct and indirect tax rule defaults

  • Tax accounts

The basic tax definition includes controls that you can set to provide the override capability at transaction time. For example, allow users to make manual updates on transaction tax lines, select the Allow override for calculated tax lines and the Allow entry of manual tax lines options. However, to enforce automatic tax calculation on transaction tax lines, don't enable these options.

Use the direct and indirect tax rule defaults to specify the values that apply to the majority of your transactions. Create tax rules to address the exceptions or variations to the defaults. For example, for the Goods and Services Tax (GST) that applies to the supply of most goods and services in Canada, set the Tax Applicability default to Applicable. A luxury tax, on the other hand, is a tax on luxury goods or products not considered essential. As it doesn't apply to most goods and services, set the Tax Applicability direct tax rule default to Not Applicable. Then create a tax rule to make the tax applicable when the product in the transaction satisfies the luxury requirement.

Assign your default tax accounts for the taxes in a tax regime to post the tax amounts derived from your transactions. The tax accounts you define at the tax level, populate either the tax rate accounts or tax jurisdiction accounts for the same ledger, and optionally, the same business unit. You can update these default tax accounts in the tax rate or tax jurisdiction setup.

Note: When you create your tax, the tax recoverable account and tax liability account may be prepopulated from default account values defined in the Rapid Implementation for General Ledger spreadsheet upload. You can override these values.

Define the minimum tax configuration setup to handle the majority of your tax requirements. As part of defining transaction and withholding taxes, decide the direct and indirect tax rule defaults for the tax and set up the associated tax accounts.

For complex tax requirements, create tax rules that consider each tax requirement related to a transaction before making the final tax calculation.

Setting Up Direct Tax Rule Defaults

The direct tax rule defaults are the default values for the direct tax rule types, which include:

  • Place of supply

  • Tax applicability

  • Tax registration

  • Tax calculation formula

  • Taxable basis formula

The following table describes the direct tax rule defaults and examples:

Direct Tax Rule Default Usage Example

Place of Supply

Indicates the specific tax jurisdiction where the supply of goods or services is deemed to have taken place.

In Canada, the place of supply for Goods and Services Tax (GST) is typically the ship-to location. To handle the majority of GST transactions, select Ship to as your default place of supply.

Note: The corresponding place of supply differs based on the type of transaction. For example, a place of supply of Ship to corresponds to the location of your first-party legal entity for Payables transactions. For Receivables transactions, Ship to corresponds to the location of your customer site.

Tax Applicability

Indicates whether the tax is typically applicable or not applicable on transactions.

The GST in Canada is a tax that applies to the supply of most property and services in Canada. When you create the GST tax, select Applicable as your default tax applicability.

Tax Registration

Determines the party whose tax registration status is considered for an applicable tax on the transaction.

With a direct default of bill-to party, the tax registration of the bill-to party is considered. The application stamps their tax registration number onto the transaction, along with the tax registration number of the first-party legal reporting unit.

Tax Calculation Formula

Represents the typical calculation of tax for a transaction line.

A common formula, STANDARD_TC, is predefined, where the tax amount is equal to the tax rate multiplied by the taxable basis.

Taxable Basis Formula

Represents the amount on which the tax rate is applied.

The following common formulas are predefined:

  • STANDARD_TB: The taxable basis is equal to the line amount of the transaction line.

  • STANDARD_QUANTITY: The taxable basis is equal to the quantity of the transaction line.

  • STANDARD_TB_DISCOUNT: The taxable basis is the line amount of the transaction line less the cash discount.

Note: Use the Manage Tax Rules task to define exceptions to the direct tax rule defaults you define for the tax.

Setting Up Indirect Tax Rule Defaults

The indirect tax rule defaults for a tax include:

The following table describes the indirect tax rule defaults and examples:

Indirect Tax Rule Default Usage Example

Tax Jurisdiction

Indicates the most common geographic area where a tax is levied by a specific tax authority.

Value-added tax (VAT) is applicable to the supply of most goods and services in Portugal. For the tax PT VAT, create the default tax jurisdiction as the country of Portugal. To address specific tax regions such as Azores and Madeira, which have lower VAT rates than Portugal, define jurisdiction rates with different VAT rates.

Tax Status

Indicates the taxable nature of the majority of your transactions.

If your operations primarily include zero-rated transactions, select the default tax status as Zero instead of Standard. This setting facilitates tax determination when multiple zero rates are defined to handle different reporting requirements for zero rate usage, such as intra-EU, zero-rated products, or zero-rated exports.

Tax Recovery

Indicates the recovery rate to apply to each recovery type for each applicable tax on a purchase transaction.

In Canada, both federal and provincial components of Harmonized Sales Tax (HST) are 100% recoverable on goods bought for resale. In this case, with two recovery types, you can set up two recovery rate defaults for the HST tax.

Tax Rate

Specifies the default tax rate that is applicable to the majority of your transactions associated with this tax. You can create additional tax setup, such as jurisdiction rates, or create tax rules to set alternate values as required.

HST in Canada is applied at a 13% rate in most provinces that have adopted HST. The exceptions are British Columbia where the rate is 12% and Nova Scotia where the rate is 15%. To satisfy this requirement:

  • Define a single rate of 13% with no jurisdiction.

  • Define a 12% rate and associate it with the British Columbia jurisdiction.

  • Assign a 15% rate to Nova Scotia.

This minimizes the setup required by creating an exception-based setup.

Note: Use the Manage Tax Rules task to define exceptions to the indirect tax rule defaults you define for the tax.

Setting Up Tax Accounts

Set up tax accounts at the tax level. The application automatically copies the tax account combination to the tax rate accounts or tax jurisdiction accounts that you create for the tax for the same ledger and optionally, the same business unit. Any subsequent changes you make to existing tax accounts at the tax level aren't copied to the tax rate or tax jurisdiction level.

Define tax accounts at any of the following levels. The defaulting option is only available at the tax level.

  • Tax

  • Tax jurisdiction

  • Tax rate

  • Tax recovery rate

Note: When you create your tax, the tax recoverable account and tax liability account may be prepopulated from default account values defined in the Rapid Implementation for General Ledger spreadsheet upload. You can override these values.

Set up tax accounts for the following:

Account Description

Ledger and Business Unit

The ledger and business unit for which you are creating the tax accounts.

Interim Tax

An account that records tax recovery or liability until the event prescribed by the statute is complete. Generally, the payment of the invoice is the event that triggers the generation of the tax recovery or liability. You must set up an interim tax account for taxes and tax rates that have a deferred recovery settlement. Once you set up an interim tax account for this tax rate, you can't change the recovery settlement to Immediate.

Tax Recoverable Account

An account that records tax recovery amounts. If you set up recovery rates for a tax that you also self assess, then define a tax recovery account for the associated recovery rates.

Tax Liability Account

An account that relieves tax liability amounts. If you set up recovery rates for a tax that you also self assess, then define a tax liability account for the associated tax rates.

Finance Charge Tax Liability

An account that records the tax liability associated with finance charges that is used as a deduction against overall tax liability.

Nonrecoverable Tax Accounts

Accounts that record tax amounts on earned and unearned discounts and adjustments that you can't claim as a deduction against tax liability.

Expense and Revenue Accounts

Accounts that record net changes generated by adjustments, earned and unearned discounts, and finance charges. Receivables activities such as discounts and adjustments reduce the receivable amount, and are therefore considered an expense.

Example of Minimum Tax Configuration Setup

The following example illustrates the minimum tax configuration setup to meet the basic requirements in Canada for the Goods and Services Tax (GST). Set up a tax regime for both GST and Harmonized Sales Tax (HST). Create one recovery type for the fully recoverable status of the transaction.

In Canada, GST is a tax that applies to the supply of most property and services in Canada. The provinces of British Columbia, Ontario, New Brunswick, Nova Scotia, and Newfoundland and Labrador, referred to as the participating provinces, combine their provincial sales tax with GST to create HST. Generally, HST applies to the same base of property and services as the GST. Every province in Canada except Alberta has implemented either provincial sales tax or the HST. In countries like Canada, some or all taxes on business transactions for registered companies are recoverable taxes.

The following table summarizes key decisions for this scenario:

Decision to Consider In This Example

What province does ABC Corporation do business in?

Alberta

What taxes are applicable?

GST

Do you want to set up tax accounts at the tax level?

Yes

The tax implications in this scenario are:

  • Five percent (5%) GST is applicable on the sale of goods in Alberta

  • Neither the HST nor provincial sales tax applies in Alberta

  • Place of supply for GST tax is generally based on the place of delivery or ship-to location.

To determine the GST tax in Alberta, perform the following steps:

  1. Define the tax regime

  2. Define the transaction taxes

  3. Create the direct tax rule defaults

  4. Create the indirect tax rule defaults

  5. Enable the tax

Defining the Tax Regime

  1. In the Setup and Maintenance work area, go to the following:

    • Offering: Financials

    • Functional Area: Transaction Tax

    • Task: Manage Tax Regimes

  2. On the Manage tax regimes page, click Create.

  3. On the Create Tax Regime page, complete the fields as shown in this table:

    Column Value

    Tax Regime Code

    CA GST and HST

    Regime Level

    Country

    Country

    Canada

    Start Date

    1/1/01

    Note: Consider your tax planning carefully before entering the start date. This date must accommodate the oldest transaction that you want to process within this tax regime. After you create the tax regime, you can only update this date with an earlier date. If you enter an end date, you can't update this date after you save the record.

    Tax Currency

    CAD

    Allow cross regime compounding

    Select

  4. On the Configuration Options tab, select the party name that identifies either the legal entity or the business unit or both for which you define the configuration options.

  5. For the Configuration of Taxes and Rules, select the subscription that defines the configuration owner setup that is used for transactions of the legal entity and business unit for this tax regime.

  6. Enter the effective start date for this configuration option. Enter a date range that is within the date range of both the party tax profile and the tax regime.

  7. Click Save and Close.

Defining the Transaction Taxes

  1. In the Setup and Maintenance work area, go to the following:

    • Offering: Financials

    • Functional Area: Transaction Tax

    • Task: Manage Taxes

  2. On the Manage Taxes page, click Create.

  3. On the Create Tax page, complete the fields as shown in this table:

    Column Value

    Tax Regime Code

    CA GST and HST

    Configuration Owner

    Global configuration owner

    Tax

    CA GST

    Geography Type

    Province

    Parent Geography Type

    Country

    Compounding Precedence

    10

    Allow override of calculated tax lines

    Select

    Allow multiple jurisdictions

    Select

    Allow creation of multiple of jurisdictions

    Select

    Allow tax recovery

    Select

    Allow tax recovery rate override

    Select

    Primary Recovery Rate

    Standard

Assigning the Tax Accounts

  1. Navigate to the Tax Accounts tab and click Create.

  2. Complete the fields as shown in this table:

    Column Value

    Primary Ledger

    CA Ledger

    Business Unit

    CA Operations

    Tax Recoverable Account

    0001-1500-1100-1000

    Tax Liability Account

    0001-1500-1100-1000

Creating the Direct Tax Rule Defaults

  1. Navigate to the Tax Rule Defaults tab and click Create.

  2. Complete the fields as shown in this table:

    Column Value

    Place of Supply

    Ship to

    Tax Applicability

    Applicable

    Tax Registration

    Ship-from party

    Tax Calculation Formula

    STANDARD_TC

    Taxable Basis Formula

    STANDARD_TB

Creating the Indirect Tax Rule Defaults

  1. On the Tax Rules Defaults tab, select Tax Jurisdiction as your rule type and click Create Default.

  2. On the Create Tax Jurisdiction page, complete the fields as shown in this table:

    Column Value

    Tax Jurisdiction Code

    CA Alberta

    Geography Type

    Province

    Geography Name

    AB

    Set as default jurisdiction

    Select

    Default Start Date

    1/1/01

  3. Click Save and Close.

  4. Select Tax Status as your rule type and click Create Default.

  5. On the Create Tax Status page, complete the fields as shown in this table:

    Column Value

    Tax Status Code

    CA GST STD

    Set as default tax status

    Select

    Default Start Date

    1/1/01

  6. Click Save and Close.

  7. Select Tax Recovery Rate as your rule type and click Create Default.

  8. On the Create Tax Recovery Rate page, complete the fields as shown in this table:

    Column Value

    Tax Recovery Rate Code

    CA GST STD REC RATE

    Recovery Type

    STANDARD

    Rate Percentage

    100

    Effective Start Date

    1/1/01

    Set as Default Rate

    Select

    Default Start Date

    1/1/01

  9. Click Save and Close.

  10. Select Tax Rate as your rule type and click Create Default.

  11. Complete the fields on the Create Tax Rate page as shown in this table:

    Column Value

    Tax Status Code

    CA GST STD

    Tax Rate Code

    CA GST STD RATE

    Tax Rate Type

    Percentage

    Rate Percentage

    5

    Set as Default Rate

    Select

    Default Start Date

    1/1/01

  12. Click Save and Close.

Enabling the Tax

  1. On the Create Tax page, click the Enable tax for simulation option. This lets you verify the tax configuration using the Tax Simulator.

  2. Once you have verified your tax configuration with simulated transactions, click the Enable tax for transactions option. This lets you use this tax in transaction processing.

  3. Click Save and Close.

    For ABC's transactions in the province of Alberta, the following is determined by default:

    • GST tax is applicable and is calculated at a percentage rate of 5%.

    • 100% of the GST can be recovered.

Define Withholding Tax Configuration

Considerations for Setting Up Withholding Tax

You can set up withholding tax using Oracle Fusion Payables or Oracle Fusion Tax. Which application you use depends on your withholding tax requirements.

Use:

  • Payables withholding tax setup to meet the basic withholding tax requirements for most countries

  • Oracle Fusion Tax for more complex tax requirements

Payables Withholding Tax Setup

Payables uses:

  • Tax data setup for a business unit

  • Taxes at a country level

  • Tax classification codes consisting of one or more taxes populated on Payables documents from supplier details

Oracle Fusion Tax Withholding Tax Setup

Oracle Fusion Tax uses:

  • Shared tax setup data for a:

    • Company

    • Legal entity

    • Business unit

  • Taxes at various levels such as for:

    • Country

    • State

    • Province

    • City

  • Tax rule defaults for simple tax determination, such as for:

    • Tax jurisdiction

    • Tax status

    • Tax rate

  • Tax rules for more complex tax determination, such as for:

    • Place of supply

    • Tax applicability

    • Tax rates

  • Both payment and invoice withholding tax calculation

  • Withholding tax exceptions and exemptions for a tax defined at lower levels, such as for a particular item

  • Period-based tax amount thresholds or taxable basis thresholds maintained at the legal entity or business unit level

  • Period-based rate schedules maintained at the legal entity or business unit level

Similar to setting up your transaction taxes, you use the Define Tax Configuration tasks to set up your withholding taxes. Many of the setup options are common between transaction tax and withholding tax setup. However, there are some differences in setting up your withholding taxes to consider.

Some of those differences occur in the following tasks:

  • Manage Tax Regimes

  • Manage Taxes

  • Manage Tax Rates and Tax Recovery Rates

  • Manage Party Tax Profiles

  • Manage Tax Rules

  • Manage Tax Formulas

Note: To set up your withholding tax configuration, select Withholding Tax in the Manage pages for each task.

Manage Tax Regimes

When setting up your withholding tax regime, consider the following:

  • You must define withholding tax regimes at the country level.

  • The Withholding Buckets Level field is used for maintaining the period-based threshold amounts and period-based rate schedule amounts. The default value is Legal entity but you can change it to Business unit when you create a tax regime. Once you save the tax regime, you can't update this field.

  • Service subscriptions are only applicable to transaction tax.

Manage Taxes

When setting up your withholding taxes, consider the following:

  • You can only enable withholding tax for transactions, not simulation.

  • The Calculation Point field is used to define when the withholding tax should be calculated. The options are Invoice or Payment.

  • The Tax Invoice Creation Point field is used to define when the tax authority invoice should be created. The options are Invoice or Payment.

  • For taxes that have rate schedule tax rates, define the controls, such as whether the schedule basis is document or period.

  • Threshold controls are used to apply minimum, maximum, or both minimum and maximum limits to taxable amounts or tax amounts.

    You can also define threshold controls at the tax jurisdiction level. For example, if you had a state tax with different thresholds by state, define the thresholds at each state jurisdiction level instead of at the tax level.

  • Tax authority details are used to associate the tax authority with the withholding tax. You can't enable the withholding tax for transactions unless there is an association.

Manage Tax Rates and Tax Recovery Rates

When setting up your withholding tax rates, consider the following:

  • Tax recovery rates aren't applicable to withholding tax.

  • Tax rate options include Gross amount rate schedule and Withheld amount rate schedule, in addition to Percentage. These options allow you to set up rate schedule details for your withholding tax rate.

Manage Party Tax Profiles

When setting up your parties for withholding tax, consider the following:

  • For legal entities, service subscriptions are only applicable to transaction tax, not withholding tax.

  • For legal reporting units, you can enter details for withholding tax registrations and withholding tax exemptions.

  • For business units:

    • You can use the legal entity withholding tax subscription.

    • Service subscriptions and application tax options are only applicable to transaction tax, not withholding tax.

  • For third parties and third-party sites, you can enter details for withholding tax registrations and withholding tax exemptions.

Manage Tax Rules

When setting up your withholding tax rules, consider the following:

  • Tax determining factors include those factors applicable to withholding tax and don't include all of those factors applicable to transaction tax.

  • Tax rule types include those types applicable to withholding tax and don't include all of those types applicable to transaction tax.

Manage Tax Formulas

When setting up your withholding tax rules, consider the following:

  • Only taxable basis formulas are applicable to withholding tax. No Assessable value exists as a taxable basis type option.

  • There are less line amount options applicable to withholding tax than there are to transaction tax.

Manage Withholding Tax Settings

Enter and update withholding tax lines according to the requirements of your transactions. Depending on your security settings and options specified during tax setup, you can:

  • Enter manual withholding tax lines

  • Change existing withholding tax line amounts

  • Cancel withholding tax lines

Entering Manual Withholding Tax Lines

The following must be enabled for you to enter manual withholding tax lines:

  • Allow entry of manual tax lines option for the withholding tax

  • Allow Manual Withholding option for the configuration owner and application event class

To enter a manual withholding tax line:

  1. In the Withholding Taxes tab, click Edit Taxes and add a row.

  2. Enter a rate name. You can't enter a manual withholding tax line for a withholding tax that already exists for the transaction.

  3. Change the withholding tax amount if necessary. You can only enter a withholding tax amount up to the unpaid amount on the document.

The Edit Taxes region is only accessible for paid documents if the option to Allow adjustments to paid invoices in Manage Invoice Options allows it.

The Edit Taxes region includes the status of the tax authority invoice for each tax. If the status is created, use the link to view the tax authority invoice details, such as invoice number, creation date, amount in the tax currency, validation status, and paid status.

Editing Withholding Tax Line Amount

The following must be enabled for you to change a withholding tax line amount:

  • Allow override of calculated tax lines option for the withholding tax

  • Allow Manual Withholding option for the configuration owner and application event class

To change a withholding tax line amount:

  1. In the Withholding Taxes tab, click Edit Taxes.

  2. Change the existing tax line amount.

You can only update withholding tax amounts for existing tax lines before a document is validated.

Canceling Withholding Tax Lines

The following must be enabled for you to cancel withholding tax lines:

  • Allow override of calculated tax lines option for the withholding tax

  • Allow Manual Withholding option for the configuration owner and application event class

To cancel a withholding tax line:

  1. In the Withholding Taxes tab, click Edit Taxes.

  2. Select the withholding tax line to cancel and click Cancel in the Actions menu.

You can't cancel a withholding tax line after there has been a payment on the invoice.

Note: If you update an invoice after validation, such as changing a line amount, withholding tax lines with a calculation point of Invoice, are only recalculated on revalidation if all of the existing withholding tax lines are canceled before revalidation.

Set up a rate schedule to control the tax rates applicable on a transaction based on each document or on accumulated tax amounts and taxable basis amounts in defined periods.

Define rate schedules at the following levels:

  • Withholding tax: Define rate schedules to be based on each document or on accumulated tax amounts and taxable basis amounts in defined periods. For period-based rate schedules, specify the withholding tax calendar to be used for defining the periods. You can also control whether a single rate should be applied to the total taxable basis or multiple rates.

  • Withholding tax rate: Specify if the tax rate schedule is based on gross amount or withheld amount. Define the amount ranges and percentage rate for each range. You can have different amounts and rate percentages for a tax rate based on effective periods.

The following examples illustrate how withholding tax is calculated based on defined rate schedules.

Rate Schedule Based on a Document with a Tax Rate Type of Gross Amount

Define rate threshold setup as:

Schedule Basis Apply Single Rate Tax Rate Type From Amount To Amount Rate Percentage

Document

Blank

Gross amount

0

1000

5%

 

 

 

1000

5000

10%

 

 

 

5000

 

15%

The withholding tax on an invoice for 6000 is calculated as: (1000 * 5%) + (4000 * 10%) + (1000 * 15%) = 600.

If you define the apply single rate, the withholding tax is calculated as: 6000 * 15% = 900 because 6000 falls in the 15% range of over 5000.

Rate Schedule Based on Period with a Tax Rate Type of Withheld Amount

Define rate threshold setup as:

Schedule Basis Apply Single Rate Tax Rate Type From Amount To Amount Rate Percentage

Period

Blank

Amount withheld

0

50

5%

 

 

 

50

500

10%

 

 

 

500

 

15%

The withholding tax is calculated based on:

  • 0 to 50 at 5% is equal to a gross amount of 0 to 1000. For example, a withheld amount of 50 at 5% is equal to 1000 * 5% .

  • 50 to 500 at 10% is equal to a gross amount of 1000 to 5000. For example, a withheld amount of 500 at 10% is equal to 5000 * 10%.

The first invoice in a period for the amount of 4000 is calculated as: (1000 * 5%) + (3000 * 10%) = 350. The accumulated tax amount is 350 and the accumulated taxable basis is 4000.

The second invoice in a period for the amount of 3000 is calculated as: (1000 * 5%) + (4000 * 10%) + (2000 * 15%) = 750 less the current accumulated tax amount of 350 = 400. The accumulated tax amount becomes 750 and the accumulated taxable basis is 7000, which is the first and second invoice added together.

FAQs for Define Withholding Tax Configuration

When do I use Oracle Fusion Tax to update the Payables withholding tax setup?

If you have already set up your withholding tax requirements in Oracle Fusion Payables, you don't need to do the same in Oracle Fusion Tax. However, you need to update some withholding tax details in Oracle Fusion Tax. They aren't a part of the Payables withholding tax setup, such as:

  • Rate schedules to apply a single rate on the total taxable basis

  • Tax thresholds to use a taxable basis threshold of total amount instead of an amount in excess of the minimum

You can also update associated tax authority details initially set up in Payables.

How do I set up withholding tax options?

You can set up withholding tax in Payables or Tax setup. Here's how you do it:

Application Page Name Task

Payables

Manage Tax Reporting and Withholding Tax Options

Select the withholding tax options for the business unit.

Tax

Manage Configuration Owner Tax Options

  1. Select the withholding tax options for the legal entity or business unit.

  2. Select Determine applicable Withholding regimes as the regime determination set.

Manage Tax Regimes

When you create a tax regime, you specify the options and defaults available to the taxes associated with the tax regime. You also enable the features that apply to the tax regime and its taxes.

The options appearing in the Associated Taxes Setup Information region on the Edit Tax Regime page result from the features enabled and the options selected at the tax level. These options include:

  • Allow multiple jurisdictions

  • Allow tax recovery

  • Allow tax exceptions

  • Allow tax exemptions

The preceding options always appear as read-only check boxes in the Associated Taxes Setup Information region. The option appears as selected if you selected the option in one of the taxes within this tax regime. If you didn't select the option in one of the taxes, the option appears as not selected.

For example, suppose you have a California county sales tax that applies to all counties, so you need a tax with multiple jurisdictions. In this case, enable the Multiple Jurisdictions feature at the tax regime level and select the Allow multiple jurisdictions option at the tax level. When you open the Edit Tax Regime page, Associated Taxes Setup Information region for this tax regime, the Allow multiple jurisdictions option appears as selected.

Manage Controls and Defaults

A tax regime associates a common set of default information, regulations, fiscal classifications, and optionally, registrations, to one or more taxes. Set up tax regimes in each country and geographical region where you do business and where a separate tax applies.

The tax regime setup details include:

  • Designating the geography to which taxes within a tax regime apply

  • Defining the controls and defaults that apply to taxes and associated lower level information

  • Specifying configuration options and service subscriptions

Designating the Geography

The common tax regime setup is one tax regime per country per tax type. However, you can also have tax regimes based on parts of a country or more than one country. Select the regime level as:

  • Country: The tax regime is applicable to a specific country.

  • Tax zone: The tax regime is applicable to parts of a country or multiple countries. Enter the tax geography type and tax geography name associated with the group of countries or the tax zone that you want. The tax geography type and tax geography name correspond to the tax zone type and tax zone respectively.

If applicable, designate the tax regime as a parent regime or indicate the parent regime name if the tax regime belongs to a parent regime. Use a tax regime defined as a parent tax regime to group other nonparent tax regimes for reporting purposes.

Defining Controls and Defaults

Set tax-level controls to enable the options that you want to make available to the taxes in this tax regime. If necessary, you can disable the options that you enable here for individual taxes within the tax regime. Enter default values for the taxes in this tax regime. You can update the default values at the tax level. If you disable a controlled option at the tax regime level it is not available as an option at the tax level.

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

Defaults Region

Field Description Default Derived from Default Appears on Controls

Tax Currency

The default currency of the taxes within this tax regime

None

Tax

None

Minimal Accountable Unit

The minimal unit of currency that is reported to the tax authority, for example, 0.05 GBP indicates that 5 pence is the minimal unit

None

Tax

None

Tax Precision

A one digit whole number to indicate the decimal place for tax rounding

None

Tax

None

Tax Inclusion Method

A method that describes whether the line amount includes tax or excludes tax

None

Tax

None

Conversion Rate Type

The specific conversion rate table that is used to convert one currency into another. For example, the Association of British Travel Agents conversion rate used in the travel industry

None

Tax

None

Rounding Rule

The rule that defines how rounding is performed on a value. For example, up to the next highest value, down to the next lower value, or to the nearest value

None

Tax

None

Allow tax rounding override

Allow the override of the rounding defined on the tax registration records

None

Tax

None

Reporting Tax Authority

The default tax authority to whom the tax reports are sent

None

  • Tax

  • Tax registration

None

Collecting Tax Authority

The default tax authority to whom the tax is remitted

None

  • Tax

  • Tax registration

None

Use legal registration number

Option that controls whether the tax registration number is the same as the legal registration number of the party

None

Tax

None

General Controls Region

Field Description Default Derived from Default Appears on Controls

Allow override and entry of inclusive tax lines

Option that controls whether you can override and enter inclusive or exclusive line amounts

None

Tax

None

Use tax reporting configuration

Option that controls whether the tax reporting details are available on the first-party tax registration record for this tax regime

None

None

Controls whether you can enter tax reporting configuration details on the tax registration for this tax regime for your first parties

Compounding Level Controls Region

Field Description Default Derived from Default Appears on Controls

Allow cross regime compounding

Option that controls whether cross regime compounding is needed for this tax regime

None

None

Controls whether this tax regime is compounded based on the tax calculated from another tax regime

Compounding Precedence

Defines the order in which taxes within the compound tax regimes need to be calculated. A tax within a tax regime with a lower value is calculated first.

None

None

Controls the order in which taxes within tax regimes are calculated

Note: Oracle Fusion Tax provides features at the tax regime level to streamline your implementation by selecting the features that are applicable to the tax regime in scope. You must enable the features to use that functionality for the tax regime and related taxes.

Specifying Configuration Options and Service Subscriptions

Set up configuration options to associate tax regimes with the parties in your company that have a tax requirement under these tax regimes. You can set up tax configuration options when you create a tax regime or when you create a party tax profile for a first-party legal entity or business unit. Both tax regime and party tax profile setup flows appear and maintain the same party and tax regime association. Configuration options only apply to tax regimes directly linked to taxes and not to tax regimes that are used to group other tax regimes.

A service subscription is used to reference a specific transaction tax offering or offerings provided by an external tax partner. The transaction tax offering provided by an external tax partner can be related to content, calculation services, or both. Oracle Fusion Tax supports the use of transaction tax offerings provided by external tax partners for transaction tax calculation processing. Depending on the specific depth and scope of an individual tax partner's offerings, you can use either Oracle Fusion Tax or a Partner Tax application to perform the transaction tax calculation.

Calculating tax on a transaction as inclusive of the line amount is generally a business decision. This decision is based on the relationship between the transacting parties and the items or taxes involved.

Taxes applicable on a transaction are made inclusive of the item line amount either:

  • Manually

  • Automatically

Manual Approach

In the manual approach, you access the calculated tax lines on a transaction and select the Inclusive option. This action includes the calculated tax amount with the item value.

However, this option is controlled through two factors:

  • Privileges are assigned to the users for accessing and editing the calculated tax lines.

  • Setup restrictions are applied to edit the Inclusive option on the calculated tax lines.

Automatic Approach

In the automatic approach, you can configure the tax setup and calculate the tax on a transaction as inclusive of the item line amount. Since the tax legislation and the business relationship between the transacting parties primarily drive this requirement, the option for configuring the inclusiveness is made available on the tax and tax rate definition and the third party and legal reporting unit tax profiles on the tax registration and general data tabs. The tax determination process uses a hierarchy approach to evaluate the defined setup and applies the inclusiveness option on the transaction.

In tax setup, the options to choose for applying the inclusiveness on a transaction are:

  • Standard noninclusive handling: This option calculates the taxes as exclusive of the given transaction line amount.

  • Standard inclusive handling: This option calculates the taxes as inclusive of the given transaction line amount.

  • Special inclusive handling: This option calculates the taxes as inclusive of the given transaction line amount, but the calculation methodology differs from the standard inclusive process.

The following table illustrates the calculation methodology used with each of these options when a transaction line amount is 1000 USD and the applicable tax rate is 10% of the taxable basis amount. For example, line amount:

Method Calculation Taxable Basis Amount Tax Amount Transaction Line Amount

Standard Noninclusive

1000 USD * 10/100

1000 USD

100 USD

1100 USD

Standard Inclusive

1000 USD * 10/110

909.09 USD

90.91 USD

1000 USD

Special Inclusive

1000 USD * 10/100

900 USD

100 USD

1000 USD

Considerations for Configuring Inclusive Taxes

Calculating taxes as inclusive of the item line amount is primarily driven by the tax legislation and the business relationship between the transacting parties. Configure your tax setup accordingly to capture the inclusiveness as per the taxes and the parties involved within a transaction.

The following table provides some of the key inclusiveness requirements and the corresponding setup:

Inclusiveness Requirement Setup Based on the Tax Inclusiveness Processing Hierarchy

Always apply to specific tax rates regardless of the party setup

  • Tax rate: Select Standard inclusive handling or Special inclusive handling for the tax inclusion method

    Process complete

  • Tax registration party: Not applicable

  • Party site registration: Not applicable

  • Party registration: Not applicable

  • Party site tax profile: Not applicable

  • Party tax profile: Not applicable

  • Legal reporting unit registration: Not applicable

  • Legal reporting unit tax profile: Not applicable

  • Tax: Not applicable

Apply to specific taxes and all associated tax rates originating from certain tax jurisdictions for certain transacting third-party sites

  • Tax rate: Select Blank for the tax inclusion method

  • Tax registration party: Third party

  • Party site registration: Registration record at tax jurisdiction level, for example, for tax regime, tax, and tax jurisdiction, with the option for inclusiveness set to Yes

    Process complete

  • Party registration: Not applicable

  • Party site tax profile: Not applicable

  • Party tax profile: Not applicable

  • Tax: Not applicable

Apply to specific taxes and all associated tax rates regardless of the tax jurisdiction for certain transacting third-party sites

  • Tax rate: Select Blank for the tax inclusion method

  • Tax registration party: Third party

  • Party site registration: Registration record at tax level, for example, for tax regime and tax, with the option for inclusiveness set to Yes

    Process complete

  • Party registration: Not applicable

  • Party site tax profile: Not applicable

  • Party tax profile: Not applicable

  • Tax: Not applicable

Apply to all taxes defined for a tax regime for certain transacting third-party sites

  • Tax rate: Select Blank for the tax inclusion method

  • Tax registration party: Third party

  • Party site registration: Registration record at tax regime level with the option for inclusiveness set to Yes

    Process complete

  • Party registration: Not applicable

  • Party site tax profile: Not applicable

  • Party tax profile: Not applicable

  • Tax: Not applicable

Apply to all taxes and all tax regimes for certain transacting third-party sites

  • Tax rate: Select Blank for the tax inclusion method

  • Tax registration party: Third party

  • Party site registration: Set the inclusiveness option to Blank or no record

  • Party registration: Set the inclusiveness option to Blank or no record

  • Party site tax profile: Set the inclusiveness option to Yes

    Process complete

  • Party tax profile: Not applicable

  • Tax: Not applicable

Apply to specific taxes and all associated tax rates originating from certain tax jurisdictions for all transacting third-party sites defined for a party

  • Tax rate: Select Blank for the tax inclusion method

  • Tax registration party: Third party

  • Party site registration: Set the inclusiveness option to Blank or no record

  • Party registration: Registration record at tax jurisdiction level, for example, for tax regime, tax, and tax jurisdiction, with the option for inclusiveness set to Yes

    Process complete

  • Party site tax profile: Not applicable

  • Party tax profile: Not applicable

  • Tax: Not applicable

Apply to specific taxes and all associated tax rates regardless of the tax jurisdiction for all transacting third-party sites defined for a party

  • Tax rate: Select Blank for the tax inclusion method

  • Tax registration party: Third party

  • Party site registration: Set the inclusiveness option to Blank or no record

  • Party registration: Registration record at tax level, for example, for tax regime and tax, with the option for inclusiveness set to Yes

    Process complete

  • Party site tax profile: Not applicable

  • Party tax profile: Not applicable

  • Tax: Not applicable

Apply to all taxes defined for a tax regime for all transacting third-party sites defined for a party

  • Tax rate: Select Blank for the tax inclusion method

  • Tax registration party: Third party

  • Party site registration: Set the inclusiveness option to Blank or no record

  • Party registration: Registration record at tax regime level with the option for inclusiveness set to Yes

    Process complete

  • Party site tax profile: Not applicable

  • Party tax profile: Not applicable

  • Tax: Not applicable

Apply to all taxes and all tax regimes for all transacting third-party sites defined for a party

  • Tax rate: Select Blank for the tax inclusion method

  • Tax registration party: Third party

  • Party site registration: Set the inclusiveness option to Blank or no record

  • Party registration: No record

  • Party site tax profile: Set the inclusive option to Blank

  • Party tax profile: Set the inclusiveness option to Yes

    Process complete

  • Tax: Not applicable

Apply to certain taxes originating from certain tax jurisdictions for all transacting third parties originating from a specific business unit or legal entity

  • Tax rate: Select Blank for the tax inclusion method

  • Tax registration party: First party

  • Legal reporting unit registration: Registration record at tax jurisdiction level, for example, for tax regime, tax, and tax jurisdiction, with the option for inclusiveness set to Yes

    Process complete

  • Legal reporting unit tax profile: Not applicable

  • Tax: Not applicable

Apply to certain taxes regardless of the tax jurisdiction for all transacting third parties originating from a specific business unit or legal entity

  • Tax rate: Select Blank for the tax inclusion method

  • Tax registration party: First party

  • Legal reporting unit registration: Registration record at tax level, for example, for tax regime and tax, with the option for inclusiveness set to Yes

    Process complete

  • Legal reporting unit tax profile: Not applicable

  • Tax: Not applicable

Apply to all taxes defined for a tax regime for all transacting third parties originating from a specific business unit or legal entity

  • Tax rate: Select Blank for the tax inclusion method

  • Tax registration party: First party

  • Legal reporting unit registration: Registration record at tax regime level with the option for inclusiveness set to Yes

    Process complete

  • Legal reporting unit tax profile: Not applicable

  • Tax: Not applicable

Apply to all taxes and all tax regimes for all transacting third parties originating from a specific business unit or legal entity

  • Tax rate: Select Blank for the tax inclusion method

  • Tax registration party: First party

  • Legal reporting unit registration: No record

  • Legal reporting unit tax profile: Set the inclusiveness option to Yes

    Process complete

  • Tax: Not applicable

Apply to certain taxes for all transacting third parties originating from any business unit or legal entity

  • Tax rate: Select Standard inclusive handling or Special inclusive handling for the tax inclusion method

  • Tax registration party: Third party or first party

  • Party site registration: No record

  • Party registration: No record

  • Party site tax profile: Set the inclusiveness option to Blank

  • Party tax profile: Set the inclusiveness option to Blank

  • Legal reporting unit registration: No record

  • Legal reporting unit tax profile: Set the inclusiveness option to Blank

  • Tax: Select Standard inclusive handling or Special inclusive handling for the tax inclusion method

    Process complete

How Tax Inclusiveness Hierarchy Is Determined

Configure your tax setup to include the calculated tax amount with the item line amount. The option for configuring the inclusiveness is available on the tax and tax rate definition and the third party and legal reporting unit tax profiles on the tax registration and general data tabs.

Settings That Affect Tax Inclusiveness

Set up the inclusive options in the following pages:

  • Create or Edit Tax page: Specify the tax inclusion method on the Default and Controls tab. The handling of this field is dependent on the value of the Allow override and entry of inclusive tax lines option at the tax regime level. If the option isn't selected at the tax regime level, the Tax Inclusion Method field is display-only. The value displayed is set at the tax regime level.

  • Create or Edit Tax Rate page: Specify the tax inclusion method on the Main Details tab. The handling of this field is dependent on the value of the Allow override and entry of inclusive tax lines option at the tax level. If the option isn't selected at the tax level, the Tax Inclusion Method field is display-only. The value displayed is set at the tax level.

  • Create or Edit Tax Registration page: Select Set Invoice Values as Tax Inclusive option for the third party, third-party site, and legal reporting unit tax profiles.

  • Create or Edit Third Party Tax Profile and Create or Edit Third Party Site Tax Profile pages: Select Set Invoice Values as Tax Inclusive option on the General tab for the third party or third-party site.

  • Create or Edit Legal Reporting Unit page: Select Set Invoice Values as Tax Inclusive option on the General tab for the legal reporting unit.

How Tax Inclusiveness Hierarchy Is Determined

The tax determination process uses a hierarchy approach to evaluate the options selected in your tax configuration and applies it on the taxes calculated on a transaction.

The hierarchy sequence for processing the inclusiveness for a tax is:

  1. If the transaction involved is a Receivable transaction then check for the value in the Tax Amount Included field within the invoice line details. The available values are:

    • No: All the taxes calculated on the invoice line are treated as exclusive of the item line amount.

    • Yes: All the taxes calculated on the invoice line are treated as inclusive of the item line amount.

    • Use tax rate code: The tax setup defined is considered for analyzing the inclusiveness.

  2. If the transaction involved isn't a Receivable transaction or if the Receivable transaction uses the Use tax rate code option then check for the value specified in the Tax Inclusion Method field for the processed tax rate code. The available values are:

    • Standard noninclusive handling: The referred tax gets calculated as exclusive of the transaction line amount.

    • Standard inclusive handling: The referred tax gets calculated as inclusive of the transaction line amount.

    • Special inclusive handling: The referred tax gets calculated as inclusive of the transaction line amount. However, the line amount is considered the taxable basis rather than the adjusted line amount, which is considered for the Standard inclusive handling value.

    • Blank: Process next step.

  3. Check the value specified in the Set Invoice Values as Tax Inclusive field on the tax registration record of the third-party site tax profile for the processed registration party. The available values are:

    • No: The referred tax gets calculated as exclusive of the transaction line amount.

    • Yes: The referred tax gets calculated as inclusive of the transaction line amount.

    • Blank: Process next step.

    If the processed registration party is the first party, the registration record for the tax available within the legal reporting unit tax profile is considered. If the value is set to blank then step 7 is processed.

  4. Check the value specified in the Set Invoice Values as Tax Inclusive field on the tax registration record of the third-party tax profile for the processed registration party. The available values are:

    • No: The referred tax gets calculated as exclusive of the transaction line amount.

    • Yes: The referred tax gets calculated as inclusive of the transaction line amount.

    • Blank: Process next step.

  5. Check the value specified in the Set Invoice Values as Tax Inclusive field on the General tab of the third-party site tax profile. The available values are:

    • No: The referred tax gets calculated as exclusive of the transaction line amount.

    • Yes: The referred tax gets calculated as inclusive of the transaction line amount.

    • Blank: Process next step.

  6. Check the value specified in the Set Invoice Values as Tax Inclusive field on the General tab of the third-party tax profile. The available values are:

    • No: The referred tax gets calculated as exclusive of the transaction line amount.

    • Yes: The referred tax gets calculated as inclusive of the transaction line amount.

    • Blank: Process next step.

  7. Check for the value specified in the Tax Inclusion Method field of the tax. The available values are:

    • Standard noninclusive handling: The referred tax gets calculated as exclusive of the transaction line amount.

    • Standard inclusive handling: The referred tax gets calculated as inclusive of the transaction line amount.

    • Special inclusive handling: The referred tax gets calculated as inclusive of the transaction line amount. However, the line amount is considered the taxable basis rather than the adjusted line amount, which is considered for the Standard inclusive handling value.

Manage Configuration Options and Service Subscriptions

Set up configuration options to associate tax regimes with the parties in your company that have a tax requirement for these tax regimes.

There are two fundamentally different approaches to tax configuration options, namely:

  • Using tax configuration setup defined directly in Oracle Fusion Tax.

  • Using external tax partner content uploaded for use with Oracle Fusion Tax.

Using Tax Configuration Setup Defined Within Oracle Fusion Tax

Use the tax configuration setup in Oracle Fusion Tax to calculate, record, and account for transaction taxes on transaction taxable transactions.

The following concepts control how this setup is managed, used, and shared:

  • Tax configuration owner

  • Tax content subscription

  • Existing tax option

Tax Configuration Owner

The tax configuration owner is a business unit, legal entity, or the global configuration owner that owns the data. The global configuration owner is an abstract owner. It is used to define the owner of content that can be shared by any business units and first-party legal entities.

Identify a specific first-party legal entity as a parent first-party organization. This allows the configuration to be owned by a specific first party and shared by other parties. You can then share this setup with another first-party legal entity or business unit for their transactions. Use a parent first-party organization tax configuration to share among a group of first-party organizations. However, you still have the tax setup managed by a single first-party organization.

For global configuration owner, if you're assigned the Create Tax Regime privilege, you have update rights to all tax configuration data maintained by the global configuration owner.

Tax Content Subscription

Use tax content subscriptions to define which configuration owner's setup is used for transactions for a specific first-party legal entity or business unit for a specific tax regime. Also, use tax content subscriptions to specify whether any shared content can be overridden by the subscribing party to allow unique, separate setup for certain tax content.

Party override is permitted for the following setup:

The content subscription options are:

Tax Content Subscription Description

Common configuration

For tax processing, the tax determination process uses the shared tax content defined and maintained by the global configuration owner.

Party-specific configuration

The specified first-party organization defines and maintains its own tax content. For tax processing, the tax determination process uses only the tax content owned by the specific first-party legal entity or business unit.

Common configuration with party overrides

This option is similar to the common configuration because it lets you use the tax content owned by the global configuration owner. However, you can also maintain party-specific content which is used in preference to the common configuration content. In the absence of tax content owned by the specific first-party organization, the tax determination process uses the tax content owned by the global configuration owner.

Parent first-party organization with party overrides

This option is similar to the common configuration with party override subscription with one difference. The tax content here is owned by a specific first-party legal entity instead of the global configuration owner.. You can override the specific first-party setup.

A similar concept is used to define where you use tax exceptions for a specific tax configuration. The tax subscription option available for product exceptions is dictated to some extent by the main tax content subscription as follows:

Options Defined for Tax Content Subscription Content Subscription Options Available for Product Exceptions Description

Common configuration

Common configuration

For tax processing, the tax determination process uses tax exceptions defined and maintained by the global configuration owner.

Party-specific configuration

Party-specific configuration

The specified first-party organization defines and maintains its own tax exceptions. For tax processing, the tax determination process uses only the tax exceptions owned by the specific first-party organization.

Common configuration with party overrides

Common configuration

For tax processing, the tax determination process uses tax exceptions defined and maintained by the global configuration owner.

Common configuration with party overrides

Party-specific configuration

The specified first-party organization defines and maintains its own tax exceptions. For tax processing, the tax determination process uses only the tax exceptions owned by the specific first-party organization.

Parent first-party organization with party overrides

Party-specific configuration

The specified first-party organization defines and maintains its own tax exceptions. For tax processing, the tax determination process uses only the tax exceptions owned by the specific first-party organization.

Set up tax configuration options when you create a tax regime or when you create a party tax profile for a first-party legal entity or business unit. Both setup flows display and maintain the same party or regime definitions. Specify effective start and end dates to identify which configuration should be used based on the transaction date. You can enable the business unit so that Oracle Fusion Tax automatically uses the configuration of the legal entity. Once you set this option the application records the date it occurred as the start date. This date is used and compared to the transaction dates to identify if the application uses the legal entity subscription in preference to the subscription of the business unit. The specific first-party legal entity that is used is defined by the legal entity associated with the transaction.

Existing Tax Option

Copy a tax from an existing tax in the Manage Taxes page to share tax registrations and tax jurisdictions. This will create two versions of the same tax, owned by two different tax configuration owners each with their own tax statuses, tax rates, and tax rules. For example, this is useful when you set up US sales and use tax that requires a significant number of tax registrations and tax jurisdictions.

Using External Tax Partner Offerings

Oracle ERP Cloud integration is currently available with comprehensive transaction tax management solutions provided by tax partners for tax content, tax calculation, and tax reporting. You can leverage these partner transaction tax solutions independently or together based on different transaction tax requirements across market segments and industries.

Individual tax partners can offer transaction tax solutions in the following areas:

Tax Partner Content

  • Offerings may include geographies, tax jurisdictions, tax rates, and taxability rules for products and services.

  • Updates are available on a periodic basis for statute changes.

Tax Partner Calculation

  • Cloud-to-Cloud integration of the Oracle ERP Cloud and a Partner Tax Application Cloud for performing transaction tax calculation.

  • Neither tax software nor tax integration components are required on the Oracle ERP Cloud.

  • Streamlined data flow between Oracle ERP

Tax Partner Reporting

  • Signature ready returns for automatic transaction tax filings in specific countries.

  • Tax partner can manage the entire tax compliance function from tax returns generation to payment remittances.

The following table lists cases of customer implementations using tax partner offerings:

Tax Implementation Variation Customer Tax Solution Uptake

Case 1: Partner Tax Content + Oracle Fusion Tax Calculation

Case 1 uptake:

  • Partner Rapid Implementation Content (Geographies, Tax Rates, Taxability Rules, or a combination of these content areas)

  • Oracle Fusion Tax

Case 2: Partner Tax Content + Partner Tax Reporting + Oracle Fusion Tax Calculation

Case 2 uptake:

  • Partner Rapid Implementation Content (Geographies, Tax Rates, Taxability Rules, or a combination of these content areas)

  • Partner Automatic Tax Returns Generation using BI Publisher Extracts

  • Oracle Fusion Tax

Case 3: Partner Tax Content + Partner Tax Reporting + Partner Tax Calculation

Case 3 uptake:

  • Partner Rapid Implementation Content (Geographies and Tax Rates)

  • Partner Automation Returns Generation using Partner Tax Repository

  • Partner Tax Calculation Application

However, each individual tax partner is different with regard to specific transaction tax solutions they can offer and tax implementation cases that they can fulfill in practice.

You must follow up with an individual tax partner to understand the level of coverage and capabilities of their respective transaction tax offerings, including any prerequisite configuration.

You can select which of the following tax content subscription options to use to optimize your tax setup:

  • Subscribe to the content provided by a tax partner or use the content created directly in Oracle Fusion Tax.

  • The type of tax configuration options to use.

  • When to manage and apply tax configuration using business units versus legal entities.

  • When to use create from an existing tax option.

Using a Tax Partner Content Subscription Versus Oracle Fusion Tax Content

Use the tax content of an external tax partner for the following instances:

  • When you need the tax content for a significant number of tax jurisdictions.

  • When you want a tax partner to automatically update the content for statutory changes on a recurring basis.

  • When you need to automate the upload of content to minimize user intervention.

You can use the content provided by a tax partner in the following scenarios:

Content Scenario 1: Partner Tax Content + Oracle Fusion Tax Calculation

Content Scenario 2: Partner Tax Content + Partner Tax Calculation

Note: Not all tax partners support both scenarios. Even if an individual tax partner supports a specific scenario, the level of depth and geographic scope of partner tax content provided varies between individual tax partners. You must follow up with an individual tax partner to understand the level of coverage and capabilities of all transaction tax offerings provided, including the tax content.

Using Tax Configuration Options

Create and maintain your tax content in Oracle Fusion Tax in the following cases:

  • If you decide not to use an external tax partner to provide the content.

  • If you can create the required content for the geographic operations of your business.

In both cases, when you subscribe or assign a business unit or legal entity to a tax regime, you must select the level of tax configuration options that apply in this context. Sharing the tax content prevents the need for duplicate maintenance with its inefficiencies and potential inconsistencies.

The following table lists scenarios and options:

Scenario Option

You have a single central corporate tax center responsible for maintenance of tax setup for all legal entities and business units.

Use the common configuration with party override option. This allows a single tax setup to be created and maintained by the corporate tax center.

You need strict control over who can maintain the tax content.

Use the common configuration option. By not allowing party override, you restrict the access to the global configuration owner to an authorized user who can maintain all of the tax content.

You have regional centers responsible for tax content.

Use the parent first party configuration with party override option. This permits a regional setup with an actual or logical parent legal entity to be created and maintained by each regional center.

Even if there is no obvious need to share tax configuration, for example, there is only a single first party legal entity operating in each tax regime, significant business events such as takeovers or mergers may mean that there could be a future need to share content. In this case, the original first party legal entity can act as the configuration owner and then any subsequent first party can subscribe to the first party's content using the parent first party configuration with party override. Alternatively, set up the original tax content using global configuration owner to prepare for any future business event that requires tax content to be shared.

Changing from Business Unit to Using Tax Configuration at the First Party Legal Entity

If you standardize your tax setup across all business units for a given legal entity, consider configuring and using tax setup at the legal entity level. Set the Use subscription of the legal entity option on the business unit party tax profile. Oracle Fusion Tax records the date this occurs and compares it to the transaction date to identify if the legal entity subscription should be used in preference to the subscription to the business unit subscription.

Note: If the Use subscription of the legal entity option is used on the business unit party tax profile, it is an irrevocable election. Ensure that this type of configuration approach meets your business needs on a permanent basis. If you are not sure, you can subscribe or assign the business unit to a tax regime and select not to set the Use subscription of the legal entity option on the business unit party tax profile. The business unit subscription approach is more common, but you must evaluate your requirements.

Using Create from an Existing Tax Option

Create a tax from an existing tax when you need to share tax jurisdictions and tax registrations. Maintain the tax jurisdictions and tax registrations once for taxes with the same name within the same tax regime owned by different configuration owners.

At transaction time, the owner of the transaction derives the configuration options that are used.

When you enter a transaction for a given first-party organization, the tax data applied to that transaction is determined by the:

  • Configurations defined for the combination of that first-party organization (business unit or first-party legal entity)

  • Tax regime derived from the addresses or from the tax classification codes used on the transaction

Settings That Affect the Application of Tax Data on Transactions

Use tax content subscriptions to define which configuration owner's setup is used for transactions for a specific first-party legal entity or business unit for a specific tax regime. Also, use tax content subscriptions to specify whether any shared content can be overridden by the subscribing party to allow unique, separate setup for certain tax content.

Tax content subscription options are:

  • Common configuration

  • Party-specific configuration

  • Common configuration with party overrides

  • Parent first-party organization with party overrides

How Tax Data Is Determined

Based on the defaults and tax rules you have defined, tax data is applied to transactions as follows:

Configuration for Taxes and Rules Option Tax Content Available

Common configuration

  • The tax determination process uses only the tax content owned by the global configuration owner.

  • If you manually override tax information on the transaction, only the tax content owned by the global configuration owner is displayed in the list of valid values available.

Party-specific configuration

  • The tax determination process uses only the tax content owned by the first-party organization, business unit or fist party legal entity, for whom the transaction is being entered.

  • If you manually override tax information on the transaction, only the tax content owned by the first-party organization is displayed in the list of valid values available.

Note: For the first-party organization it can be the business unit owning the tax content or the first-party legal entity-owned setup depending on the specific subscription being used.

Common configuration with party overrides

  • The tax determination process uses any tax content owned by the first party for whom the transaction is being entered. In the absence of tax content owned by that first-party organization, the tax determination process uses tax content owned by the global configuration owner.

  • If you manually override tax information on the transaction, both the override tax content owned by the specific first party and the tax content owned by the global configuration owner that you haven't overridden are displayed in the list of valid values available.

Parent first-party organization with party overrides

  • The tax determination process uses any tax content owned by the first party for whom the transaction is being entered. In the absence of tax content owned by the first-party organization, the tax determination process uses tax content owned by the parent first-party organization.

  • If you manually override tax information on the transaction, both the override tax content owned by the specific first party and the tax content owned by the designated parent first-party organization that you haven't overridden are displayed in the list of valid values available.

If you are using product exceptions, those exceptions are applied to the transactions as shown in the following table:

Configuration for Product Exceptions Tax Exceptions Available

Common configuration

The tax determination process uses only the tax exceptions defined and maintained by the global configuration owner.

Party-specific configuration

The tax determination process uses only the tax exceptions owned by the specific first-party organization

This example demonstrates how you set up the appropriate tax configuration options for your company that has three regional centers. These centers are responsible for tax setup and maintenance among other corporate activities. Each of these regional corporate centers is associated with a first-party legal entity and business unit.

Your company has their regional centers in:

  • North America (NAM), based in Redwood City, California, US

  • Asian and Pacific (APAC), based in Melbourne, Australia

  • Europe, Middle East, and Africa (EMEA), based in London, UK

Each country has a single first-party legal entity with a single business unit, except for:

  • Countries with the regional corporate centers have a first-party legal entity and business unit for each corporate center.

  • Sales, marketing, and manufacturing organization have a first-party legal entity and business unit.

Create tax regimes for each country and the appropriate tax configuration options.

Prerequisites

To create the appropriate tax configurations, you must set up the following:

  1. The legal entities for:

    First-Party Legal Entity Country

    EMEA LE

    UK

    GB LE

    UK

    FR LE

    FR

    DE LE

    DE

    APAC LE

    AU

    AU LE

    AU

    SI LE

    SI

    NZ LE

    NZ

    NAM LE

    US

    US LE

    US

    CA LE

    CA

  2. The sales, marketing, and manufacturing organization's business unit uses the tax configuration of the legal entity.

  3. The relevant tax regimes for each country's tax include:

    Region Country Tax Regime Tax

    EMEA

    United Kingdom

    GB VAT

    GB VAT

    EMEA

    France

    FR VAT

    FR VAT

    EMEA

    Germany

    DE VAT

    DE VAT

    APAC

    Australia

    AU GST

    AU GST

    APAC

    Singapore

    SI VAT

    SI VAT

    APAC

    New Zealand

    NZ VAT

    NZ VAT

    NAM

    United States

    US SALES TAX

    • US STATE SALES TAX

    • US COUNTY SALES TAX

    • US CITY SALES TAX

    NAM

    Canada

    CA HST and GST

    • CA HST

    • CA GST

Setting Up Tax Configuration Options

  1. On the Create Legal Entity Tax Profile page, select EMEA LE in the Legal Entity field. In the Configuration Options tab enter:

    Field Value

    Tax Regime Code

    GB VAT

    Configuration for Taxes and Rules

    Party-specific configuration

    Configuration for Product Exceptions

    Party-specific configuration

    Parent First-Party Organization

    Blank

    Effective Start Date

    01-Jan-01

    Click Save and Create Another.

  2. Select GB LE in the Legal Entity field. In the Configuration Options tab enter:

    Field Value

    Tax Regime Code

    GB VAT

    Configuration for Taxes and Rules

    Parent first-party with party overrides

    Configuration for Product Exceptions

    Parent first-party organization

    Parent First-Party Organization

    EMEA LE

    Effective Start Date

    01-Jan-01

    Click Save and Create Another.

  3. Select FR LE in the Legal Entity field. In the Configuration Options tab enter:

    Field Value

    Tax Regime Code

    FR VAT

    Configuration for Taxes and Rules

    Parent first-party with party overrides

    Configuration for Product Exceptions

    Parent first-party organization

    Parent First-Party Organization

    EMEA LE

    Effective Start Date

    01-Jan-01

    Click Save and Create Another.

  4. Select DE LE in the Legal Entity field. In the Configuration Options tab enter:

    Field Value

    Tax Regime Code

    DE VAT

    Configuration for Taxes and Rules

    Parent first party with party overrides

    Configuration for Product Exceptions

    Parent first-party organization

    Parent First-Party Organization

    EMEA LE

    Effective Start Date

    01-Jan-01

    Click Save and Create Another.

  5. Select APAC LE in the Legal Entity field. In the Configuration Options tab enter:

    Field Value

    Tax Regime Code

    AU GST

    Configuration for Taxes and Rules

    Party-specific configuration

    Configuration for Product Exceptions

    Party-specific configuration

    Parent First-Party Organization

    Blank

    Effective Start Date

    01-Jan-01

    Click Save and Create Another.

  6. Select AU LE in the Legal Entity field. In the Configuration Options tab enter:

    Field Value

    Tax Regime Code

    AU GST

    Configuration for Taxes and Rules

    Parent first party with party overrides

    Configuration for Product Exceptions

    Parent first-party organization

    Parent First-Party Organization

    APAC LE

    Effective Start Date

    01-Jan-01

    Click Save and Create Another.

  7. Select SI LE in the Legal Entity field. In the Configuration Options tab enter:

    Field Value

    Tax Regime Code

    SI VAT

    Configuration for Taxes and Rules

    Parent first party with party overrides

    Configuration for Product Exceptions

    Parent first-party organization

    Parent First-Party Organization

    APAC LE

    Effective Start Date

    01-Jan-01

    Click Save and Create Another.

  8. Select NZ LE in the Legal Entity field. In the Configuration Options tab enter:

    Field Value

    Tax Regime Code

    NZ VAT

    Configuration for Taxes and Rules

    Parent first party with party overrides

    Configuration for Product Exceptions

    Parent first-party organization

    Parent First-Party Organization

    APAC LE

    Effective Start Date

    01-Jan-01

    Click Save and Create Another.

  9. Select NAM LE in the Legal Entity field. In the Configuration Options tab enter:

    Field Value

    Tax Regime Code

    US SALES TAX

    Configuration for Taxes and Rules

    Party-specific configuration

    Configuration for Product Exceptions

    Party-specific configuration

    Parent First-Party Organization

    Blank

    Effective Start Date

    01-Jan-01

    Click Save and Create Another.

  10. Select US LE in the Legal Entity field. In the Configuration Options tab enter:

    Field Value

    Tax Regime Code

    US SALES TAX

    Configuration for Taxes and Rules

    Parent first party with party overrides

    Configuration for Product Exceptions

    Parent first-party organization

    Parent First-Party Organization

    NAM LE

    Effective Start Date

    01-Jan-01

    Click Save and Create Another.

  11. Select CA LE in the Legal Entity field. In the Configuration Options tab enter:

    Field Value

    Tax Regime Code

    CA GST and PST

    Configuration for Taxes and Rules

    Parent first party with party overrides

    Configuration for Product Exceptions

    Parent first-party organization

    Parent First-Party Organization

    NAM LE

    Effective Start Date

    01-Jan-01

    Click Save and Close.

FAQs for Manage Tax Regimes

Service subscriptions let you use transaction tax offerings from an external tax partner. These offerings are related to either content or calculation services, often both. Oracle Tax supports the use of services provided by external tax partners for transaction tax calculation processing. You can use either Oracle Tax or a partner tax application to calculate transaction taxes. All you have to know is the specific depth and scope of the external tax partner's offerings.

Why are controls and defaults important?

Oracle Tax setup is designed so that you have to do as little as possible. One way to do this is the extensive use of default values. That means you can enter your data once and use it in all subordinate or child records. Use defaults wherever applicable. For example, many values you enter for a tax regime show as defaults for each tax associated with it. In most cases, you can override an incorrect default value.

Using data-driven controls decides how tax functionality works. These controls ensure maximum flexibility. They also maintain the accuracy and integrity of your data and transactions. For example, you must set up tax recovery for value-added tax (VAT) processing. All you have to do is enable the Allow tax recovery option for the tax record. Doing so lets you set up tax recovery rates for this type of tax.

Manage Tax Account

Set up default tax accounts for the taxes in a tax regime to post the tax amounts derived from your transactions. The tax accounts you define for tax serve as default accounting information for tax rates and tax jurisdictions. You can override the defaulted accounts. Configure the tax recoverable or liability account for the tax recovery rate. Accounts assigned to the tax rate and recovery rate are used when the taxes are applicable to the transaction.

Set up tax accounts for a primary ledger or in combination with a business unit. The calculated tax amounts are posted to the accounts specified for a business unit. If those accounts aren't available, tax accounts defined for the primary ledger are used. These are default accounts and the actual accounts that are used for accounting depend on the subledger accounting configuration.

For a tax, either assign new tax accounts or use accounts from an existing tax. This depends on the option selected in the Tax Accounts Creation Method attribute for the tax. If you choose to use accounts from an existing tax, specify another tax as the source tax. All the tax account details that you set up at the source tax level are copied into the Tax Accounts region as read only values. You can't edit the details or create new records.

Tax Accounts

Define tax accounts for a tax, tax rate, and tax jurisdiction. Tax accounts are:

  • Tax Expense: A Payables tax account that records tax amounts from invoice distributions; or a Receivables tax account that record net changes generated by adjustments, earned and unearned discounts, and finance charges. Receivables activities such as discounts and adjustments reduce the receivable amount, and are therefore considered an expense. This occurs only if the adjustment type has tax handling.

  • Tax Recoverable: An account that records tax recovery amounts. If you set up recovery rates for a tax that you also intend to self-assess, then define a tax recovery account for the associated recovery rates.

  • Tax Liability: An account that records tax liability amounts.

    Note: If you intend to use different accounts for tax recovery and liability then set up the recovery account for the tax recovery rate. This account is used to debit the recoverable tax amount while the account on the tax rate is used to account for tax liability.
  • Interim Tax: An account that records interim tax recovery or liability before the actual recovery or liability arises on a payment of an invoice. You must set up an interim tax account for taxes and tax rates that have tax point basis set as payment.

  • Accounts for Receivables activities:

    • Finance Charge Tax Liability: An account that records tax amounts on finance charges that are used as a deduction against overall tax liability.

    • Nonrecoverable Tax Accounts: Accounts that record tax amounts on earned and unearned discounts and adjustments that you can't claim as a deduction against tax liability.

    • Expense and Revenue Accounts: Accounts that record net changes generated by adjustments, earned and unearned discounts, and finance charges. Receivables activities such as discounts and adjustments reduce the receivable amount, and are therefore considered an expense.

Manage Taxes

Set up details for the taxes of a tax regime. Each separate tax in a tax regime includes records for the statuses, rate, and rules that are used to calculate and report on the tax. Oracle Fusion Tax derives defaults tax information from the tax regime to each tax that you create for a regime. You can modify this information at the tax level according to your needs, as well as add additional defaults and overrides.

Defining Controls and Defaults

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

Header Region

Field Description Default Derived from Default Appears on Controls

Enable tax for simulation

Controls whether this tax is available for computation within the Tax Simulator functionality

None

None

If selected, this tax is available for calculation in the Tax Simulator when the evaluate taxes is enabled for simulation.

Enable tax for transactions

Controls whether this tax is available for transactions. Selecting this option triggers integrity checks to validate that the setup for this tax is accurate and complete

None

None

If selected, this tax is used by transactions, if applicable. If not selected then this tax isn't processed as an applicable tax at transaction time.

Tax Information Region

Field Description Default Derived from Default Appears on Controls

Tax Currency

The default currency of the taxes within a tax regime

Tax regime

None

Defines the tax currency for calculation and reporting purposes

Minimal Accountable Unit

The minimal unit of currency reported to the tax authority. For example, 0.05 GBP indicates that 5 pence is the minimal unit

Tax regime

None

Defines the minimal accountable unit at transaction time

Tax Precision

A one digit whole number to indicate the decimal place for tax rounding

Tax regime

None

Defines the tax precision during tax calculation

Conversion Rate Type

The specific conversion rate table that's used to convert one currency into another. For example, the Association of British Travel Agents conversion rate used in the travel industry

Tax regime

None

Defines the conversion rate that's used as necessary at transaction time

Rounding Rule

The rule that defines how rounding is performed on a value. For example, up to the next highest value, down to the next lower value, or to the nearest value

Tax regime

None

Can control rounding at transaction time

Compounding Precedence

Defines the order in which this tax is calculated compared to other taxes that are compounded on or compounded by this tax. The tax with the lowest precedence value is calculated first.

None

None

Controls the order in which applicable taxes are calculated at transaction time

Reporting Tax Authority

The default tax authority to whom the tax reports are sent

Tax regime

Tax registration

None

Collecting Tax Authority

The default tax authority to whom the tax is remitted

Tax regime

Tax registration

None

Applied Amount Handling

Controls whether tax is recalculated or prorated on prepayment, with the default being Recalculated

None

None

Controls Oracle Fusion Payables functionality and how payments trigger recalculation or prorating of tax amounts

Set as offset tax

Defines this tax as an offset tax

None

None

Selecting this option disables the Controls region and Tax Exceptions and Exemptions Controls region and clears any values that were entered in these regions

Set tax for reporting purposes only

Defines whether this tax is set up for reporting purposes only

None

None

Controls whether this tax is used for reporting only and doesn't create any tax account entries

Controls and Defaults Tab, Controls Region

Field Description Default Derived from Default Appears on Controls

Tax Point Basis

Specify the event that's the basis for tax recovery or liability. This event is also the basis on which tax is considered for reporting.

None

Tax rate

Use this option in conjunction with the option on the first-party tax registration.

Tax Inclusion Method

Defines whether the tax is:

  • Standard noninclusive handling: This option calculates the taxes as exclusive of the given transaction line amount

  • Standard inclusive handling: This option calculates the taxes as inclusive of the given transaction line amount

  • Special inclusive handling: This option calculates the taxes as inclusive of the given transaction line amount, but the calculation methodology differs from the standard inclusive process

None

None

Use this option in conjunction with other setup on tax, party tax profile, tax registration, and transaction details to control the inclusiveness of a line amount at transaction time

Allow override and entry of inclusive tax lines

Controls whether you can override and enter inclusive or exclusive line amounts

Tax regime

Tax rate

None

Allow tax rounding override

Allows the override of the rounding defined on the tax registration records

Tax regime

None

Use this option to override tax rounding setup on the tax registration records for registrations for this tax

Allow override of calculated tax lines

Allows you to override the calculated tax lines at transaction time when the Transaction Tax Line Override profile option is also set

None

None

Use this option in conjunction with the Transaction Tax Line Override profile option and the Allow override of calculated tax lines option for the configuration owner tax options to allow you to update calculated tax lines at transaction time. If any of these options aren't set then update of calculated tax lines isn't allowed at transaction time.

Allow entry of manual tax lines

Allows you to enter manual tax lines at transaction time

None

None

Use this option in conjunction with Allow entry of manual tax lines option for the configuration owner tax options. When both fields are set you can enter manual tax lines at transaction time.

Use legal registration number

Controls whether the tax registration number is the same as the legal registration number of the party

None

None

If this option is selected you can choose an existing legal entity registration number as the transaction tax registration number

Allow duplicate registration numbers

Controls whether you can enter duplicate tax registration numbers for different parties

None

None

If this option is selected you can enter duplicate tax registrations for different parties

Allow multiple jurisdictions

Controls whether you can enter multiple concurrent tax jurisdictions for this tax

None

None

If this option is selected you can create multiple concurrent tax jurisdictions for this tax

Allow mass creation of jurisdictions

Controls whether mass creation of jurisdictions functionality is allowed using the parent geography and geography setup for this tax

None

None

If this option is selected you can use the mass creation jurisdictions functionality for this tax

Tax Account Controls Region

Field Description Default Derived from Default Appears on Controls

Tax Accounts Creation Method

Controls whether the tax accounts used for this tax are derived from setup associated with this tax or copied from another tax defined by the Tax Accounts Source field

None

None

When the value is:

  • Create tax accounts: Create tax accounts for this tax

  • Use tax accounts from an existing tax: Enter the tax account source to be used at transaction time

Tax Accounts Source

Defines the tax to use to derive the tax accounts to use at transaction time

None

None

Use when the value in the Tax Accounts Creation Method field is Use tax accounts from an existing tax

Tax Exceptions and Exemptions Controls and Defaults Region

Field Description Default Derived from Default Appears on Controls

Allow tax exceptions

Controls whether tax exceptions are allowed for this tax

None

Tax status

None

Allow tax exemptions

Controls whether tax exemptions are allowed for this tax

None

Tax status

None

Use tax exemptions from an existing tax

Controls whether tax exemptions are derived from this tax or derived from another tax as specified by the value in the Tax Exemptions Source field for the same transaction

None

None

Controls whether you can define tax exemptions for this tax or if they're derived from those defined against another tax related to the same tax line at transaction time

Tax Exemptions Source

Defines the tax to use as the source when the Use Tax Exemption from an existing tax option is selected

None

None

Used in conjunction with the Use tax exemptions from an existing tax option and uses tax exemptions already created for customers for this tax

Tax Recovery Controls and Defaults Region

Field Description Default Derived from Default Appears on Controls

Allow tax recovery

Controls whether this tax handles tax recovery

None

None

If this option is selected you can set up tax recovery for this tax

Tax Amount Rounding

Taxes applicable on a transaction are generally calculated as the taxable basis multiplied by the tax rate equals the tax amount. This calculated amount can result in an odd value or with a large number of decimal place. You can configure the tax setup to adjust or round the tax calculation according to the specific requirements of the transacting parties and tax authority or to the accepted currency denominations.

Key parameters that influence the rounding of calculated tax amount are:

  • Tax precision: The number of decimal places to which to calculate the tax amount.

  • Minimum accountable unit: The smallest currency unit that a tax amount can have.

  • Rounding level: The transaction level at which the rounding is to be performed. The available options are Header and Line.

  • Rounding rule: The method that is used to round off the calculated taxes to the minimum accountable unit. The available options are Up, Down, and Nearest.

Define the key parameters at various places within Oracle Fusion Tax. The rounding process derives the tax precision and minimum accountable unit details from the tax setup. The rounding process derives the rounding rule and rounding level details through the predefined processing hierarchy involving:

  • Configuration owner tax options defined for the configuration owner and event class

  • Event class options for the event class

  • Party tax profiles of the parties or party sites as given in the rounding precedence of the configuration owner tax options or in the derived registration party

  • Tax

Note: If you plan to use a third-party service provider then you must define tax rounding information that is at least as detailed as the rounding information of the service provider.

Considerations for Setting Up Rounding Rules

Criteria for rounding the calculated tax amounts comes from various parties involved in a transaction. For example, for a purchase transaction, the rounding methodology is generally specified by the supplier. Specify rounding details in your tax setup to ensure that your entered invoice amount, including the calculated tax, is the same as the actual invoice amount. For a Receivables invoice, you can specify rounding details based on your organization's policy, but for most countries the rounding criterion is directed by tax legislation.

Rounding requirements can originate from:

  • Third parties

  • First parties

  • Tax legislation

Rounding Requirements from Third Parties

If rounding is based on third-party requirements, particularly for purchase transactions, you:

  • Define the configuration owner tax options for the combination of business unit or legal entity for which the transaction is registered, and the event class. In the Rounding Precedence field, enter the reference of the third party or third party. For purchase transactions, it is either the ship-from party or the bill-from party.

  • Define the party tax profile for the third party, and specify the rounding level and rounding rule on the General tab as preferred by the third party.

  • Create registration details for each tax, and specify the rounding rule if the rounding level is at the line level in the party tax profile. Also, define tax registration rules for each tax so that the tax determination process uses the third-party registration.

  • Select the Allow tax rounding override option on the Create or Edit Tax page if a registration record isn't defined for the tax registration party. The application then looks at the party account site details and party tax profile details for deriving the rounding rule.

Rounding Requirements from First Parties

If rounding is based on business unit or legal entity requirements, particularly for sale transactions, and configuration owner tax options are defined, you:

  • Define the configuration owner tax options for the combination of business unit or legal entity for which the transaction is registered, and the event class. In the Rounding Precedence field, enter the reference of the first party. For sale transactions it is either the ship-from party or the bill-from party.

  • Ensure that the party tax profile details are available for the corresponding legal reporting unit. Specify the rounding level and rounding rule on the General tab per the first-party requirement or your business policy.

  • Create registration details for each tax, and specify the rounding rule if the rounding level is at the line level in the party tax profile. Also, define tax registration rules for each tax so that the tax determination process uses the first-party registration.

  • Select the Allow tax rounding override option on the Create or Edit Tax page if a registration record isn't defined for the tax registration party. The application then looks at the party tax profile details for deriving the rounding rule.

The rounding criteria applied if configuration owner tax options aren't defined and the criteria in the predefined event class options are considered include:

  • For a purchase transaction, the predefined event class options use the ship-from party site and ship-from party within the rounding precedence with the default rounding level as the header level. The supplier's rounding preferences are considered first on the transaction. If there are no specific supplier preferences, for example, the party tax profile record doesn't exist, then the default rounding level of Header is considered and the corresponding rounding rule from each tax setup detail is used.

  • For a sale transaction, the predefined event class options don't include any rounding precedence details. However, the default rounding level is set to Line so the rounding level is always taken as Line and the corresponding registration record for the tax registration party is considered for the rounding rule. The tax registration party is identified through the Determine Tax Registration tax rule or tax rule defaults. If a registration record doesn't exist for the tax registration party, the rounding rule defined within each tax is considered.

Rounding Requirements from Tax Legislation

If rounding is based on tax legislation, the following occurs:

  • When the configuration owner tax options are defined for the combination of business unit and legal entity for which the transaction is registered, and for the event class, the default rounding level is used from the configuration owner tax options. Select Blank as the rounding precedence for the event class.

  • When the rounding level is at the line level for the configuration tax options, ensure that the registration record defined for the tax registration party has the rounding rule based on the tax requirements. The tax registration party is identified through the Determine Tax Registration tax rule or tax rule defaults.

How Rounding Precedence Hierarchy Is Determined

During the rounding process, the tax precision and minimum accountable unit details are derived from the tax setup. The rounding process derives the rounding rule and rounding level details through the predefined processing hierarchy involving:

  • Configuration owner tax options defined for the configuration owner and event class

  • Event class options for the event class

  • Party tax profiles of the parties or party sites as given in the rounding precedence of the configuration owner tax options or in the derived registration party

  • Tax

Settings That Affect Tax Rounding

Key parameters that influence the rounding of calculated tax amount are:

  • Tax precision: The number of decimal places to which to calculate the tax amount.

  • Minimum accountable unit: The smallest currency unit that a tax amount can have.

  • Rounding level: The transaction level at which the rounding is to be performed.

  • Rounding rule: The method that's used to round off the calculated taxes to the minimum accountable unit.

Options available for the rounding level are:

  • Header: Applies rounding to calculated tax amounts once for each tax rate per invoice.

  • Line: Applies rounding to the calculated tax amount on each invoice line.

Options available for the rounding rule are:

  • Up: the amount is rounded to the next highest minimum accountable unit.

  • Down: The amount is rounded to the next lowest minimum accountable unit.

  • Nearest: The amount is rounded to the nearest minimum accountable unit.

How Tax Rounding Is Determined

If you don't define configuration owner tax option settings for the combination of configuration owner and event class, the rounding process uses:

  • The default rounding level of the event class.

  • The default rounding rule of the tax.

If you defined a rounding precedence hierarchy in the configuration owner tax option settings for the combination of configuration owner and event class, the rounding process looks for a rounding level and rounding rule in this way:

  1. Looks for rounding details in the party tax profiles of the parties and party sites involved in the transaction, according to the rounding precedence hierarchy.

  2. If an applicable tax profile is found then uses the rounding level and rounding rule of the tax profile.

  3. If the rounding level is at the header level then uses these values to perform the rounding. The process ends.

    If the rounding level is at the line level then goes to step 6.

  4. If an applicable tax profile isn't found then uses the rounding level setting of the configuration owner tax option.

  5. If the configuration owner tax option rounding level is at the header level then uses the rounding rule that's set at the tax level for each tax of the transaction to perform the rounding. The process ends.

    If the rounding level is at the line level then goes to step 6.

  6. If the rounding level is at the line level then:

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

    2. If a registration record doesn't exist for the registration party type, and if you didn't define configuration owner tax option settings for the combination of configuration owner and event class, then the rounding process uses the rounding rule that's set at the tax level to perform the rounding. The process ends.

    3. If a registration record doesn't exist for the registration party type, and if you defined a rounding precedence hierarchy in the configuration owner tax option settings for the combination of configuration owner and event class, then the rounding process looks for a rounding rule in this way:

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

      2. Uses the rounding rule of the party or party site tax registration, if defined.

      3. If a tax registration isn't defined, uses the rounding rule of the party or party site account site details, if defined.

      4. If a rounding rule isn't defined, uses the rounding rule of the party or party site tax profile, if defined.

      5. If a tax profile isn't defined, repeats the previous sub-steps for each rounding party in the rounding precedence hierarchy.

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

      7. If a rounding rule isn't found, then uses the rounding rule that's set at the tax level to perform the rounding. The process ends.

Examples of Tax Rounding

During the rounding process, the tax precision and minimum accountable unit details are derived from the tax setup. The rounding process derives the rounding rule and rounding level details through the predefined processing hierarchy of configuration owner tax options, event classes, party tax profiles, and taxes. These examples illustrate how the rounding process works.

Scenario

The following examples show how the rounding process determines the tax rounded amount based on transaction, tax setup, and rounding details.

The transaction and tax setup details for the two examples are:

  • Invoice header amount: 5579 USD

  • Invoice line 1 amount: 1333 USD

  • Invoice line 2 amount: 1679 USD

  • Invoice line 3 amount: 2567 USD

  • Applicable taxes:

    • State tax, rate percentages of 12.5%, 6.75%, and 3.33%

    • City tax, rate percentages of 7.5%

The rounding details for the two examples are:

  • Rounding level: Header

  • Rounding Rule:

    • State tax: Up

    • City tax: Nearest

  • Tax precision: 2

  • Minimum accountable unit: 0.01

Example 1 represents the rounding details applied at the header level. Applying these factors, the rounding process calculates the invoice amounts, all in USD currency, as follows:

Document Level Amount Tax and Tax Rate Tax Amount Not Rounded Step 1: Line amounts truncated per tax precision and rounding criteria applied at the header level Step 2: Difference between the header amount and the sum of the line amounts Step 3: Apply the difference amount to the maximum tax line amount Tax Amount Rounded

Header

5579

  • State tax

  • City tax

  • 395.8082

  • 418.425

  • 395.81

  • 418.43

  • 0.01

  • 0.02

 

  • 395.81

  • 418.43

Line 1

1333

  • State tax: 12.5%

  • City tax: 7.5%

  • 166.625

  • 99.975

  • 166.62

  • 99.97

 

 

  • 166.62

  • 99.97

Line 2

1679

  • State tax

  • City tax: 7.5%

  • 55.9107

  • 125.925

  • 55.91

  • 125.92

 

 

  • 55.91

  • 125.92

Line 3

2567

  • State tax

  • City tax: 7.5%

  • 173.2725

  • 192.525

  • 173.27

  • 192.52

 

  • 0.01

  • 0.02

  • 173.28

  • 192.54

Example 2 represents the rounding details applied at the line level. Applying these factors, the rounding process calculates the invoice amounts, all in USD currency, as follows:

Document Level Amount Tax and Tax Rate Tax Amount Not Rounded Step 1: Rounding criteria is applied at the line level Step 2: Line amounts are added to obtain revised header amounts Tax Amount Rounded

Header

5579

  • State tax

  • City tax

  • 395.8082

  • 418.425

 

  • 395.82

  • 418.44

  • 395.82

  • 418.44

Line 1

1333

  • State tax: 12.5%

  • City tax: 7.5%

  • 166.625

  • 99.975

  • 166.63

  • 99.98

 

  • 166.63

  • 99.98

Line 2

1679

  • State tax

  • City tax: 7.5%

  • 55.9107

  • 125.925

  • 55.92

  • 125.93

 

  • 55.92

  • 125.93

Line 3

2567

  • State tax

  • City tax: 7.5%

  • 173.2725

  • 192.525

  • 173.27

  • 192.53

 

  • 173.27

  • 192.53

Taxes for purchase transactions are usually calculated by the supplier and included in the invoice. The responsibility of collecting and remitting these taxes to the authority lies with the supplier. However, in certain cases the supplier doesn't have presence (nexus) or isn't registered in the customer location. Taxes applicable in such cases, in the customer location, are self-assessed by the purchasing organization. Unlike supplier assessed taxes that are paid to the supplier, self-assessed taxes are remitted by the purchasing organization directly to the tax authority.

The key here is that these taxes are to be calculated on the same invoice, but the taxes don't impact the amount payable to the supplier, instead it should be accounted for as a tax liability.

The core requirements remain the same, however, the terminology used for self-assessed taxes vary by tax regime, such as reverse charges, use taxes, and offset taxes. Reverse charge is the terminology primarily used in the European Union, use taxes is the terminology used in the United States, and offset taxes is a alternate solution to handle self-assessment of taxes and is not used by any regime.

Oracle Fusion Tax provides the following options to configure and automate calculation of self-assessed taxes:

  • Self-assessment

  • Offset taxes

  • Reporting-only taxes

  • Use taxes

Self-Assessment

Taxes must be self-assessed by the purchasing organization when the supplier isn't registered in the ship-to or bill-to location of the transaction. This is the recommended approach for defining and calculating self-assessed taxes. This is driven based on the registration party used for the transaction.

Registration Party

In the context of a tax applicable to the transaction it is the party whose registration must be considered. The tax registration party type default is specified for the tax. As most of the taxes are assessed by the supplier, the default is set to the ship-from or the bill-from location.

Supplier Tax Registration

You can define tax registration for the supplier, the supplier site, and for a particular tax regime. If the tax registration varies by tax or tax jurisdiction, define the registration at a granular level. If the supplier doesn't have presence in a specific jurisdiction, there are two options for configuration. The first is to create a tax registration record with the registration status as not registered. The second option is not to define a registration record. If you follow the second option, when you define the condition set, set the operator for the Registration determining factor class to Is blank.

Registration Party of the First Party

Similar to the supplier registration, you can define the tax registration records for a legal reporting unit tax profile. For the tax registration of the first party select the Set as self-assessment (reverse charge) option. This option triggers self-assessment of taxes when the registration party selected for the tax line is that of the first party. Self-assessment is only applicable for Payables transactions. The option on the first party registration doesn't impact Receivables transactions. Create a tax registration rule to conditionally use the first party registration when the supplier isn't registered. The condition to use for this tax rule is as follows:

Tax Determining Factor Class Class Qualifier Tax Determining Factor Name Operator Condition Value

Registration

Bill-from party

Registration Status

Equal to

Not Registered

If the registration records aren't created for the suppliers without registration, create the condition set as follows:

Determining Factor Type Class Qualifier Determining Factor Name Operator Condition Value

Registration

Bill-from party

Registration Status

Is blank

 

Offset Taxes

Offset taxes is a backward compatible approach that is configured to self-assess taxes. Configure offset taxes in addition to your regular taxes. Offset taxes carry a negative rate, and are calculated in the context of the regular tax. Where offset taxes are applicable, the application creates two tax lines with one positive and one negative amount. An offset tax record is a matching, duplicate record with negative amounts that reduces or completely offsets the tax liability recorded in the tax transaction. Use offset taxes when the tax requirement includes creating an offset general ledger posting.

Reporting-Only Taxes

You can identify taxes for reporting purposes only. When these taxes are applicable to the transactions, records are created in the tax repository entities. However, invoice distributions aren't created for these taxes. Therefore, there is no impact to the payable amount, payment amount, and invoice accounting.

Use Taxes

Assigning use taxes to invoices, you create a record of the taxes you owe to tax authorities. Oracle Fusion Payables doesn't create invoice distributions for these taxes. Therefore, there isn't any accounting impact due to these taxes.

Note: Use taxes are defined with the tax type of Use tax. The rest of the configuration is the same as the other taxes. This feature is only supported for migrated taxes. You cannot define a new tax with this tax type.

How Self-Assessed Taxes Are Processed

You can let a first party self-assess the taxes calculated on the Payables invoices it receives. A self-assessed tax is a tax calculated and remitted for a transaction, where tax wasn't levied by the supplier but is deemed as due (and therefore needs to be paid by the purchaser). Taxes need to be self-assessed by the purchasing organization when the supplier isn't registered in the ship-to or bill-to location of the transaction.

Settings That Affect Self-Assessment of Taxes

Configure your tax setup to automate self-assessment of regular taxes. The following is an overview of the configuration:

  • Default registration party: Set the default values for the direct rule type of Tax Registration. For self-assessed taxes set the value to Ship from or Bill from.

  • Supplier registration: The supplier can be registered or not registered. Configure your set up as follows:

    • If the supplier is registered, the application creates a record with the registration status of registered. The registration of the supplier is considered and the taxes are assessed by supplier and included as a part of the invoice total.

    • If the supplier isn't registered, you can either:

      • Create a registration record for the tax regime, tax, or tax jurisdiction, with the registration status of not registered.

      • Skip the step of defining tax registration and define the tax condition set with the operator of Is blank.

  • Selecting first party registration conditionally: Create a registration record for the first party legal reporting unit. For this registration record, select the Set as self-assessment (reverse charge) option.

    If the supplier isn't registered, consider the registration of the first party legal reporting unit. To trigger this, define a tax registration rule with the following conditions:

    • If the ship-from or bill-from party registration status isn't registered or is blank then the registration party is either the ship-to party or bill-to party. The following is the condition set for the Determine Tax Registration rule:

      Determining Factor Type Class Qualifier Determining Factor Name Operator Condition Value

      Registration

      Bill-from party

      Registration Status

      Equal to

      Not Registered

      Transaction Input Factor

       

      Line Class

      Equal to

      Standard Invoice

    • If you choose the option of not defining a supplier registration then the condition set is as follows:

      Determining Factor Type Class Qualifier Determining Factor Name Operator Condition Value

      Registration

      Bill-from party

      Registration Status

      Is blank

       

      Transaction Input Factor

       

      Line Class

      Equal to

      Standard Invoice

      Set the rule result to bill-to party so that the registration of the legal reporting unit is considered.

    Tip: Instead of including the condition for the transaction input factor, you can specify the event class constraint at the tax rule header.
  • Self-assessing tax: Check the Set as self-assessment (reverse charge) option for the first party registration record you create for the tax regime, tax, and tax jurisdiction. Once the application selects this registration record for the tax, the tax line is stamped as self-assessed.

How Self-Assessed Taxes Are Processed

Taxes created by the first party organization must be calculated in the context of the transaction. The application creates both summary and detail tax lines for these taxes. The self-assessed option is enabled for these lines. Invoice lines aren't created for taxes. Therefore, the payable to the supplier doesn't include these taxes. Invoice distributions are created to account for the tax expense or recovery and liability.

Self-assessed taxes aren't included in the invoice totals. Instead, the total of self-assessed taxes for the invoice is displayed as a separate line in the tax charges region of the invoice.

Self-assessed taxes are created for imported payables invoices. This happens when imported transactions have tax lines along with transaction lines and if you enable the Perform additional applicability for imported documents option for the event class. For these transactions, additional taxes that are found applicable are treated as self-assessed taxes.

These taxes are accounted along with the rest of the invoice. The accounting treatment for expense and recovery remain the same as any supplier-assessed taxes. The only variation is that the tax amount is credited to the tax liability account instead of the payables account.

Self-assessed taxes are a part of the standard tax reports. Apart from this, Oracle Fusion Subledger Accounting provides reports for accounting activity that can be used to track self-assessed tax liability. Use the Account Analysis Report and the Open Account Balance Listing report to track this liability.

Tax Line Override

You can override the self-assessed indicator for the tax line. This impacts the invoice lines and distributions. If you update the summary tax line, all corresponding detail tax lines are updated to reflect this change. If the self-assessed option on some of the detail tax lines is updated then a new summary tax line is created to group the detail tax lines that are being self-assessed.

Note: When you select or deselect the Self-Assessed option on a tax line for the first time, the update doesn't take effect. You must select the specific tax line, click the row header or a noneditable area, and then select the Self-Assessed option.

How Offset Taxes Are Processed

Offset taxes are a backward compatible approach that you can configure to self-assess taxes. Configure offset taxes in addition to the regular taxes. Offset taxes carry a negative rate, and are calculated in the context of the regular tax. Where offset taxes are applicable, two tax lines are created with one positive and one negative amount. An offset tax record is a matching, duplicate record with negative amounts that reduces or completely offsets the tax liability recorded in the tax transaction. Use offset taxes when the tax requirement includes creating an offset general ledger posting.

Settings That Affect Offset Taxes

For the offset tax calculation to take effect, do the following:

  • Set up offset taxes

  • Enable offset tax calculation

Perform these tasks for setting up offset taxes:

  • Set up the offset tax, tax status, and tax rate. Define at least one recovery type lookup to use with offset taxes.

  • Create the offset tax and perform the following:

    1. Use the tax currency of the original tax.

    2. Select the Set as offset tax option.

    3. Enter a primary recovery type that you defined for offset taxes.

  • Set up the tax status for the offset tax. Do not select the Allow tax rate override option.

  • Set up a 100% tax recovery rate for the offset tax using the recovery type that's defined for the offset tax.

    You can't update the recovery rate on an offset tax line. The recovery rate is always 100% to create credit entries that match the original tax amounts. When you create an offset tax, you enter a primary recovery type with a recoverable rate of 100% and a 100% recovery rate.

  • Set up the offset tax rate and perform the following:

    1. Enter a negative rate amount.

    2. Assign the tax recovery rate that is defined for offset tax.

    3. Do not select the Allow ad hoc tax rate option.

  • Set up the original tax with the required configuration to enable the tax. For the tax rate of the original tax (nonoffset tax), assign the offset tax rate code in the Offset Rate Code field.

Complete the following configuration steps to enable calculation of offset taxes for a transaction:

  • For the configuration owner tax options for the Payables event classes, enable offset tax calculation by selecting the Allow offset tax calculation option. Also, specify the offset tax basis.

  • Select the Allow offset taxes option on the party tax profile if you want to calculate offset taxes for the transactions created for the party. Select this option for the party type selected in the Offset Tax Basis field for the configuration owner tax options.

How Offset Taxes Are Processed

Offset taxes applicable to an invoice are created with two tax lines entries, one for the tax and one for the offset tax. The line for the offset tax has the offset option enabled. This line carries the reference to the original tax line. Two Invoice lines are created for these taxes, one for each tax.

The amount for the regular tax line is always debited to the tax expense or recovery account or both, depending on the recoverability of the tax. The credit is posted to a payables account which is offset by the negative amount credited to the payables account due to the offset tax line. The debit of the offset tax line is posted to the tax liability account. This indicates the liability that the first party organization has toward the tax authority for the self-assessed tax.

Tax Line Override

You can't override offset tax lines. However, you can update the tax line calculated for the original tax.

The corresponding tax line for the offset taxes is updated, when you:

  • Update the tax rate percentage or amount

  • Cancel the tax line

How Reporting-Only Taxes Are Processed

You can identify taxes for reporting purposes only. When these taxes are applicable to the transactions, records are created in the tax repository entities. However, invoice distributions aren't created for these taxes. Therefore, this doesn't impact the payable amount, payment amount, and invoice accounting.

Settings That Affect Reporting-Only Taxes

Set up reporting-only taxes by selecting the Set tax for reporting purposes only option for the tax.

How Reporting-Only Taxes Are Processed

Tax lines for reporting-only taxes have the Reporting Only option enabled. Tax distributions aren't created for these tax lines.

For Oracle Fusion Payables invoices, these lines aren't displayed on the invoice lines. The total of the reporting-only taxes are displayed in the tax totals region of the invoice.

For Oracle Fusion Receivables transactions, reporting-only taxes are handled as any other tax. These taxes are considered a part of the invoice, and are accounted for accordingly.

Tax Line Override

You can't update the Reporting Only option on the detail tax lines.

During transaction tax calculation, use threshold controls to apply minimum or maximum limits to tax rates, taxable amounts, or tax amounts if these limits are enforced by tax authorities.

Define thresholds for a:

  • Tax if these limits are evaluated for all transactions to which that tax applies

  • Tax jurisdiction if these limits are applied to all purchases and sales that occur in that tax jurisdiction

  • Tax rule if these limits are only applicable in certain circumstances

Threshold attributes and processing include:

  • Threshold type

  • Threshold basis

  • Threshold range

  • Evaluation order

Threshold Type

Specify the minimum or maximum limit for a tax rate, taxable amount, and tax amount to meet the needs of the tax regulation. You can create multiple threshold types for a date period.

Threshold Basis

Select the threshold basis to comply with tax authority requirements of imposing limits for taxable or tax amounts either for the entire document or for each item line of the document. You can't define the same threshold type for both line and document in the same period.

Threshold Range

Specify the minimum, maximum, or both minimum and maximum values for the threshold type. Enter the values in the tax currency. If the transaction currency is different from the tax currency then the thresholds are converted to transaction currency for evaluation.

If the tax rate determined for a tax line is:

  • Within the range of the minimum and maximum rate threshold, then the tax rate is retained

  • Lower than the minimum value, then the tax rate is replaced with zero

  • More than the maximum threshold value, then the tax rate is replaced with the maximum threshold value

The same approach applies to the taxable and tax amount thresholds.

Evaluation Order

If you define more than one threshold type for a tax, the evaluation order is:

  • Tax rate thresholds

  • Taxable basis

  • Tax amount

If a tax rate rule is successfully evaluated for a tax line, then:

  • If there are tax rate thresholds values defined for the tax rule, they are considered for tax rate threshold evaluation.

  • If there are no threshold values defined for the tax rule, the application determines if there are threshold values defined for the tax jurisdiction. If so, they are considered for tax rate threshold evaluation.

  • If there are no threshold values defined for the tax jurisdiction, the application considers the threshold values defined for the tax for tax rate threshold evaluation.

If the threshold basis is Document, then the threshold values defined for the tax rules aren't considered

The same approach applies to taxable basis and tax amount thresholds. The only difference is the tax rule considered, which are the taxable basis rules and tax calculation rules, respectively.

Other considerations in threshold evaluation are if the:

  • Line amount is inclusive of tax, then the taxable basis and tax amount thresholds aren't considered for the inclusive tax lines.

  • Tax line is updated, then the updated values are considered and the thresholds values aren't applied.

  • Tax amount is overridden, then the updated amount is considered and the threshold values aren't applied.

FAQs for Manage Taxes

You must complete the required minimum setup before you can enable a tax for simulation or for transactions.

For a country-level standard tax with no recovery, here's the minimum setup:

  • Enter the required information in the Create Tax or Edit Tax pages.

  • Enter direct tax rule defaults for Place of Supply, Tax Registration, Tax Calculation Formula, and Taxable Basis Formula.

  • Set the Tax Applicability to Applicable.

  • Enter indirect tax rule defaults for Tax Jurisdiction, Tax Status, and Tax Rate.

  • Enter tax accounts for Tax Expense and Tax Recoverable or Liability Account. Accounts you specify at the tax level appear as defaults at the tax rate and tax recovery rate level.

For country-level standard tax with tax recovery, you must complete these setups also:

  • Define a tax recovery rate.

  • Enter an indirect tax rule default for Tax Recovery Rate.

You might want to set the direct tax rule default for Tax Applicability as Not Applicable. In this case, you must also define a determining factor set, condition set, and tax applicability rule.

Manage Tax Rates

The tax determination process identifies the tax rate when taxes are considered applicable on a transaction. Tax rates can apply to a specific location or jurisdiction. For example, you define state, county, and city jurisdiction-based rates for a US Sales and Use Tax regime. Tax rates can change over time. For example, when a tax rate increase occurs, you end date one rate period definition and create a rate period with an effective start date.

There can be tax exceptions or exemptions to tax rates based on:

  • Specific items

  • Third parties

  • General ledger accounts

  • Other factors

You must set up tax rates for tax statuses and optionally for tax jurisdictions. For tax statuses, set up tax rate records for each applicable tax rate that a tax status identifies. For tax jurisdictions, set up tax rate records to identify the tax rate variations for a specified tax and tax status within different tax jurisdictions. Set up your tax rates in the Manage Tax Rates and Tax Recovery Rates task.

Tax Rate Determination Process

The tax rate determination process can be viewed as a two step process:

  • Tax rate determination, which includes:

    • A default tax rate associated with the tax

    • An effective rate period

    • Jurisdiction-based rates

    • Tax rules; direct rate rules, tax rate rules, and account-based direct rate rules

    • Migrated tax classification codes and tax classification-based direct rate rules

  • Tax rate modification, which includes:

    • Item or product fiscal classification exceptions using special rates, discounts, or surcharges

    • Third party and third-party site tax exemptions using special rates and full or partial exemptions

Consider the applicable tax statuses and optionally, tax jurisdictions when defining the tax rate setup to determine applicable tax rates on a transaction.

Tax Statuses

A tax status is the taxable nature of a product in the context of a transaction and a specific tax on the transaction. You define a tax status to group one or more tax rates that are of the same or similar nature. Each tax must have at least one status defined and one status assigned as a default. Create tax rules to set alternate values as required.

For example, one tax can have separate tax statuses for standard and manually entered tax rates.

Tax Jurisdictions

A tax jurisdiction is an incidence of a tax on a specific geographical area. A tax jurisdiction is limited by a geographical boundary that encloses a contiguous political or administrative area, most commonly the borders of a country. Often this is represented by a state, province, city, county, or even a tax zone. In Oracle Fusion Tax, a tax jurisdiction can use the geography setup from your Oracle Fusion Trading Community Model geography hierarchy to identify a tax rate. Taxes such as Canada's Harmonize Sales Tax (HST) and Provincial Sales Tax may require tax rates at the jurisdiction level.

For example, US Sales and Use Tax are applicable based upon the jurisdictions you generally define for state, county, and city geographies.

Tax Rates

You must set up at least one tax rate for each tax status. You can set up additional tax rates at the tax jurisdiction level if the applicable tax rate is unique for a particular tax jurisdiction.

For example, in Canada, HST is applied at a 13% rate in most provinces that have adopted HST. British Columbia and Nova Scotia are exceptions with tax rates of 12% and 15% respectively. To satisfy this requirement, define a single tax rate of 13% with no tax jurisdiction associated. Also define 12% and 15% tax rates and associate them with the British Columbia and Nova Scotia jurisdictions respectively. This minimizes setup by creating an exception-based setup and a default option for the most commonly utilized tax rate percentage.

Tax Rate Types

You can express tax rates in terms of percentage or quantity. A quantity-based tax rate is based upon the number of items purchased or events that occur. For example, a taxing jurisdiction passes a law that each package of cigarettes sold is subject to a tax of 0.87 USD. This tax is considered a quantity-based tax as it is assessed based upon the number of packages purchased and not the price of the product.

Tax Classification Code Set Assignments

When defining a tax rate, select the tax classification code set assignments of Order to cash, Procure to pay, and Expenses. These assignments determine if the tax rate code you define is applicable within a specific product and set assignment at transaction time. In addition, the set assignment of tax classification codes is derived based on the configuration owner that is part of the tax rate code definition.

When you create a tax rate code where the:

  • Configuration owner is the global configuration owner: The tax classification code is assigned to all sets that have the determinant type of business unit and contain the determinant value of the business units that have the subscription of the legal entity. The tax classification code is also assigned to the business units that don't have the subscription of the legal entity but subscribe to the global configuration owner data for this tax regime.

  • Configuration owner is the legal entity: The tax classification code is assigned to all sets that have the determinant type of business unit and contain the determinant value of the business units that use the subscription of legal entity. The tax classification code is also assigned to business units that subscribe to this specific legal entity as a first-party organization.

  • Configuration owner is the business unit: The tax classification code is assigned to all sets that have the determinant type of business unit and contain the determinant value of the business unit for which the content is created.

Note: The application doesn't assign the tax classification codes to the global set of COMMON for any of these scenarios.

You can use the tax classification codes created as determining factors when defining tax rules. When you use the regime determination method of standard tax classification code, the tax classification based direct rate rules can be defined with these codes as factors for direct rate determination. Maintain the tax classification codes using the associated lookup types of Party Tax Profile Input Tax Classification, Party Tax Profile Output Tax Classification, and Party Tax Profile Web Expense Tax Classifications.

Rate Periods

You can define one or more rate periods for a tax rate as long as the date ranges don't overlap. This allows for a change in tax rates over time without requiring a new tax rate code definition. You can define default effective periods for tax rate periods. This effectivity must be unique across tax regime, configuration owner, tax, and tax status. This allows flexibility if there is a requirement to define a new tax rate code and identify the new rate period as a default when existing rate periods exist on another tax rate code. Define tax rules as exceptions to default tax rates.

Tax Recovery

When the associated tax allows tax recovery you can define tax recovery or offset tax rates. Associate the offset tax or the default tax recovery rate and tax rule defined for tax recovery to the tax rate code. If the tax rule doesn't evaluate to true at transaction time then the default tax recovery rate is applicable. Ensure that the tax recovery rate and tax rate periods overlap or the application doesn't calculate tax recovery.

Tax Accounts

Define tax accounting for the tax rate code either as a default from the tax setup or an override of values at the tax rate level. Tax accounts are defined for the legal entity and optionally for the business unit. The accounts you define are tax expense accounts, tax revenue accounts, tax finance charge accounts, and accounts specific to tax recovery.

Set up tax rates for your tax statuses and tax jurisdictions. For tax statuses, set up a tax rate record for each applicable tax rate that a tax status identifies. For tax jurisdictions, set up tax rate records to identify the tax rate variations for a specific tax within different tax jurisdictions. For example, a city sales tax for a state or province may contain separate city tax jurisdictions, each with a specific rate for the same tax.

At transaction time, you can override tax rates on calculated tax lines depending on your setup.

Quantity-Based Tax Rates

You can define tax rates as a percentage or as a value per unit of measure. The UOM field is optional in the tax setup. However, if you do enter the UOM, there is validation that must be passed for the tax rate to be applied. This includes:

  • If the UOM exists on the tax rate, the transaction must have a matching UOM or a blank UOM.

  • Only one active tax rate can exist for any given tax rate period. You can't create one tax rate for each UOM that might be used within a single tax rate code.

You can define the quantity rate type for a tax rate code with the UOM field left as blank. At transaction time, the application multiplies the quantity by the tax rate and the UOM isn't taken into account.

Override of Tax Rates on Tax Lines

Part of the configuration options is to allow you to override the calculated tax rate on a tax line. You should consider the following controls during setup:

  • Allow override of calculated tax lines: Select this option for a combination of configuration owner and event class if you want to manually override tax lines. This option exists on the Create Configuration Owner Tax Options page for the configuration owner and event class. If a configuration owner tax option doesn't exist, the value on the predefined event class setting is used.

  • Allow override of calculated tax lines: Select this option on the associated tax record to be able to override values on a calculated tax line.

  • Allow tax rate override: Select this option on the associated tax status record to be able to override tax rates on a calculated tax line.

  • Allow ad hoc tax rate: Select this option on the tax rate record if you want to allow the flexibility of not being restricted to predefined tax rates and allow user entered rates on calculated tax lines.

    If you allow ad hoc tax rates you must indicate if the adjustment to a tax amount updates the taxable basis or the tax rate.

Note: You can set the Transaction Tax Line Override profile option to control which users can make changes to the transaction line such as selecting a different tax status or tax rate.

Set up tax rates for your tax statuses and optionally for tax jurisdictions. For tax statuses, set up a tax rate record for each applicable tax rate that a tax status identifies. For tax jurisdictions, optionally set up tax rate records to identify the tax rate variations for a specific tax within different tax jurisdictions.

Defining Controls and Defaults for Tax Rates

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

Header Region

Field Description Default Derived from Default Appears on Controls

Tax Rate Type

Lookup code that controls the type of tax rate. Values are:

  • Percentage: The tax rate is a percentage based on the line value

  • Quantity: The tax rate is based on the currency per UOM such as USD per kilo

None

None

Defines whether the tax rate is either percentage or quantity based

Tax Classification Code Set Assignments

  • Order to cash

  • Procure to pay

  • Expenses

Controls where tax classification codes that are created in parallel to the creation of the tax rate are available for use

None

None

If selected, then the tax classification code associated with this tax rate is available for use in order to cash, procure to pay, and expenses transactions

Rate Periods Region

Field Description Default Derived from Default Appears on Controls

Set as Default Rate

Controls whether this tax rate is the default rate for the defined tax status for the period specified

None

None

If selected then this tax rate is the default tax rate for the defined tax status for the period specified. Where there are no tax rate rules applicable at transaction time then the tax determination process selects this tax rate where the associated tax status is derived during the period specified.

Main Details Tab, Other Details Region

Field Description Default Derived from Default Appears on Controls

Tax Inclusion Method

Defines whether the tax is:

  • Standard noninclusive handling: This option calculates the taxes as exclusive of the given transaction line amount

  • Standard inclusive handling: This option calculates the taxes as inclusive of the given transaction line amount

  • Special inclusive handling: This option calculates the taxes as inclusive of the given transaction line amount, but the calculation methodology differs from the standard inclusive process

None

None

Use this option in conjunction with other setup on tax, party tax profile, tax registration, and transaction details to control the inclusiveness of a line amount at transaction time

Allow override and entry of inclusive tax lines

Controls whether you can override and enter inclusive or exclusive line amounts

Tax

None

Use this option in conjunction with the Transaction Tax Line Override profile option as well as Allow override of calculated tax lines and Allow override and entry of inclusive tax lines options for the configuration owner tax options to allow you to update the Inclusive option on tax line at transaction time

Allow tax exceptions

Controls whether tax exceptions are allowed for this tax

Tax status

None

If this option is selected tax exceptions can be processed at transaction time

Allow tax exemptions

Controls whether tax exemptions are allowed for this tax

Tax status

None

Use this option in conjunction with the Allow exemptions option on the configuration owner tax options and when both are selected allows tax exemptions to be processed at transaction time

Allow ad hoc tax rate

Controls whether you can enter ad hoc tax rates at transaction time

None

None

Use this option in conjunction with Transaction Tax Line Override profile option and the Allow override of calculated tax lines option for the configuration owner tax options. If all are selected, you can enter tax rates.

Adjustment for Ad Hoc Tax Amounts

Lookup code that's used when you select the Allow ad hoc tax rate option

None

None

When the Allow ad hoc tax rate option is selected the lookup value in this field controls how the application controls the change in tax value, either as a change to the taxable basis or to the tax rate value used

Tax Point Basis

Specify the event that's the basis for tax recovery or liability. This event is also the basis on which tax is considered for reporting.

 

None

 

Examples of Tax Rates for a Canadian Tax Regime

The following scenarios illustrate when you might want to use exceptions or tax rules to meet your Canadian tax requirements.

Scenario

This scenario includes tax calculation for a Canadian tax regime. Purchases made in Ontario are generally taxed for Provincial Sales Tax (PST) at a tax rate of 8%. Accommodation purchases are generally taxed at 5% and food is generally exempt from tax.

EDC Corporation's Ontario store has been invoiced for employee accommodations, including hotel facilitates and food for a conference they attended. The invoice is for a hotel room, use of hotel office facilities, and food.

Set up tax rates to meet PST requirements for the store in Ontario as follows:

  • Define a jurisdiction-based tax rate of 8% which is applicable to the hotel facilities usage. This is the standard tax calculation for the jurisdiction of Ontario.

  • Define a rate exception with a special rate of 5% for the hotel room. This exception can be driven by a product fiscal classification.

  • Define a Determine Tax Status rule which points to the exempt status of 0% rate for food based on a product fiscal classification. Use the tax rule over an exception since you can use a specific tax status and the default rate of 0% for that tax status.

Scenario

Another example of tax calculation for a Canadian tax regime is purchases of some items made on First Nation reserves have a First Nations Tax that is applicable at a tax rate of 5%. Since the requirements drive the applicability of the tax as well as the tax status and tax rate you can define a direct rate rule to handle both the applicability and the tax rate.

Manage Tax Recovery

Tax recovery is the full or partial recovery of tax paid on purchases by a registered establishment to offset the tax collected from sales transactions. There are usually many regulations surrounding the details of tax recovery. For example, in most European countries, tax is fully recoverable on all purchases except for businesses that only sell nontaxable supplies, such as financial institutions. In cases in which businesses only sell nontaxable supplies, value-added tax (VAT) on their purchases is not recoverable. In certain countries like Canada, more than one type of recovery is possible. Tax authorities designate the tax recovery rates that indicate the extent of recovery for a specific tax.

Tax recovery information on a transaction may be viewed on the invoice distributions level, including any pertinent information for nonrecoverable and recoverable taxes where applicable.

If the recovery rate on a tax varies based on one or more transaction factors, set up recovery rate rules to determine the appropriate recovery rate on the transaction. For example, most VAT-type taxes allow full recovery of taxes paid on goods and services that relate to taxable business supplies. In cases where an organization makes purchases relating to both taxable and exempt supplies, the tax authority can designate a partial recovery rate to reflect the proportion that relates to the taxable supplies. For instance, in the UK, Her Majesty's Revenue and Customs (HMRC) have two methods to work out the tax recovery rate percentage:

  • Standard method: Taxable supplies divided by the value of all supplies added together (both taxable and exempt). This formula is based on a previous period with an adjustment when the actual proportions are known.

  • Special method: A user-defined formula approved by HMRC that reflect a business's unique circumstances that must produce a fair and reasonable result. Approval to use this special method is based on the business type, the types of supplies, and the business's cost structure.

The Determine Recovery Rate process evaluates tax recovery for applicable taxes. The Determine Recovery Rate process determines the recovery rate to apply to each recovery type for each applicable tax on the transaction.

Determine Recovery Rate

Tax rules use the tax configuration setup defined within Oracle Fusion Tax and the details on the transaction to determine which taxes apply to the transaction and how to calculate the tax amount for each tax that applies to the transaction.

Tax rules let you create a tax determination model to reflect the tax regulations of different tax regimes and the tax requirements of your business. You can create a simple tax model or a complex tax model. A simple tax model makes use of the default values without extensive processing while a complex tax model considers each tax requirement related to a transaction before making the final calculation.

The tax determination process evaluates, in order of priority, the tax rules that are defined and the details on the transaction. If the first rule is successfully evaluated, the result associated with the rule is used. If not, the next rule is evaluated until either a successful evaluation or default value is found.

The tax determination process is organized into rule types. Each rule type identifies a particular step in the determination and calculation of taxes on transactions. The rule type and related process used for tax recovery determination is Determine Recovery Rate. This is an optional setup that is applicable to taxes that have tax recovery enabled.

This process determines the recovery rate to apply to each recovery type for each applicable tax on the transaction that allows for full, partial, or no recovery of the tax amount. In many cases, the tax determination process uses either the recovery rate associated with the tax rate or the default recovery rate defined for the tax. However, if the tax recovery rate varies according to determining factors, such as intended use, then create a Determine Recovery Rate tax rule to derive the recovery rate.

You can only set up a Determine Recovery Rate tax rule for taxes that have the tax recovery option enabled. For countries with multiple recovery types, use primary and secondary recovery types to address this requirement. After the recovery rate is determined for each recovery type, the tax determination process determines the recoverable amounts against each recovery type for each tax line. The remaining tax amount becomes the nonrecoverable tax amount for the tax line.

The following outlines the process that results in a recoverable tax amount for each recoverable tax distribution:

  1. Allocate tax amount per item distributions. While taxes are determined at the transaction line level, tax recovery is determined at the transaction line distribution, or item distribution level.

  2. Determine recovery types. The tax determination process determines for each tax and item distribution, whether the primary and, if defined, secondary recovery types apply. The result of this process is a tax distribution for each recovery type for each tax and item distribution. If recovery types aren't defined, go to step 5.

  3. Determine recovery rates. For each tax distribution, the tax determination process determines the recovery rate based on the following:

    1. Consider the Determine Recovery Rate tax rule for the first recoverable tax distribution.

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

    3. Use the tax recovery rate associated with the tax rate for the tax line if the tax determination process can't derive a tax rule based on the transaction values.

    4. Use the default tax recovery rate for the recovery type and tax if there is no tax recovery rate associated with the tax rate. If there is no default tax recovery rate for the recovery type and tax, use the default tax recovery rate defined for the tax.

    5. Repeat the steps for each recoverable tax distribution, if applicable.

  4. Determine the recoverable amounts. The tax determination process applies the recovery rates to the apportioned tax amounts to determine the recoverable tax amounts. This process results in a recoverable tax amount for each recoverable tax distribution.

  5. Determine the nonrecoverable amount. Oracle Fusion Tax calculates the difference between the apportioned tax amount of every tax line per item distribution and the sum of the recoverable tax distribution to arrive at the nonrecoverable tax amount, and then creates a nonrecoverable tax distribution for this amount. If a primary recovery type wasn't defined for a tax, the entire apportioned amount for the item distribution is designated as the nonrecoverable tax amount.

The tax determination process uses your tax configuration setup and the details on the transaction to determine which taxes are recoverable.

You need to decide when to:

  • Create Determine Recovery Rate rules

  • Specify separate ledger accounts

  • Manage tax distributions

  • Specify tax point basis

When to Create Determine Recovery Rate Rules

Use recovery rate rules to determine the applicable recovery rates when the determination is based on one or more transaction factors like parties, locations, product, or product purpose.

At transaction time, the tax determination process uses the recovery rate derived from the recovery tax rules. If no recovery rate rules are defined or if no existing recovery rate rule applies to the transaction, the tax determination process uses the default recovery rate that you define.

Commonly used factors in tax recovery rules include:

  • Intended use, such as resale or manufacturing

  • Party fiscal classification, such as reseller or charitable organization

  • Location, such as British Columbia or New Brunswick

When to Specify Separate Ledger Accounts

Recovery details are primarily captured and tracked through invoice distributions. Define the recovery account at the recovery rate level if you require capturing the recovery details into separate general ledger accounts for each tax. If you can combine the recovery and liability at the account level, you can use the common account for liability or recovery defined at the tax rate level.

While generating the invoice distributions, the application first considers the recovery account defined at the recovery rate level. If it's null, the liability or recovery account defined at the tax rate level is used.

The nonrecoverable component of a tax gets registered into the expense account defined at the tax rate level. If no specific expense account is given, the item charge account available on the transaction is used. You may need to apportion the nonrecoverable component of the tax amount on the item cost. As such, you should consider all of the costing requirements while setting up an expense account.

When to Manage Tax Distributions

Use the Tax Distributions window to review and update the tax recovery rate on tax distributions. Oracle Fusion Tax creates recoverable distributions and calculates tax recovery rates when you save the line distribution. This is according to the Determine Recovery Rate tax rule process or the default recovery rate.

You can update the recovery rate code, if the Allow tax recovery rate override option is enabled for the tax.

You can update the recovery rate, if the Allow ad hoc tax rate option is enabled for the recovery rate. The update method differs according to the transaction application:

  • Oracle Fusion Purchasing: You can either enter a new recovery rate or select another recovery rate that you previously defined from the list of values.

  • Oracle Fusion Payables: You can only select another rate that you previously defined. If you update the recovery rate on a tax distribution, Oracle Fusion Tax also updates the related nonrecoverable rate and amount, and the distribution for the tax line.

If there are tax rules defined based on the Accounting determining factor class, then changing or creating a distribution may affect tax calculation.

Define tax recovery rates to claim full or partial recovery of taxes paid. Set up tax recovery rate codes for the recovery types identified on the taxes within a tax regime. A tax recovery rate code identifies the percentage of recovery designated by the tax authority for a specific transaction.

Defining Controls and Defaults for Tax Recovery Rates

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

Recovery Rate Periods Region

Field Description Default Derived from Default Appears on Controls

Set as Default Rate

Controls whether this tax recovery rate is the default recovery rate for this tax at transaction time

None

None

When you select this option, the recovery tax rate is the default rate for the period specified. When there are no tax recovery rate rules applicable at transaction time, the tax determination process selects this tax recovery rate.

This example shows the tax setup and associated tax conditions that drive tax recovery. Set up tax rules to assign specific recovery rates instead of using the default recovery rates defined for the tax. Two recovery types are used to show the primary and secondary recovery type options for a tax.

In Canada, the Goods and Services Tax (GST) applies to the supply of most property and services in Canada. However, some provinces have combined their provincial sales tax with the GST to create the Harmonized Sales Tax (HST). This system applies to British Columbia, Ontario, New Brunswick, Nova Scotia, and Newfoundland and Labrador. In this context, these provinces are known as the participating provinces. Generally, HST applies to the same base of property and services as GST. In countries like Canada, some or all of the taxes on business transactions for registered companies are recoverable taxes.

ABC Corporation is a business located in the province of British Columbia. The sales invoice indicates that ABC purchases books for the purposes of resale. Here's ABC's existing tax setup:

Tax Description

CA GST and HST

A GST and HST-based tax regime

CA HST

An HST-based tax

CA HST STANDARD

The default HST-based tax status for the CA HST

CA HST ZERO FED REC RATE and CA HST ZERO PROV REC RATE

0% recovery rates for HST, which are set as the default recovery rates for the CA HST

CA HST STANDARD RATE

The default HST-based tax rate for the CA HST

Note: The percentage rate is 13% for most provinces, and 12% for British Columbia.

Here are some tax implications that apply in this scenario:

  • ABC can recover 100% of both federal and provincial components of HST on books bought for resale.

    • Federal and provincial components of HST have zero recovery rates. These are set as the default recovery rates for the HST.

    • Recovery rates for most of the participating provinces must address the full recovery of the 13% HST rate.

    • Recovery rates for British Columbia must address the 12% HST rate.

    • Recovery rate rules must assign nondefault recovery rates for resale purchases.

  • ABC can't recover HST on consumable items, such as computers for use in ABC's store. Default zero recovery rates apply in this case.

Perform these steps:

  • Create tax recovery rates

  • Create an intended use fiscal classification

  • Create recovery rate rules

Create Tax Recovery Rates

For most participating provinces in Canada, the HST is 13%. Out of this, 5% is the federal component and 8% is the provincial component.

Create the tax recovery rates for these provinces considering these components:

  • 38.46% for the federal component of HST

  • 61.54% for the provincial component of HST

  1. On the Create Tax Recovery Rate page, enter the name of the tax regime as CA GST and HST.

  2. Select the configuration owner for this tax recovery rate. To minimize configuration and maintenance costs, select Global Configuration Owner as the configuration owner.

  3. Select the HST tax, CA HST.

  4. Enter the name of the tax recovery rate you are defining, such as CA HST STD FED REC RATE.

  5. Select PREC as the recovery type.

  6. In the recovery rate periods table, enter 38.46 as the percentage recovery rate, and an effective start date.

  7. Click Save and Close.

  8. Repeat steps 1 to 7 to create the tax recovery rate CA HST STD PROV REC RATE. Set the recovery type as SREC, and a percentage recovery rate of 61.54%.

Create Tax Recovery Rates for British Columbia

For British Columbia, where the HST rate is 12%, you need a federal recovery rate to address the 5% federal component. You also need a provincial recovery rate to address the 7% provincial component. Create a tax recovery rate with these components for British Columbia:

  • 41.67% for the federal component of HST

  • 58.33% for the provincial component of HST

  1. On the Create Tax Recovery Rate page, enter the name of the tax regime, CA GST and HST.

  2. Select the configuration owner for this tax recovery rate. To minimize configuration and maintenance costs, select Global Configuration Owner as the configuration owner.

  3. Select the HST tax, CA HST.

  4. Enter the name of the tax recovery rate you are creating, such as CA HST BC FED REC RATE.

  5. Select PREC as the recovery type.

  6. In the recovery rate periods table, enter 41.67 as the percentage recovery rate, and an effective start date.

  7. Click Save and Close.

  8. Repeat steps 1 to 7 to create the tax recovery rate, CA HST BC PROV REC RATE. Set the recovery type as SREC, and a percentage recovery rate of 58.33%.

For British Columbia, where the HST rate is 12%, you need a federal recovery rate to address the 5% federal component. You also need a provincial recovery rate to address the 7% provincial component. Create a tax recovery rate with these components for British Columbia:

  • 41.67% for the federal component of HST

  • 58.33% for the provincial component of HST

  1. On the Create Tax Recovery Rate page, enter the name of the tax regime, CA GST and HST.

  2. Select the configuration owner for this tax recovery rate. To minimize configuration and maintenance costs, select Global Configuration Owner as the configuration owner.

  3. Select the HST tax, CA HST.

  4. Enter the name of the tax recovery rate you are creating, such as CA HST BC FED REC RATE.

  5. Select PREC as the recovery type.

  6. In the recovery rate periods table, enter 41.67 as the percentage recovery rate, and an effective start date.

  7. Click Save and Close.

  8. Repeat steps 1 to 7 to create the tax recovery rate, CA HST BC PROV REC RATE. Set the recovery type as SREC, and a percentage recovery rate of 58.33%.

Create Intended Use Fiscal Classification

Create an intended use fiscal classification for resale of books. An intended use fiscal classification is a tax classification based on the purpose for which the product is used.

  1. In the Create Fiscal Classification Code dialog box, enter a code for the classification, such as CA INTENDED USE RESALE.

  2. Enter a name for this classification, such as CA Intended Use Resale.

  3. Optionally, select Canada as the country and enter a start date, such as 1/01/2001.

  4. Click Save and Close.

Create Recovery Rate Rules

Create the recovery rate rules that apply to most participating provinces when the conditions for HST recovery are met. If you remember, the default tax recovery rate on HST is 0% at the federal and provincial levels.

  1. On the Create Determine Recovery Rate Rule page, select these options: Global Configuration Owner as the configuration owner, CA GST and HST as the tax regime, and CA HST as the tax.

  2. Enter the code and name of the tax recovery rate rule you are creating, such as CA HST FED RECOVERY RULE. Select the start date and PREC as the recovery type code.

  3. Create or select a tax determining factor set and an associated tax condition set. Keep in mind that the intended use of the acquired product is the intended use fiscal classification you defined earlier, CA INTENDED USE RESALE.

    When this condition is met, 100% recovery rate for the federal component is applicable.

  4. For the tax condition set, assign the result of CA HST STD FED REC RATE.

  5. Assign a rule order, such as 100.

  6. Click Save and Close.

  7. Repeat steps 1 to 6 to create the standard provincial recovery rule, CA HST PROV RECOVERY RULE. Set the recovery type code as SREC, a result of CA HST STD PROV REC RATE, and a rule order of 110.

Create Tax Recovery Rule for British Columbia

Create the recovery rate rules that apply to British Columbia when the conditions for HST recovery are met.

  1. On the Create Determine Recovery Rate Rule page, select these options: Global Configuration Owner as the configuration owner, CA GST and HST as the tax regime, and CA HST as the tax.

  2. Enter the code and name of the tax recovery rate rule you are creating, such as CA HST BC FED RECOVERY RULE. Select the start date, and PREC as the recovery type code.

  3. Create or select a tax determining factor set and an associated tax condition set. Set the ship-to location as British Columbia. Keep in mind that intended use of the acquired product is the intended use fiscal classification you defined earlier, CA INTENDED USE RESALE.

    When this condition is met, 100% recovery rate for the federal component is applicable.

  4. For the tax condition set, assign the result of CA HST BC FED REC RATE.

  5. Assign a rule order, such as 50, that gives a higher priority to this rule than the 2 rules you created previously.

  6. Click Save and Close.

  7. Repeat steps 1 to 6 to create the provincial recovery rule for British Columbia, CA HST BC PROV RECOVERY RULE. Set the recovery type code as SREC, a result of CA HST BC PROV REC RATE, and a rule order of 55.

    For ABC's transactions in Canada, the previous setup determines these conditions:

    • HST is applicable and is calculated at a 13% rate for most participating provinces. However, it's the rate is 12% for British Columbia.

    • The intended resale of these books makes these transactions eligible for 100% tax recovery.

    • For most participating provinces, tax recovery rate is 38.46% for the federal component, and 61.54% for the provincial component.

    • For British Columbia, tax recovery rate is 41.67% for the federal component, and 58.33% for the provincial component.

Tax Recovery Distributions

A recoverable tax allows full or partial recovery of taxes paid on purchases, either as a recoverable payment or as a balance against taxes owed. A tax recovery rate identifies the percentage of recovery for a tax designated by the tax authority for a specific transaction line. You can review Oracle Fusion Payables tax distributions and, if applicable, update the tax recovery rate on a tax distribution depending on your tax setup and security access. The component in Oracle Fusion Purchasing is view-only.

Managing Tax Recovery Distributions

Oracle Fusion Tax creates recoverable distributions and calculates tax recovery rates when you save the line distribution. The recoverable distributions and tax recovery rates are created according to the Determine Recovery Rate tax rule process or the default recovery rate. If self-assessment is enabled for the applicable party, two distributions for each tax are created, one with a positive amount and the other with a negative amount.

One recoverable distribution for the primary recovery type and, if applicable, the secondary recovery type is created, for each tax line for each of the item distributions into which the item line or expense line is distributed. The tax distributions are displayed in this way:

  • If the tax is nonrecoverable, one nonrecoverable tax distribution line for the tax is created, with the nonrecoverable amount equal to the tax amount. You cannot update a nonrecoverable tax distribution nor create a manual recoverable distribution.

  • If the tax is recoverable, two or three distribution lines are displayed, one for the primary recoverable amount, one for the secondary recoverable amount, if applicable, and another for the nonrecoverable amount.

    If the tax is fully recoverable, then the recoverable distribution amount is equal to the tax amount and the nonrecoverable distribution amount is equal to zero.

    If the tax is recoverable and the recovery rate is zero, then the nonrecoverable distribution amount is equal to the tax amount and the recoverable distribution amount is equal to zero.

  • If self-assessment is enabled for the applicable party, the application creates two distributions for each tax, one with a positive amount and the other with a negative amount.

    If the tax applied on the transaction is self-assessed, then the corresponding recoverable and nonrecoverable tax distributions are not visible in the distributions window, but the application does generate them at the time of accounting for the invoice

  • If the tax applied on the transaction is of the offset type, then the application creates two distributions for the recovery and nonrecovery portions of the tax. Since they are intended to offset each other, they are created for the same amount, but one with a positive value and the other with a negative value.

You can update the recovery rate code in a Payables transaction if the Allow tax recovery rate override option is enabled for the tax. You can update the recovery rate if the Allow ad hoc tax rate option is enabled for the recovery rate.

If you update the recovery rate on a tax distribution, Oracle Fusion Tax also updates the related nonrecoverable rate and amount, and the distribution for the tax line. If the distribution status is frozen, you cannot update the tax distribution. To change the distribution, you must reverse the tax distribution and enter a new distribution.

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

  • If there are tax rules defined based on the Accounting determining factor class, then changing or creating a distribution may affect tax calculation.

  • If the Enforce tax from account option is enabled for the configuration owner and event class, this may affect the tax calculation based on the distribution.

Example of Tax Recovery Distributions

Recoverable distributions are created when you save the line distribution. Simultaneously, tax recovery rates are calculated according to the Determine Recovery Rate tax rule process or the default recovery rate. You can review tax distributions and, if applicable, update the tax recovery rate on a tax distribution.

Note: Only the authorized user can update the tax recovery rate on the distribution in Oracle Fusion Payables. The component in Oracle Fusion Purchasing is view-only.

Scenario

Your company is located in a Canadian province that applies a Harmonized Sales Tax (HST). HST is a combination of the provincial sales tax and the federal Goods and Services Tax (GST). They recently purchased books to sell in their stores. They also purchased some computers to use in kiosks within the stores for customers to use to locate books.

Transaction Details

Here are the transaction details:

  • Total cost of books is 10,000 CAD

    The invoice indicates the intended use as Resale.

  • Total cost of computers is 5,000 CAD

    The computers are expensed as they don't meet the capitalization threshold.

  • Tax rate applicable to each item is 13%

Analysis

In most tax regimes, a registered establishment can reclaim 100% of taxes from the tax authority, except for specific designated purchases. Depending upon the details of a company's business purchases and tax authority regulations, a number of exception regulations may accompany the details of tax recovery. Tax implications are:

  • The HST associated with the cost of books to be sold in stores is 100% recoverable. Therefore, 1,300 CAD is recoverable (10,000 CAD * 13%).

  • The HST associated with the cost of the computers to be used in kiosks within the stores isn't recoverable. Therefore, 650 CAD is nonrecoverable (5,000 CAD * 13%).

The HST tax configuration specifies that the recovery tax rate for zero 0% recoverable is used as a default. A tax rule is defined to apply a 100% recoverable rate for products with an intended use of Resale.

Tax Recovery Distributions

Based on the analysis, the following distributions are created for the transaction:

Accounting Class Debit Credit

Item Expense

10,000

Item Expense

5,000

 

Recoverable Tax

1,300

Nonrecoverable Tax

650

Liability

10,000

Liability

 

5,000

Liability

1,300

Liability

650

Manage Tax Exceptions

Set up tax exceptions to apply special tax rates to products. At transaction time, Oracle Fusion Tax determines whether the tax exception applies to the transaction line for the product, and if so, uses the applicable exception rate.

Settings That Affect Tax Exceptions

A tax exception must belong to a combination of tax regime, configuration owner, and tax. You can also assign tax exceptions to a tax status or tax rate belonging to the tax or to a tax jurisdiction.

You can define Oracle Fusion Inventory organization tax exceptions for items, or you can define tax exceptions for Inventory-based product fiscal classifications or noninventory-based product categories. If you are using Inventory-based product fiscal classifications then generally, the application classifies the transaction line based on the item. If you are using noninventory-based product category fiscal classifications, you enter the appropriate product category on all applicable lines to influence the tax result.

Product categories and product fiscal classifications are defined in a hierarchical structure. It is important that you select the appropriate level where the tax exception is applicable. For product fiscal classifications to be used in item exceptions, you must indicate that it is used in item exceptions at the tax regime association to the product fiscal classification. You can set up only one product fiscal classification for any specific tax regime with the Used in Item Exceptions option selected.

When you set up configuration options for first-party legal entities and business units, you can set a separate configuration option for the owning and sharing of product tax exceptions for a combination of party and tax regime.

The Allow tax exceptions option is set at the tax regime level and you can override it at the tax and tax status levels. However, the setup you define for the tax rate is what is evaluated during tax rate determination.

At transaction time, the tax exception is used if the details of the transaction and the tax match all of the entities assigned to the tax exception. Only one tax exception can apply to a transaction line for a specific tax.

Note: Tax exemptions are specific to the order-to-cash event class while tax exceptions are applicable across event classes.

How Tax Exceptions Are Calculated

The tax determination process determines tax applicability, tax status, and the tax rate for the transaction line. If tax exceptions are allowed, the application looks at the item entered on the transaction line to determine if an exception is defined at the tax, tax status, tax rate, tax jurisdiction, Inventory organization, or Inventory level and uses the exception at the most specific level.

If the application doesn't find any tax exception for the item, it looks for a product fiscal classification associated with the transaction line. If one exists, the application determines if an exception is defined at the tax, tax status, tax rate, tax jurisdiction, and product fiscal classification level and uses the exception at the most specific level with the highest precedence.

The tax rate is then based on the exception type and calculated as follows:

  • Discount: A reduction of the base tax rate. For example, if the discount is 15% off the standard rate and the standard rate is 10%, then the discount rate is 85% of the original 10%, or 8.5%.

  • Surcharge: An increase to the base tax rate. For example, if the surcharge is 10% and the standard rate is 10%, then the surcharge rate is 110% of the original 10%, or 11%.

  • Special Rate: A rate that replaces the base tax rate. For example, if the special rate is 5% and the standard rate is 10%, the tax rate is the special rate of 5%.

Finally, the new tax rate is applied to the taxable basis and the tax amount is calculated.

For manual tax lines, no additional processing is performed and exceptions aren't considered. A manual tax lines suggests that you have specific business requirements for a particular transaction to apply a manual tax. No additional processing is performed for manual tax lines to avoid any applying conflicting or inconsistent values to the user-entered tax line. The tax calculation on a manual tax line is the standard formula of: tax amount is equal to the taxable basis multiplied by the tax rate.

Manage Party Tax Profiles

A tax profile is the body of information that relates to a party's transaction tax activities. A tax profile can include main and default information, tax registration, tax exemptions, party fiscal classifications, tax reporting codes, configuration options, and service subscriptions.

Set up tax profiles for the following parties involved in your transactions:

  • First parties

  • Third parties

  • Tax authorities

First Parties

Set up tax profiles for your first-party legal entities, legal reporting units, and business units.

First-party legal entities identify your organization to the relevant legal authorities, for example, a national or international headquarters. Legal entities let you model your external relationships to legal authorities more accurately. The relationships between first-party legal entities and the relevant tax authorities normally control the setup of the transaction taxes required by your business. In most circumstances, the tax setup is used and maintained based on the configuration of the legal entity. Enter the default information, party fiscal classifications, tax reporting codes, and configuration options for your legal entities. You can also specify if you're using the tax services of an external service provider for tax calculation.

First-party legal reporting units identify each office, service center, warehouse, and any other location within the organization with a tax requirement. A legal reporting unit tax profile is automatically created for the headquarter legal entity. Set up additional legal reporting unit tax profiles for those needed for tax purposes. For legal reporting units, enter the default information, tax registrations, party fiscal classifications, and tax reporting codes. Also, define tax reporting details for your VAT and global tax reporting needs for tax registrations of tax regimes that allow this setup.

Business units organize your company data according to your internal accounting, financial monitoring, and reporting requirements. To help you manage the tax needs of your business units, you can use the business unit tax profile in either of two ways:

  • Indicate that business unit tax setup is used and maintained based on the configuration of the associated legal entity at transaction time. The tax setup of the associated legal entity setup is either specific to the legal entity or shared across legal entities using the Global Configuration Owner setup.

  • Indicate that tax setup is used and maintained by a specific business unit. Create configuration options for the business unit to indicate that the subscribed tax content is used for the transactions created for the business unit.

For business units that maintain their own setup, enter the default information, tax reporting codes, configuration options, and service providers as required.

Third Parties

Set up third-party tax profiles for parties with the usage of customer, supplier, and their sites. Enter the default information, tax registrations, party fiscal classifications, and reporting codes required for your third parties or third-party sites. You can set up tax exemptions for your customers and customer sites.

Banks are also considered third parties. When a bank is created, the tax registration number specified on the bank record is added to the party tax profile record in Oracle Fusion Tax. You can't modify the party tax profile for a bank as it's view only. You can only modify the bank record.

Note: You don't need to set up party tax profiles for third parties. Taxes are still calculated on transactions for third parties that don't have tax profiles.

Tax Authorities

Set up a tax authority party tax profile using the Legal Authorities setup task. The tax authority party tax profile identifies a tax authority party as a collecting authority or a reporting authority or both. A collecting tax authority manages the administration of tax remittances. A reporting tax authority receives and processes all company transaction tax reports.

The collecting and reporting tax authorities appear in the corresponding list of values on all applicable Oracle Fusion Tax pages. All tax authorities are available in the list of values as an issuing tax authority.

Set up first-party tax profiles for all legal entities, legal reporting units, and business units in your organization that have a transaction tax requirements. How you set up your first parties can impact the tax calculation on your transactions.

The first-party tax profile consists of:

  • Defaults and controls: Applicable to legal entities and legal reporting units. Business units that use their own tax setup don't have defaults and controls.

  • Tax registrations: Applicable to legal reporting units.

  • Party fiscal classifications: Applicable to legal entities and legal reporting units.

  • Tax reporting codes: Applicable to legal entities, legal reporting units, and business units who don't use the tax setup of the legal entity.

  • Configuration options: Applicable to legal entities and business units who don't use the tax setup of the legal entity.

  • Service subscriptions: Applicable to legal entities and business units who don't use the tax setup of the legal entity.

Defaults and Controls

The following table describes the defaults and controls available at the first-party tax profile level:

Option Description

Set as self-assessment (reverse charge)

Automatically self-assess taxes on purchases.

Rounding Level

Perform rounding operations on the:

  • Header: Applies rounding to calculated tax amounts once for each tax rate per invoice.

  • Line: Applies rounding to the calculated tax amount on each invoice line.

Rounding Rule

The rule that defines how the rounding must be performed on a value involved in a taxable transaction. For example, up to the next highest value, down to the next lowest value, or nearest.

Note: If you defined a rounding precedence hierarchy in the configuration owner tax option settings for the combination of configuration owner and event class, Oracle Fusion Tax considers the rounding details in the applicable tax profile.

Set Invoice Values as Tax Inclusive

This first party intends to send or receive invoices with invoice line amount inclusive of the tax amount.

Note: This option overrides the tax inclusive handling setting at the tax level, but not at the tax rate level.

Tax Registrations

Set up a separate tax registration to represent each distinct registration requirement for a first-party legal reporting unit. Oracle Fusion Tax uses tax registrations in tax determination and tax reporting. If your first party has more than one tax registration in the same tax regime, then the application considers the tax registration in the order: tax jurisdiction; tax; tax regime.

You must enable the Use tax reporting configuration option on the first-party tax regime to allow entry of global tax reporting configuration details during tax registration setup for legal reporting units for these tax regimes.

Party Fiscal Classifications

If applicable, associate first-party fiscal classification codes with this party. The party fiscal classification codes you enter become part of tax determination for invoices associated with this party. Specify start and end dates to control when these fiscal classifications are applicable for this party and transaction.

For legal entities, you can view the associated legal classifications that were assigned to the tax regime defined for this first party. The legal classifications are used in the tax determination process, similar to the party fiscal classifications.

Tax Reporting Codes

Set up tax reporting types to capture additional tax information on transactions for your tax reports for your first parties. Depending on the tax reporting type code, you either enter or select a tax reporting code for this party. Specify start and end dates to control when these tax reporting codes are applicable.

Configuration Options

The legal entities and business units in your organization are each subject to specific sets of tax regulations as designated by the tax authorities where you do business. Use configuration options to associate legal entities and business units with their applicable tax regimes. You can set up tax configuration options when you create a tax regime or when you create a party tax profile. Both setup flows display and maintain the same party and tax regime definitions.

Service Subscriptions

You can use a service subscription to reference a specific transaction tax offering or offerings provided by an external tax partner. The transaction tax offering provided by an external tax partner can be related to content, calculation services, or both. Oracle Fusion Tax supports the use of transaction tax offerings provided by external tax partners for transaction tax calculation processing. Depending on the specific depth and scope of an individual tax partner's offerings, you can use either Oracle Fusion Tax or a Partner Tax Application to perform the transaction tax calculation.

Set up third-party tax profiles for your customers and customer sites and suppliers and supplier sites. How you set up your third parties can impact the tax calculation on your transactions.

The third-party tax profile consists of:

Banks are also considered third parties. When a bank is created, the tax registration number specified on the bank record is added to the party tax profile record in Oracle Fusion Tax. You can't modify the party tax profile for a bank as it's view only. You can only modify the bank record.

Defaults and Controls

The following table describes the defaults and controls available at the third-party tax profile level:

Option Description

Allow tax applicability

Automatically calculate taxes for this party whenever the party acts as a supplier. You can set this option, for example, for customers that also act as suppliers on transactions.

Allow offset taxes

Calculate and record third-party Payables tax liabilities for reverse charges, self-assessments, and Consumer's Use tax (US).

You must also perform the related tasks for setting up offset taxes for the taxes involved in transactions for this third party or third-party site. This includes enabling the Set as offset tax option at the tax level and selecting the offset tax basis in the configuration owner tax options.

Rounding Level

Perform rounding operations on the:

  • Header: Applies rounding to calculated tax amounts once for each tax rate per invoice.

  • Line: Applies rounding to the calculated tax amount on each invoice line.

Rounding Rule

The rule that defines how the rounding must be performed on a value involved in a taxable transaction. For example, up to the next highest value, down to the next lowest value, or nearest.

Note: If you defined a rounding precedence hierarchy in the configuration owner tax option settings for the combination of configuration owner and event class, Oracle Fusion Tax considers the rounding details in the applicable tax profile.

Set Invoice Values as Tax Inclusive

This third party or third-party site intends to send or receive invoices with invoice line amount inclusive of the tax amount.

Note: This option overrides the tax inclusive handling setting at the tax level, but not at the tax rate level.

Country, Registration Number, and Tax Registration Type

Set defaults for all tax reporting for tax registrations of this third party or third-party site. You must complete the tax registration setup.

Tax Registrations

Optionally, set up tax registrations for your customers and suppliers, as necessary, to support specific tax regulations or reporting requirements. You must set up a separate tax registration to represent each distinct registration requirement for a first party. Oracle Fusion Tax uses tax registrations in tax determination and tax reporting.

Tax Exemptions

Set up tax exemptions for your third-party customers and customer sites. To set up tax exemptions for a third party, you must complete the appropriate tax exemption setup for the tax regimes and taxes concerned. You can have more than one tax exemption for the same customer and tax regime combination. For example, one tax exemption applies to a specific tax, while other tax exemptions apply to specific products for specific tax rates and tax jurisdictions. Then, at transaction time, Oracle Fusion Tax applies the most specific tax exemption to the transaction.

Party Fiscal Classifications

If applicable, associate third-party fiscal classification codes with this party. The party fiscal classification codes you enter become part of tax determination for invoices associated with this party. Specify start and end dates to control when these fiscal classifications are applicable for this party and transaction.

Tax Reporting Codes

Set up tax reporting types to capture additional tax information on transactions for your tax reports for your third parties. Depending on the tax reporting type code, you either enter or select a tax reporting code for this party. Specify start and end dates to control when these tax reporting codes are applicable.

FAQs for Manage Party Tax Profiles

A business unit party tax profile is autocreated when you create a business unit record.

A back-end process can also create a business unit. Here's what you do to create a tax profile for this business unit:

  • Save a tax regime to which the business unit subscribes.

  • Save the configuration owner tax options that are defined for the business unit.

You can create one manually on the Create Business Unit Tax Profile page. You can also edit an autogenerated tax profile with the relevant tax information.

What happens if I use a subscription from a legal entity?

If you subscribe to a legal entity, your business unit uses the legal entity's tax setup at transaction time. To do this, select Use legal entity tax subscription on the Create Business Unit Tax Profile page. Keep in mind that selecting this option prevents you from:

  • Updating the business unit tax profile.

  • Maintaining separate tax content for the business unit.

However, if you don't subscribe to this, you can enter the relevant tax information for your business unit.

Note: You can't reverse this setting.

A legal entity party tax profile is autocreated when you create a legal entity record.

You can also use other methods to create a legal entity party tax profile. For example, it's created when a back-end process creates a legal entity, but only when you do these:

  • Save a tax regime to which the legal tax entity subscribes.

  • Save the configuration owner tax option that's defined for the legal entity.

You can also create one manually. Just use the Create Legal Entity Tax Profile page. You can also edit the autogenerated tax profile with relevant tax information.

When you create a legal reporting unit, the application creates its party tax profile for you. You can also do it one of these ways:

  • Use the Create Legal Reporting Unit Tax Profile page.

  • Update the automatically created tax profile with relevant tax information.

If you create a third party (customer or supplier) with tax configuration, a third-party tax profile is autogenerated. You can go ahead and edit this autogenerated tax profile with relevant tax information. You can also create one using the Create Third-Party Tax Profile or Create Third-Party Site Tax Profile pages.

Manage Tax Registrations

A tax registration contains information related to a party's transaction tax obligation with a tax authority for a tax jurisdiction where it conducts business. In some cases, a single location may need to file multiple registrations. Set up tax registrations for your first-party legal reporting units and your third-party customers and customer sites, and suppliers and supplier sites.

Registering the details of a business with the relevant tax authorities is a key legal requirement in many countries. A unique tax registration number is generally assigned to the parties registering with the tax authorities. It is used as a basis for referencing and tracking the tax implications on that party. To enable this process, the registration numbers of the parties involved in a transaction are generally referred to in tax documents like invoices and tax returns. In some cases, the tax determination and its administration is also dependent on the nature of the registration of the parties involved in a transaction. For example, the requirements associated with intra-European Union (EU) reverse charge.

Setting Up a Tax Registration

You must set up a separate tax registration to represent each distinct registration requirement for a first party. You optionally set up tax registrations for your third parties, as necessary, to support specific tax regulations or reporting requirements.

You can define tax registrations at three different levels of detail. At the:

  • Tax regime level: The tax registration is used for all taxes and tax jurisdictions within the tax regime.

  • Tax level: The tax registration is used for all tax jurisdictions where the tax regime and tax are applicable.

  • Tax jurisdiction level: The tax registration is applicable for the locations covered under the tax jurisdictions defined for the tax regime, tax, and tax jurisdiction.

For each tax that you create, you must define either a default tax registration or a tax rule for the rule type Determine Tax Registration. If a party has more than one tax registration for the same tax regime, then the tax determination process considers the tax registrations in the order: tax jurisdiction; tax; and tax regime.

For some countries, the application performs a validation of the registration number you enter per the country algorithm.

You can define tax registrations as implicit. For example, the party isn't formally registered with the tax authority, but the party is considered to meet one or more requirements for reporting taxes because of the level of business conducted, typically a minimum presence in the country and a minimum revenue threshold. Also, you can define the tax registration with a status of not registered if the party isn't registered for the applicable tax, but you want to use it as a tax condition to process the tax rules. Similarly, you can use user-defined values and statuses, such as registered in EU but not UK, to facilitate certain tax conditions. Apart from the core tax registration information, you define additional details to facilitate tax processing. The invoice control attributes such as self-assessment and tax inclusiveness play a key role in tax processing. At transaction time, the values set at the tax registration level override the values set at the party tax profile level.

Using Tax Registrations in the Tax Determination Process

The Determine Tax Registration process determines the party whose tax registration is used for each tax on the transaction, and, if available, derives the tax registration number. Once the process identifies the tax registration or registrations, it stamps the transaction with the tax registration numbers.

You can use the registration status to define various tax rules. For example, if the tax is applicable only if the supplier is registered, define the tax applicability rule as follows:

  • Determining factor class = Registration

  • Tax class qualifier = Ship-from party

  • Determining factor name = Registration Status

  • Operator = Not equal to

  • Value = Registered

  • Result = Not applicable

On the detail tax lines, the tax determination process stamps two registration numbers. One is for the headquarters, the main legal reporting unit of the legal entity of the document. The other is for the party or party site identified by the tax registration rule. For example, if the registration rule has identified ship to as a party, then the tax determination process stamps the registration number of the ship-to party on the transaction.

The tax determination process also considers these details of the derived tax registration for each tax:

  • Tax inclusive handling: The inclusive option set at the tax registration level for the party identified by the tax registration rule overrides the inclusive option set at the tax or party tax profile level for the tax line.

  • Self-assessment (reverse charge) setting: The tax determination process considers the tax line as self-assessed if the Set as self-assessment (reverse charge) option is selected at the tax registration level for the party identified by the tax registration rule.

  • Rounding rule: The rounding rule set at the tax registration level for the party identified by the tax registration rule overrides the rounding rule set at the tax or party tax profile level for the tax line.

You must set up a separate tax registration to represent each distinct registration requirement for a first party. Optionally, set up tax registrations for your customers and suppliers, as necessary, to support specific tax regulations or reporting requirements. Oracle Fusion Tax uses tax registrations in tax determination and tax reporting.

Tax Registration Options

Setting options at the tax registration level can override options set at different levels. The following table describes selective options available and the impact of selecting these options:

Option Description Impact

Tax Regime

Enter the tax regime for this registration. Optionally, enter the tax and tax jurisdiction for this registration.

The tax regime and optionally, tax and tax jurisdiction are used to determine the correct tax registration at transaction and reporting time.

Registration Type

Select a classification of the tax registration, if applicable.

The predefined tax registration types are specified by the tax authority. The tax registration types are for reporting purposes only.

Registration Number

Enter the company tax registration number assigned by the tax authority.

If you set the tax regime option to use the legal registration number as the tax registration number, then select the registration number from the legal registration numbers in the list of values.

If you set the Allow duplicate tax registration numbers option for the tax, then multiple parties and party sites can use the same tax registration number for this tax.

Where applicable, Oracle Fusion Tax validates the number according to tax authority validation rules.

Registration Status

Enter the party's tax registration status. Oracle Fusion Tax provides these predefined registration statuses:

  • Agent: The party acts as a withholding agent for the tax authority for the applicable tax.

  • Registered: The party is registered for the applicable tax.

  • Not registered: The party isn't registered for the applicable tax.

Use the tax registration status as a determining factor in tax rules.

Source

Identify if this party is:

  • Explicit: The party is registered with the local tax authority and has a tax registration number. In this case, you know that the party is registered and the details including the tax registration number.

  • Implicit: The party isn't formally registered with the tax authority, but the party is considered to meet one or more requirements for reporting taxes because of the level of business conducted. In this case, you determine that the party is registered but you don't know the tax registration number.

If the source is Explicit the tax registration number is required. If the source is Implicit the tax registration number isn't required.

Rounding Rule

The rule that defines how the rounding must be performed on a value involved in a taxable transaction. For example, up to the next highest value, down to the next lowest value, or nearest.

At transaction time, the values set at the tax registration level override the values set at the party tax profile level.

Set as self-assessment (reverse charge)

Set to automatically self-assess taxes on procure-to-pay transactions. A self-assessed tax is a tax calculated and remitted for a transaction, where tax wasn't levied by the supplier but is deemed as due and therefore, must be paid by the purchaser.

You can set the self-assessment option at the tax profile level to default to the tax registrations that you create for this party. You can also set it at the tax registration level or on an individual tax line.

Oracle Fusion Tax applies self-assessment to Payable invoices received by the first party according to the tax registration setting. The specific tax registration record is derived either from the Determine Tax Registration rules or from the default tax registration.

Set Invoice Values as Tax Inclusive

Select if this party intends to send or receive invoices with invoice line amount inclusive of the tax amount.

At transaction time, the values set at the tax registration level override the values set at the party tax profile level. In addition, this option at the tax registration level overrides the tax inclusive handling setting at the tax level, but not at the tax rate level.

Collecting Tax Authority and Reporting Tax Authority

Enter the name of the tax authorities for:

  • Collecting Tax Authority: The tax authority responsible for managing the administration of tax remittances.

  • Reporting Tax Authority: The tax authority responsible for receiving and processing all company transaction tax reports.

If defined, the reporting and collecting tax authorities appear as defaults from the tax jurisdiction associated with this registration. If necessary, enter or update these fields with tax authorities specific to this tax registration.

Manage Tax Reporting Configuration

The global tax report processing feature provides a reporting solution for all countries to manage their tax reporting requirements. For some countries in Europe, Middle East, and Africa (EMEA) , Oracle Fusion Financials for EMEA provides predefined reports, such as the Italian VAT registers and the Spanish VAT journals. For other countries, use the tax data models to create your required reports.

Use the global tax report processing feature to organize tax report data according to the requirements of your company and the tax authority. The EMEA reports use the Oracle Fusion tax data models to retrieve tax transaction information based on your tax configuration setup.

Global tax reporting:

  • Addresses your tax reporting requirements

  • Processes your tax reports

Addressing Your Tax Reporting Requirements

You can streamline your tax reporting with Oracle Fusion Financials for EMEA.

Use the global tax report processing feature to meet the following business needs of your EMEA countries:

  • Report tax, such as VAT, based on the tax registration number associated with the legal reporting unit.

  • Report tax, such as VAT, based on tax periods with tax calendars that are the same as or different from the accounting calendars.

  • Select transactions for reporting based on a user-defined tax reporting date.

  • Generate preliminary versions of tax reports in open tax periods to verify and correct data before finalizing the reports.

  • Close the tax period by running the final reports to prevent updating or double reporting of transactions to the tax authorities.

  • Provide separate sequential document numbering control for tax transactions using the tax registers.

  • Report correction transactions to previously closed tax periods and issued tax declarations as newly entered transactions in the open tax period.

  • Mark each transaction reported to the authorities with information identifying the submission period end date.

  • Retain tax transaction history without affecting the performance of the current tax reporting purposes.

Processing Your Tax Reports

The global tax report processing feature involves several broad user procedures.

Financial administrators and personnel must complete the following:

  • Set up prerequisite information for tax reporting. For example, set up the tax reporting codes for the EMEA VAT tax reporting type, and associate the tax reporting type and tax reporting codes to the tax setup.

  • Set up tax configuration details such as tax reporting entity and tax register.

  • Enter report processing details for a transaction such as tax reporting date.

  • Run the Select Transactions for Tax Reporting process to select all the accounted and unaccounted transactions to report within a tax period. You can run tax reports, general and country-specific, for unaccounted, accounted, and both unaccounted and accounted transactions. This helps you to run trial reports and make any corrections before submitting the final report to tax authorities. The selection is based on the tax registration number and tax reporting date, if you have completed the tax setup in Oracle Fusion Tax.

    Note: You must set up the tax reporting configuration before running the Select Transactions for Tax Reporting process.
  • Run the preliminary versions of the tax reports.

  • Run the Finalize Transactions for Tax Reporting process.

  • Run the final or reprint versions of the tax reports.

To process value-added tax (VAT) reports, set up tax reporting entities for the tax registration number associated with a legal reporting unit and tax regime. When you run the selection process, each selected transaction is stamped with the tax reporting entity ID. You run VAT reports based on the tax reporting entity.

Note: Ensure that you define tax registrations for all legal reporting units with applicable VAT tax requirement.

You can configure your VAT reporting process by specifying the tax calendar for a tax reporting entity, threshold amounts, and VAT registers. The setup includes:

  • Common Configuration: Associate the calendar defined for tax reporting to the combination of tax registration number, tax regime, and legal reporting unit. Select the tax registration numbers that you defined in Oracle Fusion Tax against legal reporting units and VAT tax regimes.

  • Tax Registers: Record register information and associate it with a tax reporting entity to determine document sequences. Assign one or more document sequence names for each VAT register. The Italian VAT register reports use the VAT register information.

Common Configuration for VAT Reporting

Common configuration for VAT reporting helps you configure attributes common for all tax reporting entities like tax calendar, reporting threshold amount, and reporting sequence. The tax calendar makes use of accounting period types and calendars. The tax calendar is maintained independent of the accounting calendar to control tax periods for reporting transactions based on a tax point date.

Apply a single tax calendar to one, more than one, or all tax reporting entities within your organization. Set up a unified tax reporting period across a legal entity or single legal reporting unit to correctly apply transactions against their tax reporting dates. This helps to decide whether the transaction:

  • Should be declared in the next tax return for the current open period as regular entries.

  • Should be entered in the next tax return as corrections.

The following table describes the common configuration options for VAT reporting:

Name Description

Tax Calendar

Select the calendar to be associated to the tax reporting entity.

Threshold Amount

Enter the threshold amount specified for the legal entity or tax regime with tax transactions. If you leave this field blank, the application reports all tax transactions.

Some countries like Spain report transactions or make declarations to the authorities if the amount exceeds a certain threshold value.

Enable Reporting Sequence

Select to enable report level sequence number while running the reports. For numbering transactions, print the document sequence number for the transaction or the report-specific sequence number.

Tax Registers for VAT Reporting

Define tax registers for a tax reporting entity, and assign a document sequence name to a combination of tax register and tax reporting entity. The application then selects transactions to report on a tax register based on the document sequence name assignment. Use this setup for Italy only.

This example demonstrates how you set up the appropriate tax registers for your organization in Italy to meet your tax reporting requirements.

Create a tax reporting entity for every unique combination of tax calendar, tax regime, and tax registration number.

Prerequisites

Here are a few tasks you must perform before setting up VAT reporting:

  1. Set up legal entities and legal reporting units using the Legal Entity Configurator to represent your company and its offices. For example, set up Vision Italy as a legal entity.

  2. Set up and maintain first-party tax profiles and tax registrations for your company's legal reporting units according to the tax regime. You can do this using Oracle Tax.

  3. Set up the tax regimes for the taxes in each country and geographic region where you do business, and where a separate tax applies. For example, set up IT VAT as a tax regime for Italy. Enable the Use tax reporting configuration option on the first-party tax regime. This lets you enter tax reporting configuration details during tax registration setup for legal reporting units for these tax regimes.

  4. Set up the tax and tax rates in Oracle Tax. You must define the tax with the reporting code enabled. EMEA lookup tax reporting codes, such as VAT and Exempt, are available as predefined tax reporting codes under the EMEA VAT Reporting Type.

  5. Define tax reporting periods as accounting periods in Oracle General Ledger. For example, set up Accounting as an accounting period. The final reporting process maintains the tax reporting periods. If you use the same calendar for accounting and tax reporting, the application still maintains accounting periods independently from tax periods.

  6. Specify document sequencing for tax transactions to use different transaction sequencing than reporting sequencing. Define document categories in General Ledger, Payables, and Receivables. Define document sequence names in General Ledger and assign them to document categories. For example, set up IT AX Payables as a document sequence name.

Setting Up VAT Reporting
  1. On the Manage Tax Registrations page, select Legal Reporting Unit Tax Profiles in the Search For field.

  2. Enter Vision Italy in the Legal Entity field and click Search.

  3. From the Search Results section, select Vision Italy.

  4. On the Tax Registrations tab, select Vision Italy and then click Create.

  5. On the Create Legal Reporting Unit Tax Registration page, enter these values:

    Field Value

    Tax Regime Code

    IT VAT

    Registration Number

    123456789

  6. Click the Tax Reporting Configuration tab.

  7. In the Common Configuration tab, enter these values:

    Field Value

    Tax Calendar

    Accounting

    Enable tax registers

    Select

    Enable reporting sequence

    Select

  8. Click the Tax Registers tab and click Create to add a row in the table.

  9. Enter these values in the new row:

    Field Value

    Register Type

    Purchase VAT

    Name

    Purchase VAT

    Start Date

    Current date

    End Date

    Blank

    Predefined tax register types are provided for Italy. These include Deferred VAT, Purchase VAT, Sales (self invoice and EU VAT), and Sales VAT.

  10. Click Create in the Document Sequence table to add a new row.

  11. Select IT AX Payables in the Document Sequence Name field.

  12. Click Save and Close.

Manage Tax Exemptions

A tax exemption is a full or partial exclusion from taxes or a surcharge, based on certain criteria given by the tax legislation. Many countries allow tax exemptions when certain parties deal with certain categories of goods and services. For example, most states and localities imposing sales and use taxes in the United States provide tax exemptions to resellers on goods held for sale and ultimately sold. States and localities also provide tax exemptions on goods used directly in the production of other goods, such as raw materials.

Tax exemptions:

  • Reflect a specific tax rate levy.

  • Are taken as a percentage reduction or an increase to the generally applied tax rate.

  • Can also be a specific tax rate in place of the generally applied tax rate on a Receivables transaction.

  • Are registered against a customer or customer site for a business relationship with a legal entity or a business unit. Since tax exemptions are applicable to specific legal entities or business units, you don't use the global configuration owner option.

  • Are used for specific products or available for all transactions for a legal entity or business unit.

Define tax exemptions for the combination of customer and customer site and items for a period of time. Use rate modifiers, such as discount or surcharge percentage or special rate percentage to map the preferential or special tax rate applicability.

The tax exemption status influences the applicability of the tax exemption on transactions. The possible values are: Primary, Manual, Rejected, Unapproved, and Discontinued. The tax exemptions with the status of Primary are applicable to all transactions. The tax determination process considers Manual or Unapproved statuses only when the certificate number and the exempt reason on the transaction match with the registered tax exemption values. The Discontinued or Rejected statuses aren't considered for tax exemption processing.

The tax handling option on a Receivable transaction also influences the tax exemption processing. If you use the tax handling option of:

Standard: The tax determination process considers only tax exemptions with a status of Primary

Exempt: The tax determination process considers all Primary, Manual, and Unapproved tax exemptions with reference to the certificate number and exempt reason given on the transaction.

Exempt- manual: The tax determination process creates a new tax exemption along with the given certificate number and exempt reason, with 100% discount and with a status of Unapproved if the matching condition doesn't result in filtering any existing tax exemptions.

A tax exemption applies to a specific customer or to a combination of customer and specific product. For example, in the United States, the Federal Government acting as a customer is exempt from tax on direct sales. Many states provide exemptions on sales of necessities such as food and clothing.

To set up tax exemptions for a third party, you must complete the appropriate tax exemption setup for the tax regimes and taxes concerned. Create a separate record for each tax exemption that applies to the third-party customer or customer site. The tax determination process applies the tax exemption to the transaction line based on the tax exemption setup and tax handling specified on the transaction line.

Tax Exemption Setup

Before you can create a tax exemption record, you must enable the tax exemption options at the appropriate levels:

  • Set the Tax Exemption Override Control profile option. It controls the display of tax handling on the transaction line to apply and update customer tax exemptions to transactions.

  • Set the Allow tax exemptions option at the levels that correspond to the tax exemption. For example, if the tax exemption refers to the tax status of a particular tax, then you must set this option at the tax regime, tax, and tax status levels.

  • Set the Allow exemptions option in the configuration owner tax option for each event class for which calculation based on tax exemption is to be enabled. For the exemptions party basis select whether the bill-to party tax exemption records are to be considered or the sold-to party tax exemption records. In some cases the sold-to party could be different from the bill-to party.

Tax Exemption Record

A tax exemption record identifies the nature of the tax exemption, the configuration owner, and tax regime, and, where applicable, the related tax, tax status, tax rate, and tax jurisdictions to which the tax exemption belongs.

During the life of a tax exemption, the tax exemption status can often change. The possible statuses are: Primary, Manual, Unapproved, Discontinued, and Rejected. Because the status of the 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 the tax exemption:

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

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

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

You also specify the method of calculating the tax exemption percentage on the tax exemption record:

  • The Discount or surcharge type decreases or increases the original rate by the percentage you enter.

    If the discount is 15% off the standard rate and the standard rate is 10%, enter 85 as the tax exemption percentage. This defines a discount rate that is 85% of the original 10%, or 8.5%.

    If the surcharge is 10%, enter 110 as the tax exemption percentage. This defines a surcharge rate that is 110% of the original 10%, or 11%.

  • The Special rate type replaces the original rate with the percentage you enter.

    Enter the special rate percentage that replaces the standard rate. If the original rate is 10%, and the special rate is 5%, enter 5 as the tax exemption percentage.

Tax Exemption Applied to the Transaction Line

You use the Tax Handling field on the transaction line to select the applicable tax exemption value. Tax exemptions are processed in different ways depending upon the value you select:

  • Require: The customer is required to pay the tax. Tax exemptions do not apply to the transaction line, even if defined.

  • Exempt: Enter the tax exemption certificate number and the customer tax exemption reason. Tax exemptions are processed in this way:

    1. Consider tax exemptions with a status of Primary, Manual, or Unapproved.

    2. Verify that the transaction date is within the tax exemption effective date range.

    3. Verify that the transaction tax exemption reason and tax exemption certificate number match the tax exemption reason and certificate number. If you do not enter a certificate number, the tax determination process still looks for a matching tax exemption.

    4. If the tax determination process doesn't find a tax exemption matching these conditions, it creates a tax exemption with the status Unapproved and 100% discount.

  • Standard: This tax handling is for exemptions of the Primary status only. You do not have to enter the tax exemption certificate number or customer tax exemption reason.

    The tax determination process looks for a tax exemption with the Primary status and an effective date range that includes the transaction date. If more than one tax exemption applies, the most specific tax exemption is used, in this order:

    1. Customer and product tax exemption for tax rate and tax jurisdiction.

    2. Customer and product tax exemption for tax rate.

    3. Customer and product tax exemption for tax status and tax jurisdiction.

    4. Customer and product tax exemption for tax status.

    5. Customer and product tax exemption for tax.

    6. Customer only tax exemption for tax rate and tax jurisdiction.

    7. Customer only tax exemption for tax rate.

    8. Customer only tax exemption for tax status and tax jurisdiction.

    9. Customer only tax exemption for tax status.

    10. Customer only tax exemption for tax.

  • Exempt, manual: You manually enter a certificate number and exemption reason. The application process creates a tax exemption with a status of Unapproved and a 100% discount is applied.

Note: The application first checks the customer site party tax profile for the exemption records. If there is no exemption record defined within the site, then it checks the customer party tax profile.

After applying tax exemption to a transaction line, the tax determination process calculates the tax rate using the tax exemption type. The tax exemption type is defined in the tax exemption record. The sequence of the tax rate value determination is:

  1. Determine the basic tax rate through the Determine Tax Rate rule type or by the default specified for the tax.

  2. Apply exception which is based on the product.

  3. Apply tax exemption which is based on the party (customer) and its relationship with the transacting organization (legal entity or business unit). Optionally, it can be based on a specific product.

For example, the tax rate determined is 6%, the special rate for a tax exception is 5%, and the tax exemption defined is a 2% discount. The tax exemption discount is applicable to the tax rate after the tax exception. Therefore, the 5% tax rate is modified by a 2% discount (5% * (100%-2%) = 4.9%). If the tax exemption defined is of the rate type of Special rate then the special rate is substituted and the applicable tax exception has no impact.

For manual tax lines, no additional processing is performed and tax exemptions are not considered. A manual tax line suggests that you have specific business requirements for a particular transaction to apply a manual tax. No additional processing is performed for manual tax lines to avoid any applying conflicting or inconsistent values to the user-entered tax line. The tax calculation on a manual tax line is the standard formula of tax amount is equal to the taxable basis multiplied by the tax rate.

The following scenarios illustrate how the exemption rate type and exemption percentage apply to the tax rate.

Applying a Discount

Your company receives a discount of 20% because it sells educational materials. You set the Exemption Rate Type option as Discount or surcharge and enter 20 in the Exemption Percentage field. For example, the tax rate for your transaction is 10%, but the application applies 8% due to the 20% discount (10% - (10% * 20%)).

Applying a Surcharge

Your company is required to apply a surcharge to the tax rate of 10% to a specific item it sells to a customer. For this customer and item, you set the Exemption Rate Type option as Discount or surcharge and enter 110 in the Exemption Percentage field. For example, the tax rate for your transaction is 10%, but the application applies 11% due to the 10% surcharge (10% + (10% * 10%)).

Applying a Special Rate

Your company is required to apply a special tax rate of 5% for a specific customer. For this customer, you set the Exemption Rate Type option as Special rate and enter 5 in the Exemption Percentage field. For example, the tax rate for your transaction is 10%, but the application applies 5% due to the 5% special rate (it replaces the tax rate).

FAQs for Tax Exemptions

What's the difference between using tax exemptions and tax rules to modify the taxable nature of a transaction?

You can use either use tax rules or tax exemptions to modify the taxable nature of a transaction.

Tax rules, such as the Determine Tax Applicability rule, exclude certain categories of transactions from taxation. Such transactions don't appear on many tax reports as they don't have any tax lines.

To report on a transaction, set up a tax exemption on the party tax profile of the customer. This results in the creation of a tax line with modified tax rate. You can use tax exemptions for specific customers who have certificates of exemption. This happens typically in tax regimes for US Sales and Use Tax.

You can create an exempt tax rate with a zero percentage rate to apply exemptions and generate a tax line.

Note:
  • Reports referring to an item as exempt may exclude items with zero percentage rate as the exempt indicator there is blank.

  • If you define an exempt tax rate with a zero tax rate, the transaction shows as fully taxable on all reports. Don't add exemption details if you want reports to show the full line amount as taxable.

Manage Transaction-Based Fiscal Classifications

Many tax regimes define rules for specific transactions or information related to the transaction. To support these requirements, Oracle Fusion Tax provides features to allow the transaction process to be classified. These classifications provide a conceptual model to classify the type of transactions and documents related to the transaction. Set up your transaction process classifications in the Manage Transaction-Based Fiscal Classifications task.

The following process classifications for tax purposes can be used within Oracle Fusion Tax and are summarized in the following table:

Process Classification Description

Transaction business category

Use this classification to classify a transaction line to define the type of transaction.

Transaction fiscal classification

Use this classification to group transaction business categories to minimize tax rules setup and maintenance.

Document fiscal classification

Use this classification to relate documents to a transaction that affect the tax applicability or determination of transaction taxes on the transaction.

User-defined fiscal classification

Use this classification to classify transaction lines where none of other classification is appropriate.

Tip: If possible, use other fiscal classifications that are automatically derived at transaction time in preference to the process classification which requires manual intervention at transaction time.

Use these classifications as determining factors within tax rules in the tax determination process, although you can also use them for tax reporting.

Use transaction business categories to classify transaction lines to determine and report tax.

Transaction business categories provide a hierarchy of up to five levels. The first level is predefined with standard events that are supported by Oracle Fusion Tax. The predefined levels are:

  • EXPENSE_REPORT

  • INTERCOMPANY_TRANSACTION

  • PAYMENT_REQUEST

  • PURCHASE_PREPAYMENTTRANSACTION

  • PURCHASE_TRANSACTION

  • SALES_TRANSACTION

  • SALES_TXN_ADJUSTMENT

Use the transaction business category functionality to add additional levels and transaction business categories to these levels.

Note: You can't add additional level one transaction business categories. You can only add additional transaction business categories that are children, or lower levels, of the predefined level one records.

When defining additional transaction business categories, use the Country field to specify the taxation countries where the transaction business category is used. During transaction time, the taxation country is used to restrict the list of transaction business categories available on the transaction line to those that have been set up with the same country or where the country is blank.

When setting up transaction business categories, leave the Country field blank or use the country name as defined on any parent level of the record that's being added.

Use the Associated Transaction Fiscal Classifications region to link a specific transaction business category to the transaction fiscal classification. You can use this association to allow different transaction business categories to be linked to the same transaction fiscal classification. This helps set up tax rules using a specific transaction fiscal classification instead of creating multiple tax rules for different transaction business categories.

Tip: While setting up the transaction business categories, use different levels so that you can define all of the necessary tax rules at the highest level possible. This helps minimize the needed number of tax rules.

Transaction Business Categories in Tax Rules

The transaction business category tax determination factors allow you to use the transaction business category in tax rules. A combination of determination factor class, class qualifier, and determining factor represent these determination factors.

Use the transaction generic classification as the determining factor class, the level of the transaction business category being used, level 1, level 2, level 3, level 4, or level 5 as the class qualifier, and transaction business category as the determining factor.

When a country name is specified on the condition set, the application selects only those transaction business categories that match the country name or where the country name is blank on the transaction business category.

Transaction Business Categories at Transaction Time

During transaction time, enter the transaction business category on the transaction line to classify the transaction line for tax determining and reporting purposes.

The transaction business category is stored in the tax reporting ledger and is available for reporting.

Transaction business categories classify transaction lines for tax determination and reporting.

The following scenario illustrates how transaction business categories can be used 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.

To create these transaction business categories:

  1. Select the SALES_TRANSACTION record on the Manage Transaction Business Codes page.

  2. Click Create Child Node. The Create Fiscal Classification Code page appears.

  3. Enter the values as shown in the table. By default, the start date is the start date of the sales transaction parent record, that is, 1-Jan-1951.

  4. Specify the latest of:

    1. Earliest applicable transaction to be used in the implementation.

    2. Start date of the applicable Brazilian tax.

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

Use the document fiscal classification in situations where the tax determination and reporting processes need the documentation associated with the transaction. Unlike other process classifications, document classifications are associated with the header of the transaction and therefore, apply to all the transaction lines on a transaction.

Document fiscal classifications provide a hierarchy of up to five levels. When defining the document fiscal classification codes, use the Country field to specify the taxation countries where the document fiscal classification is used.

During transaction time, the taxation country restricts the list of document fiscal classification on the transaction line to those that are set up with the same country or where the country is blank. When setting up the document fiscal classification, leave the Country field blank or use the same country that's defined on any parent level of the record that you're adding.

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

Document Fiscal Classifications in Tax Rules

The document fiscal classification tax determination factors allow you to use the document fiscal classification in tax rules. A combination of the determination factor class, class qualifier, and determining factor represents these determination factors.

Use document as the determining factor class, the level of the transaction business category being used, level 1, level 2, level 3, level 4, or level 5 as the class qualifier, and the document fiscal classification as the determining factor.

The value you enter against the condition set is the document fiscal classification code or name set up for the specific level defined in the class qualifier, as well as for the same country or where the country is blank on the document fiscal classification.

Document Fiscal Classifications at Transaction Time

During transaction time, enter the document fiscal classification on the transaction to classify the transaction for tax determining and reporting purposes.

The document fiscal classification is stored in the tax reporting ledger and is available for reporting.

The document fiscal classifications classify transactions for tax determination and reporting. Use this classification when the tax determination and reporting processes need the documentation associated with the transaction.

The following scenario illustrates how Intra-EU supplies are controlled through zero-rating of transactions. A zero-rating is given to a transaction only when the export documentation related to the transaction is received.

Scenario

When the export documentation isn't received in time, the customer is invoiced with the VAT that is applicable in the country of the supplier. The transaction is not zero-rated, which is the normal case for Intra-EU business-to-business supplies.

To model this scenario, create a document fiscal classification and attach it to a transaction only when you receive the documentation. If the document fiscal classification isn't attached to a transaction, the Intra-EU goods business-to-business supply rules aren't triggered and the applicable VAT is charged.

When the documentation is received after the invoice is generated, the invoice that is sent is credited and a new invoice is produced.

Create the following document fiscal classification:

Level Fiscal Classification Code Fiscal Classification Name Country Start Date

1

INTRA-EU DOCUMENTS

Sales Transaction

-

The earliest transaction date or start date of tax.

2

INTRA-EU EXPORT DOCUMENTATION

Intra-EU Export Documentation Received.

-

The earliest transaction date or start date of tax.

The tax rule that defines the conditions under which the Intra-EU supply of business-to-business goods are zero-rated includes a determining factor as shown in the following table:

Determining Factor Class Class Qualifier Determining Factor Operator Value

Document

Level 2

Document Fiscal Classification

Equal to

INTRA-EU EXPORT DOCUMENTATION

Tip: Specify the country name while creating transaction business categories. This ensures that a limited applicable list is presented while entering the document 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.

Use user-defined fiscal classifications when you need additional classifications to determine and report tax on transaction. Enter user-defined classifications on a transaction line at the time of transaction.

Note: You can define only one level of user-defined fiscal classification codes.

Use the Country field to specify the applicable taxation country, or leave it blank to use the user-defined fiscal classification across multiple countries. At transaction time, the transaction line will only display the user-defined fiscal classifications with the same taxation country, or where the country is blank.

User-Defined Fiscal Classifications in Tax Rules

The user-defined fiscal classification tax determination factors allow you to use user-defined fiscal classification in tax rules. A combination of determination factor class and determining factor represent these determination factors.

Use the transaction input factor as the determining factor class and user-defined fiscal classification as the determining factor.

The value entered against the condition set is the specific user-defined fiscal classification code or name and the same country or where the country on the user-defined fiscal classification is blank.

User-Defined Fiscal Classifications at Transaction Time

During transaction time, enter the user-defined fiscal classification on the transaction line to classify the transaction for tax determination and reporting purposes.

The user-defined fiscal classification is stored in the tax reporting ledger and is available for reporting.

Use the user-defined fiscal classifications when you need additional or more appropriate classifications to classify transactions for tax determination and reporting.

This scenario illustrates how you can use user-defined fiscal classification to identify if a customer is a foreign diplomat and therefore, exempt from value-added tax (VAT).

Scenario

To model this scenario, create a user-defined fiscal classification that is added to a transaction line only when the customer is a foreign diplomat and VAT is exempted.

In practice, it's likely that most businesses monitor such transactions and therefore, specifically create a zero (0%) rate within the exempt tax status to allow monitoring of such situations. By reporting this specific 0% rate, all applicable transaction can be identified.

Create the following user-defined fiscal classification:

Fiscal Classification Code Fiscal Classification Name Country Start Date

FOREIGN DIPLOMAT EXEMPTION

Foreign Diplomat Exemption

United Kingdom

The earliest transaction date or start date of tax.

Set up the following determining factor for the tax rule that defines the condition where the sales transaction is zero percent (0%) rated using the special exempt rate, tax status, and tax rate rule:

Determining Factor Class Class Qualifier Determining Factor Operator Value

Transaction Input Factor

-

User-Defined Fiscal Classification

Equal to

FOREIGN DIPLOMAT EXEMPTION

The tax rule, to apply a zero tax rate to a transaction, is applicable only when the user-defined fiscal classification is associated with the transaction line.

Tip: Specify the country name while creating the user-defined fiscal classification. This ensures that only a limited applicable list is presented during transaction or tax rule creation.

Manage Party Classifications

Party classification defines the different types of party. Use party classifications to define party types for tax determination and tax reporting purposes.

Oracle Fusion Tax uses two types of tax party classifications:

Both are used to classify parties to provide determining factors or building blocks on which tax rules are defined. They're also used to classify parties for reporting.

Party Fiscal Classifications

Use party classifications to classify your customers, suppliers, first-party legal entities, and first-party legal reporting units for tax determination and tax reporting.

Define the party classification categories and associated classification codes within the Oracle Fusion Trading Community Model party classification setup. Create the party fiscal classifications, and associate the specific Trading Community Model party classification category to these party fiscal classifications, one for each level of the specific Trading Community Model party classification category. Associate tax regimes to these party classifications to ensure that these relationships are only visible and usable where needed. Oracle Fusion Tax uses this relationship to indicate which Trading Community Model party classification categories are used for tax purposes. By reusing the Trading Community Model party classification category functionality, Oracle Fusion Tax can leverage and use the common classification setup for tax purposes where applicable.

Within the party fiscal classifications functionality, define the Trading Community Model classification level to use within Oracle Fusion Tax. For example, if you have a three level Trading Community Model party fiscal classification category, define three levels, giving each a specific party fiscal classification code and name. By naming each level, you can use the specific level as a determining factor when defining tax rules. Use the same party fiscal classification flow to define the tax regimes with which the party fiscal classifications are associated.

Note: You can only amend the number of levels by increasing the number of levels. It is not possible to decrease the number of levels once the record has been stored.

Once you have defined your Trading Community Model party classification and associated it with a party fiscal classification and tax regime, you can use it to classify your parties and party sites. These parties and party sites are:

  • Customers

  • Customer sites

  • Suppliers

  • Supplier sites

  • Legal entities

  • Legal reporting units

In the case of supplier and customer parties and party sites, you can associate the specific party classification codes used for tax purposes using either:

  • Party tax profile flows within Customer Maintenance and Supplier Maintenance.

  • Dedicated flows in Oracle Fusion Tax.

Legal Party Classifications

Legal party classifications are similar to party fiscal classifications. Both use the Trading Community Model party classification setup and allow you to classify the party to determine and report tax. However, the legal party classifications are predefined and are available when you implement the application.

The following legal classification codes are predefined:

Legal Party Type Code Legal Party Type Name

LEGAL_ACTIVITY_CODE_CL

Legal activity code for Chile

LEGAL_ACTIVITY_CODE_PE

Legal activity code for Peru

LEGAL_ACTIVITY_CODE_VE

Legal activity code for Venezuela

LEGAL_ACTIVITY_CODE_CO

Legal activity code for Columbia

2003 SIC

Legal activity code for United Kingdom

Use legal party classifications to classify first-party legal entities within the Legal Entity setup functionality. Use these classifications as determining factors within tax rules. The legal party classification and specific legal parties are associated within the Legal Entity Maintenance flow.

No specific setup is required as the legal party classifications are predefined, and can be directly used in tax rule setup.

Party fiscal classification tax determination factors allow you to use party fiscal classifications in tax rules. A combination of determination factor class, class qualifier, and determining factor represent these determination factors. In the tax rules setup, define the actual party to determine the relevant party fiscal classification by using a generic definition for class qualifier. You can also use party fiscal classifications for tax reporting.

Party Fiscal Classifications in Tax Rules

Depending on the transaction type, the following generic class qualifiers are defined as class qualifiers when using the party fiscal classification as a tax determining factor:

  • Supplier bill-from party

  • Bill-to party

  • Ship-to party

  • Ship-from party

  • Point-of-acceptance party

  • Point-of-origin party

Oracle Fusion Tax translates the generic parties into specific transaction parties as defined 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

Tip: Always use the highest applicable level to define the party classification. For example, define the party fiscal classification at the customer or supplier level instead of defining the same classification on all the party sites for the customer and suppliers.
Tip: Party fiscal classifications are automatically derived during transaction time. Hence, you can use them as determining factors instead of process-based determining factors, which require manual entry for every transaction.

Party Fiscal Classifications in Tax Reporting

Use party classifications to classify parties for tax reporting purposes if specific party classifications need reporting. However, using tax reporting codes instead of party fiscal classifications offers a more flexible and less intrusive mechanism to support reporting without creating complexity in setup and maintenance.

The following example illustrates using party fiscal classifications in tax rules. It's based on the following scenario:

  • A company Widget Inc., UK Ltd. produces widgets that are used by military forces who are part of the North Atlantic Treaty Organization (NATO).

  • The widgets are sold to the Belgium Troops stationed in the UK under a joint NATO exercise.

  • The supply of widgets by Widget Inc., UK Ltd. is within the terms and conditions of supplies to NATO forces which allow a supplier to zero rate supplies to visiting NATO forces. See Visiting Forces - HMRC Reference: Notice 431 (November 2003).

    This dispensation is given when deliveries are made to:

    • NATO visiting forces in the UK, specifically those from: Belgium, Canada, Czech Republic, Denmark, France, Germany, Greece, Hungary, Iceland, Italy, Luxembourg, Netherlands, Norway, Poland, Portugal, Spain, Turkey, and United States of America.

    • The NATO International Military Headquarters at Northwood and High Wycombe.

    • The American Battle Monuments Commission in respect of supplies of goods and services for the maintenance of the US military cemeteries at Brookwood and Madingley.

Creating Party Classifications and Tax Rules

To model this requirement, the company site representing the Belgium troops is associated with:

  • GB Special Tax Parties

  • A special party classification type and NATO Troops

  • A party fiscal classification code

To do this:

  1. Create an Oracle Fusion Trading Community Model party classification of GB Special Tax Parties with a level one code of Zero Rated Parties.

  2. Create a level 2 code for this level 1 code of NATO.

  3. Create party fiscal classifications of GB Special Tax Parties Level 1 and GB Special Tax Parties Level 2, which are linked to the Trading Community Model party classification.

  4. Associate the party fiscal classifications with the GB VAT tax regime using a start date of the earliest transaction date of supplies to this or similar customer sites.

  5. Associate the company site that represents the Belgium troops working at the joint NATO exercise to the GB Special Tax Parties Level 2 party fiscal classification using code of NATO.

  6. Create the determining factor set and condition set that uses this classification code Zero Rated Parties of the level 1 party fiscal classification type. You don't need any specific Determine Tax Rate tax rule as you can set up the zero tax rate as the default tax rate for this tax status.

  7. Create a Determine Tax Status tax rule linked to a zero tax status by using the determining factor and condition set created in the previous step.

At transaction time, the tax determination process considers this tax status rule and derives a zero tax status when the customer ship-to party is associated with the level 1 party fiscal classification of GB Special Tax Parties Level 1 and code of Zero Rated Parties.

Tip: Use the levels in the Trading Community Model party classification categories model and the party fiscal classification setup to group party classification categories together.
Tip: Define tax rules at the highest level possible thus minimizing the number of tax rules needed. In this example, the tax rule uses the level 1 party fiscal classification to determine the zero tax status.

FAQs for Party Classifications

Every legal classification is associated with a legal entity. This legal entity gives it a legal status in a country and also guides the tax determination process. Fiscal classifications tell you when taxes apply to a party, how much tax applies, and what percentage of the tax is recoverable. Trading Community Model defines both legal and fiscal classifications.

In some countries, legal classifications are defined by:

  • Business activity type

  • Business activity code

  • Business activity description

You can use legal classifications for fiscal classification purposes. This makes legal classification just another party fiscal classification for tax purposes.

Manage Product-Based Fiscal Classifications

Many tax regimes define rules for specific products or types of products. This is done to stimulate or enhance trade in specific products or ensure that certain products or product types are excluded from taxes. To support these requirements, Oracle Fusion Tax provides features to allow items to be classified. They make extensive use of the Oracle Fusion Inventory catalog functionality. If you don't implement Inventory, you can use product category fiscal classifications as an alternative classification in Oracle Fusion Tax. Set up your product classifications using the Manage Product-Based Fiscal Classifications task.

For example, value-added tax (VAT) in the UK exempts children clothing and normal foods from Great Britain's (GB) VAT. It's also common that tax authorities vary the tax status of product types depending on how they're planned to be used. For example, a company purchases products that are subject to VAT. The use of these items isn't related to the company's sale of taxable supplies. Therefore, the company can't recover any VAT or can only partially recover VAT on those purchases.

There has also been a recent trend to introduce antifraud tax legislation for specific products so that they can be treated in a different way to prevent fraud. For example, the GB Missing Trader Intra Community antifraud legislation specifies that certain types of business-to-business domestic supplies of certain high value electronic products, such as mobile phones, computer equipment and accessories are reversed charged. For more information about GB Missing Trader Intra Community legislation, see Her Majesty's Revenue and Customs (HMRC) - Business Brief 10/06.

The following product classifications for tax purposes can be used within Oracle Fusion Tax and are summarized in the following table:

Product Classification Description

Product fiscal classification types and codes

Use this classification to group items for tax determination and reporting purposes. This functionality uses the Oracle Fusion Inventory catalog and item functionality and therefore, you can only use it when this functionality is installed.

Product category fiscal classification codes

Use this classification where Inventory is not installed. It helps classify transaction lines for tax determination and reporting purposes.

Intended use fiscal classifications

Use this functionality for tax determination and reporting purposes. Use this classification where transaction lines need to be classified based on the intended use of the product defined on that item.

Tip: When available, use the product fiscal classifications in preference to product categories. This is because the application automatically derives product fiscal classifications at transaction time based on the items defined on the transaction line and their relationship to the applicable catalog classification.

You can use product category fiscal classifications in conjunction with product fiscal classifications. This combination enables you to define two different determining factors at transaction time.

Use product fiscal classifications to classify items for tax determination and reporting. Define a product group to use in tax product exemptions.

Define product fiscal classifications by associating them with an Oracle Fusion Inventory catalog, which in turn is used to group items using the standard Inventory functionality.

Set up the following options in the Inventory catalog:

  • Don't select the Enable hierarchies for categories option.

  • Select Items at leaf level in the Catalog Content field.

  • Select the Allow multiple item category assignments option.

  • Select the Enable automatic assignment of categories option.

  • Select None in the Source Catalog field.

  • Don't select a value in the Sharing Control field.

During transaction time, when the association with the catalog exists, the application automatically derives the default product fiscal classification code based on the items used on the transaction line. When no item is defined on the transaction line, you can manually enter the product fiscal classification on the transaction line during transaction time. Even the default product fiscal classification code is derived during the transaction time, it can be overridden if necessary. The overridden product fiscal classification code is used in the tax determination process.

While creating the product fiscal classification, use the number of levels to define the number of hierarchical levels to link the items to. Also, specify the number of the level of classification that is to be used in the tax rule setup. When creating the levels within the product fiscal classification, define the start position and number of characters for each level. During transaction time, this ensures that all items with the same values in the start position and the same number of characters are grouped into the same classification.

For example, set up the following code structure using the Inventory catalog for the country, Luxemburg:

Code Name

LUG01

Goods

LUG0100

Normal Rated Goods

LUG0101

Zero Rated Goods

LUG0102

Exempt Goods

LUG0103

Reduced Rate Goods

LUG0103-01

Reduced Rate 1 Goods

LUG0103-02

Reduced Rate 2 Goods

LUG0103-03

Reduced Rate 3 Goods

LUS01

Services

LUS0100

Normal Rated Services

LUS0101

Zero Rated Services

LUS0102

Exempt Services

LUS0103

Reduced Rate Services

LUS0103-01

Reduced Rate 1 Services

LUS0103-02

Reduced Rate 2 Services

LUS0103-03

Reduced Rate 3 Services

The previous code structure is represented by three levels:

Level Type Code Type Name Start Position Number of Characters

1

LU Goods or Services

Luxemburg Goods or Service Level

1

5

2

LU Type of Goods or Services

Luxemburg Type of Goods or Service Level

1

7

3

LU Type of Reduced Rate

Luxemburg Type of Reduced Rate Goods or Service

1

10

Use the level two codes to link the items that need to be classified using Inventory catalog.

Use the product fiscal classification pages to define the tax regimes for which specific product fiscal classification are to be used. Also, define if the product fiscal classification is available to be used in the setup of tax product exceptions. To set up tax product exceptions, enable the Use in Item Exceptions option. You can only set up one product fiscal classification for a specific tax regime with the Use in Item Exceptions option enabled.

Adjust the number of levels by increasing the number of levels. It is not possible to decrease the number of levels once the record is stored. In addition, you need to attach tax regimes to every level that is used in the tax rules.

Tip: While setting up the product fiscal classification, use different levels so that all of the necessary tax rules can be defined at the highest level possible. This minimizes the needed number of tax rules.

In the previous example, the tax rule can use the level 1 product fiscal classification to differentiate between goods and services.

Product Fiscal Classifications in Tax Rules

The product fiscal classification tax determination factors allow you to use product fiscal classification in tax rules. A combination of determination factor class and determining factor represents these determination factors.

Use Product inventory linked as the determining factor class and the product fiscal classification type code or name as the determining factor. When creating the tax rule, the value is the name or description associated with the relevant level.

Product Fiscal Classifications at Transaction Time

When an item is defined on the transaction line, the application automatically derives the default product fiscal classification on the transaction line using the Inventory catalog. The primary Inventory category set is defined in the country defaults of the taxation country. You can override this default during transaction time. The overridden default is used in the tax determination process.

The product fiscal classification is stored in the tax reporting ledger and is available for reporting.

Many tax regimes use product classification to control tax applicability as well as the tax rate to be applied. In value-added tax (VAT) regimes, the type of product being purchased can drive recoverability.

This scenario illustrates how tax is determined and reported for newspapers, books, and periodicals in Luxemburg.

Scenario

In Luxemburg, transactions involving newspapers, books, and periodicals are invoiced with VAT at a reduced rating (currently 3%).

To determine tax:

  1. Configure the Oracle Inventory catalog functionality.

  2. Create a catalog specifically for Luxemburg VAT with the name LU VAT PRODUCT CLASSIFICATION. To create the catalog, create class categories including Reduced Rate 1 Goods.

    This catalog is used for other classifications such as Reduced Rate, Exempt Rate, and Standard Rate. Link all of the items that are rated as Reduced Rate 1 Goods in Luxemburg to this class category. In this case, link any relevant newspapers, books, and periodicals to this class category.

    Introduce a coding structure. An example is shown in the following table:

    Code Name

    LUG01

    Goods

    LUG0100

    Normal Rated Goods

    LUG0101

    Zero Rated Goods

    LUG0102

    Exempt Goods

    LUG0103

    Reduced Rate Goods

    LUG0103-01

    Reduced Rate 1 Goods

    LUG0103-02

    Reduced Rate 2 Goods

    LUG0103-03

    Reduced Rate 3 Goods

    LUS01

    Services

    LUS0100

    Normal Rated Services

    LUS0101

    Zero Rated Services

    LUS0102

    Exempt Services

    LUS0103

    Reduced Rate Services

    LUS0103-01

    Reduced Rate 1 Services

    LUS0103-02

    Reduced Rate 2 Services

    LUS0103-03

    Reduced Rate 3 Services

    Tip: While using the product fiscal classification, classify the nonstandard items of your business as standard items. You can model this as a default tax rule that 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 rules are applicable and the default rate applies.
    Tip: Don't add the explicit percentage to the naming or coding convention used for product fiscal classifications. When the rate changes, you change the rate period on the specific rate and you don't have to change classification or associated tax rules.
  3. Create a product fiscal classification and link it with the catalog using the code LU VAT PRODUCT FISCAL CLASSIFICATION. In this scenario, only a single level is needed, although other levels may be needed to model nonstandard services or subclassifications of product types for reporting purposes. The following table represents this multiple level requirement:

    Level Type Code Type Name Start Position Number of Characters

    1

    LU Goods or Services

    Luxemburg Goods or Service Level

    1

    5

    2

    LU Type of Goods or Services

    Luxemburg Type of Goods or Service Level

    1

    7

    3

    LU Type of Reduced Rate

    Luxemburg Type of Reduced Rate Goods or Service

    1

    10

  4. Create or amend the Luxemburg country default record and set the primary inventory category set to LU VAT PRODUCT FISCAL CLASSIFICATION.

  5. Create the determining factor set and condition set which refer to the product fiscal classification.

    Use Product inventory linked as the determining factor class, the level to be defined in the rule as the class qualifier, and the specific LU product fiscal classification level as the determining factor as shown in the following table:

    Determining Factor Class Class Qualifier Determining Factor Name

    Product inventory linked

    -

    LU Type of Reduced Rate

  6. Create the condition set that refers to the product category fiscal classification as shown in the following table:

    Determining Factor Class Class Qualifier Determining Factor Name Value

    Product inventory linked

    -

    LU Type of Reduced Rate

    Reduced Rate 1 Goods

  7. Create the tax status rule based on the determining factor set and condition set with zero tax rate status as the result as shown in the following table:

    Determining Factor Class Class Qualifier Determining Factor Name Value Result

    Product inventory linked

    -

    LU Type of Reduced Rate

    Reduced Rate 1 Goods

    LU Reduced Rate 1 Status

Use product category fiscal classifications to classify items for tax determination and reporting purposes. Use product category fiscal classifications when Oracle Fusion Inventory isn't available. However, you can use product category fiscal classifications together with product fiscal classifications when Inventory is installed.

Product category fiscal classifications use the classification functionality within Oracle Fusion Tax setup to directly define the classification to use. This functionality allows a hierarchy of up to five levels and uses the standard hierarchical features. It also lets you associate the classification codes with specific countries.

Note: Leave the country blank on the classification codes if that code is applicable to multiple countries.

Product Category Fiscal Classifications in Tax Rules

The product category fiscal classification tax determination factors allow you to use product category fiscal classification in the tax rules. A combination of determination factor class, class qualifier, and determining factor represents these determination factors.

Use Product noninventory linked as the determining factor class, the level to be defined in the tax rule as the class qualifier, and product category as the determining factor.

For each of the fiscal classification codes created, you can associate a tax reporting code, which is associated with the fiscal classification code. This enables you to report on any transaction line that uses the product category fiscal classification code to which the reporting codes is associated. You can associate multiple reporting codes with a single product category fiscal classification code, which allows modeling multiple reporting requirements.

Tip: Use reporting codes related to the key elements of the transaction in preference to reporting against the key elements. This indirect reporting allows grouping of results when the same reporting code is associated with multiple product category fiscal classification codes. It also helps in minimizing ongoing maintenance.

Product Category Fiscal Classifications at Transaction Time

The product category fiscal classification has a single default that's set up in the relevant country defaults and appears as the default on the transaction lines. However, during transaction time, you can enter any applicable alternative product category fiscal classification code on the transaction line.

This product category is stored in the tax reporting ledger, and is available for reporting.

Many tax regimes use product classification to control tax applicability as well as the rate to be applied.

This scenario illustrates how tax is determined and reported for newspapers, books, and periodicals in Luxemburg without configuring Oracle Fusion Inventory.

Scenario

In Luxemburg, transactions involving newspapers, books, and periodicals are invoiced with VAT at a reduced rating, currently 3 percent.

To model this specific requirement, use the product category fiscal classification and follow these steps:

  1. Configure product category fiscal classification based on the following table:

    Level Code Name Country Start Date

    1

    LUG01

    Goods

    Luxemburg

    1-Jan-1970

    2

    LUG0100

    Normal Rated Goods

    Luxemburg

    1-Jan-1970

    2

    LUG0101

    Zero Rated Goods

    Luxemburg

    1-Jan-1970

    2

    LUG0102

    Exempt Goods

    Luxemburg

    1-Jan-1970

    2

    LUG0103

    Reduced Rate Goods

    Luxemburg

    1-Jan-1970

    3

    LUG0103-01

    Reduced Rate 1 Goods

    Luxemburg

    1-Jan-1970

    3

    LUG0103-02

    Reduced Rate 2 Goods

    Luxemburg

    1-Jan-1970

    3

    LUG0103-03

    Reduced Rate 3 Goods

    Luxemburg

    1-Jan-1970

    1

    LUS01

    Services

    Luxemburg

    1-Jan-1970

    2

    LUS0100

    Normal Rated Services

    Luxemburg

    1-Jan-1970

    2

    LUS0101

    Zero Rated Services

    Luxemburg

    1-Jan-1970

    2

    LUS0102

    Exempt Services

    Luxemburg

    1-Jan-1970

    2

    LUS0103

    Reduced Rate Services

    Luxemburg

    1-Jan-1970

    3

    LUS0103-01

    Reduced Rate 1 Services

    Luxemburg

    1-Jan-1970

    3

    LUS0103-02

    Reduced Rate 2 Services

    Luxemburg

    1-Jan-1970

    3

    LUS0103-03

    Reduced Rate 3 Services

    Luxemburg

    1-Jan-1970

    Tip: While using the product category fiscal classification, only classify the nonstandard items of your business. Handle standard items by using default tax rules. Thus, for a standard item, none of the explicit tax rules are applicable and the default rate applies.

    The standard items are included in the table only for completeness. Modeling these standard items using default tax rules may be sufficient.

    Tip: Don't add the explicit percentage to the naming or coding convention used for product category fiscal classification. When the rate changes, you change the rate period on the specific rate and you don't have to change classifications or associated tax rules.
  2. Create the determining factor set which refers to this product category fiscal classification.

    Use Product noninventory linked as the determining factor class, the level to be defined in the rule as the class qualifier, and the product category as the determining factor as shown in the following table:

    Determining Factor Class Class Qualifier Determining Factor Name

    Product noninventory linked

    Level 3

    Product Category

  3. Create the condition set that refers to this product category fiscal classification as shown in the following table:

    Determining Factor Class Class Qualifier Determining Factor Name Value

    Product noninventory linked

    Level 3

    Product Category

    Reduced Rate 1 Goods

  4. Create the tax status rule based on the determining factor set and condition set with zero tax rate status as the result as shown in the following table:

    Determining Factor Class Class Qualifier Determining Factor Name Value Result

    Product noninventory linked

    Level 3

    Product Category

    Reduced Rate 1 Goods

    LU Reduced Rate 1 Status

Use intended use fiscal classifications to classify items for tax determination and reporting.

Intended use fiscal classifications can be defined in two ways. When you use the intended use fiscal classification interface for the first time, you can choose how the classification is defined.

  • Link it to an Oracle Fusion Inventory catalog, which in turn can be used to group items. Items can be grouped using the standard Inventory functionality. To do this, select the Inventory Based option.

  • Use the hierarchical classification functionality in Oracle Fusion Tax. To do this, select Noninventory based in the Intended Use Classification field.

During transaction time, the application derives the default intended use fiscal classification. Override the default value if necessary. The overridden intended use fiscal classification code is used to determine tax.

Inventory-Based Intended Use Fiscal Classifications

Use inventory-based intended use fiscal classifications to define a classification that uses the Inventory catalog functionality.

During transaction time, when an item is used on the transaction line, the application looks for a default intended use fiscal classification and uses that on the transaction line. At transaction time you can override the default intended use fiscal classification. The overridden value is used for tax determination and reporting. However, unlike product fiscal classification, you define only one level for the intended use fiscal classification.

Set up the following options in the Inventory catalog:

  • Do not select the Enable hierarchies for categories option.

  • Select Items at leaf level in the Catalog Content field.

  • Select the Allow multiple item category assignments option.

  • Select the Enable automatic assignment of categories option.

  • Select None in the Source Catalog field.

  • Do not select a value in the Sharing Control field.

Tip: Care should be taken when defining intended use fiscal classifications based on catalogs as the application may automatically create a default. This default isn't easily visible on the transaction user interface and therefore, you may not be aware that a default has been derived and that you may need to change it.

Noninventory-Based Intended Use Fiscal Classifications

Use noninventory-based intended use fiscal classifications to define classifications that use the functionality within Oracle Fusion Tax. It let you define single level classification codes.

Optionally, link each classification code to a country code. This country code is used to restrict the list of noninventory-based intended use fiscal classifications when you enter them in tax rules and during transaction time.

By matching this country code to the tax regime country the list of noninventory-based intended use fiscal classification codes is restricted. Similarly, the taxation country is used to restrict the list of intended use fiscal classification codes displayed at transaction time. In both cases, the list contains the fiscal classification codes with the matching country or where the country field is blank.

Note: If the code is applicable to multiple countries, leave the country field blank.

Intended Use Fiscal Classifications in Tax Rules

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

Use the Transaction input factor as the determining factor class and Intended use as the determining factor.

Inventory-Based Intended Use Fiscal Classifications at Transaction Time

During transaction time, when an item is defined on the transaction line, the application automatically derives the default intended use fiscal classification. Override this default intended use fiscal classification at the time of transaction, if necessary.

The intended use fiscal classification is stored in the tax reporting ledger and is available for reporting.

In value-added tax (VAT) regimes, the usage of the purchased product drives most recoverability.

This scenario illustrates how you can model the usage of the purchased product using intended use fiscal classifications. Consider that the Oracle Fusion Inventory functionality is available and therefore, use it to define the intended use fiscal classification codes.

Scenario

In the United Kingdom the VAT received from purchase of goods associated with VAT exempt sales can't be recovered that is, the recovery rate is zero percent (0%).

To calculate recoverability:

  1. Configure Oracle Fusion Inventory catalog.

  2. Create a catalog with a name of INTENDED USE for the intended use fiscal classification.

  3. Create class categories such as, Linked to Exempt Sales. You can use the catalog for other classifications like business entertainment and company cars. Link all items that are associated with exempt sales to the class category as follows:

    Code Name

    EXEMPT SALES

    Linked to Exempt Sales

    BUS ENTERTAINMENT

    Business Entertainment

    COMPANY CARS

    Company Cars

    Tip: While using the intended use fiscal classification, classify the nonstandard items of your business as standard items. You can model this as a default tax rule which 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 rules are applicable and the default rate applies.
  4. Create an Inventory-based intended use fiscal classification and link it to the catalog using the code INTENDED USE.

  5. Create the determining factor set and condition set that refer to the intended use fiscal classification.

  6. Create a tax recovery rule based on the determining factor set and the condition set with zero recovery rate as the result.

Manage Tax Rules

Taxes are levied on transactions as per the legislations in a country or region. They are seldom uniformly applied on all transactions and tax legislation may seek differential levy, treatment, and administration of taxes based on various transaction attributes. Configure Oracle Fusion Tax to evaluate transactions based on transaction attributes. The transaction attributes determine which taxes apply to a transaction and how to calculate tax amount for each tax that applies to the transaction.

The tax determination process evaluates transaction header and line information to derive tax lines for taxes applicable to the transactions. The evaluation process is subdivided into the following processes:

  • Determine Applicable Tax Regimes and Candidate Taxes

  • Determine Place of Supply and Tax Jurisdiction

  • Determine Tax Applicability

  • Determine Tax Registration

  • Determine Tax Status

  • Determine Tax Rate

  • Determine Taxable Basis

  • Determine Tax Calculation

  • Determine Tax Recovery

The tax determination process utilizes the tax foundation configuration in conjunction with configuration options and tax rules to process transactions for tax applicability and calculation. Tax configuration ranges from simple models to complex models. Simple models make use of default values without extensive processing while complex models consider each tax requirement related to a transaction before making the final calculation.

When setting up a tax, examine the regulations that govern the determination of the tax amount, from identifying applicability drivers to how the tax is calculated. Organize the regulations into one or more rule types for each tax. When the regulations indicate that more than one result is possible for a given rule type, you need to define rules within that rule type. Otherwise you can defer to a default value for that rule type associated to the tax.

The complexity of setup can be classified as follows:

  • No tax rules required: Oracle Fusion Tax uses the default tax status, tax rate, and tax recovery rate defined for the tax. Tax rules aren't required. However, tax rates can vary by:

    • Class of products set up using tax exceptions

    • Location set up using tax jurisdictions

    • Party set up using exemption definitions

    In addition, applicability can still be controlled without the use of tax rules such as through the party tax profile that you define for a supplier.

  • Simple tax rule regimes: The tax authority levies tax on your transactions at the same rate, with a simple set of identifiable exceptions. The exceptions either apply to:

    • One part of the transaction only, such as to certain parties

    • Combination of parties, products, and transaction processes that you can summarize in a simple way.

    In such cases, use a simple set of tax rules, for example, to identify place of supply and tax registration, and use default values for other processes.

  • Complex tax regimes: Tax regimes in certain countries require a complex logic to determine the applicable taxes and rates on a transaction. Both tax applicability and tax rates can vary. For example, by place of origin and place of destination, party registration, status, service, or a combination of factors. In some cases, the taxable amount of one tax may depend upon the amount of another tax on the same transaction. And in rare cases, the tax amount itself may depend on the tax amount of another tax. For all of these and similar situations, you set up tax rules to define the logic necessary to identify each step of the tax determination process.

Tax Determination Process Steps

The tax determination process evaluates transaction header and line information to derive tax lines for taxes applicable to the transactions. The first step of the determination process is to identify the first party of the transaction. The tax determination process looks to the business unit on the transaction. The process identifies whether its pointing to the configuration owner of the business unit or legal entity depending on the Use subscription of the legal entity option. The option is on the party tax profile definition of the business unit. The tax determination process determines if there are configuration owner tax options associated with this party or if the predefined event class option should be used.

The Determine Applicable Tax Regimes process can be the predefined TAXREGIME, STCC (standard tax classification code), or another user-defined regime determination set. TAXREGIME or user-defined regime determination sets derive the applicable tax regimes or tax regime through country or zone of the location. The country or zone of the location is identified in the processing of the regime determination determining factor set location values. STCC determination is typically used for purposes of migrated data and has a different processing logic driven by tax classification code. A third option of determination is third-party integration.

Determine Applicable Tax Regimes and Candidate Taxes

Tax regimes are considered based on geography and subscription. Either a country or zone associated with the tax regime definition must be the same as the country or zone identified through the location that evaluates to true on the regime determination set of the first party of the transaction. In addition, the tax regime must have a subscription to the applicable configuration owner. Once the tax determination process identifies the tax regimes the list of candidate taxes can be evaluated based on the configuration option setting of the first party in the tax regime subscription definition:

  • Common Configuration: Consider all taxes with the configuration owner of global configuration owner.

  • Party Specific Configuration: Consider all taxes with the first party as configuration owner.

  • Common Configuration with Party Overrides: Consider all taxes with the first party and the global configuration owner as configuration owner. If a tax is defined by both the first party and the global configuration owner, the application only uses the tax defined by the first party.

  • Parent First-Party Configuration with Party Overrides: Consider all taxes with the first party and the parent first party as configuration owner. If a tax is defined by the first party and the parent first party, the application only uses the tax defined by the first party.

Determine Tax Applicability and Place of Supply and Tax Jurisdiction

This process determines the tax applicability of each candidate tax based on direct rate determination, place of supply, tax applicability, and tax jurisdiction. The first step in tax applicability is to process any direct rate rules defined for a tax regime, configuration owner, and candidate taxes. If a direct rate rule evaluates to true then place of supply is processed for this transaction tax. If successful the tax is applicable and the tax status and tax rate defined for the direct rate rule are used in the tax calculation. If a direct rate rule doesn't evaluate to true for this tax regime, configuration owner, and tax the tax applicability rules are processed next. After a tax is found applicable based on an applicability rule or a default value the process verifies the place of supply and associated tax jurisdiction. This is required except in the cases of migrated taxes.

The place of supply process identifies the applicable location type and associated tax jurisdiction where the supply of goods or services is deemed to have taken place for a specific tax. If the tax determination process can't find a tax jurisdiction for the location that corresponds to the place of supply location type, the tax doesn't apply. It is removed as a candidate tax for the transaction.

For example, the place of supply for UK value-added tax (VAT) on goods is generally the ship-from country. Thus, the place of supply of a sale or purchase within the UK is the UK itself. However, if a UK legal entity supplies goods from its French warehouse to a German customer, then the place of supply won't find a jurisdiction for UK VAT in France, and therefore UK VAT doesn't apply.

Determine Tax Registration

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

Determine Tax Status

This process determines the tax status of each applicable tax on the transaction. If the process can't find a tax status for an applicable tax, then Tax raises an error.

Determine Tax Rate

This process determines the tax rate code for each tax and tax status derived from the previous process. First the application looks for a rate based on rate code and tax jurisdiction. If this isn't found then the application looks for a rate with no tax jurisdiction. If applicable, the tax rate is then modified by any exception rate or tax exemption that applies. The result of this process is a tax rate code and tax rate for each applicable tax.

Determine Taxable Basis

This process determines the taxable base for each tax rate code. Depending on the tax rate type the taxable basis is amount based or quantity based. The tax determination process typically determines the tax by applying the tax rate to the taxable base amount. In some cases, the taxable basis either can include another tax or is based on the tax amount of another tax. Define taxable basis formulas to manage these requirements.

Determine Tax Calculation

This process calculates the tax amount on the transaction. In most cases, the tax amount is computed by applying the derived tax rate to the derived taxable basis. In some exceptional cases, the tax amount is altered by adding or subtracting another tax. Define tax calculation formulas to manage these requirements.

Determine Tax Recovery

This process determines the recovery rate to use on procure-to-pay transactions when the tax allows for full or partial recovery of the tax amount. For example, for UK manufacturing companies VAT on normal purchases used for company business is 100% recoverable. However, if you're a financial institution which only makes VAT exempt on sales then you aren't allowed to recover any taxes and your recovery rate is zero percent on all purchases. The recovery process impacts the distribution level, tax amounts, and inclusiveness of taxes. The resulting distribution amounts are adjusted as a result of the recovery process. The recovery type is defined on the tax and identifies whether there are one or two recovery types; primary and secondary. For each tax and recovery type the application determines the recovery rate based on a tax rule or default value defined on the tax.

The tax determination process evaluates transaction header and line information to derive tax lines for taxes applicable to the transactions. The first step of the determination process is to identify the first party of the transaction. The tax determination process looks to the business unit on the transaction. The process identifies whether its pointing to the configuration owner of the business unit or legal entity depending on the Use subscription of the legal entity option. The option is on the party tax profile definition of the business unit. The tax determination process determines if there are configuration owner tax options associated with this party or if the predefined event class option should be used.

The Determine Applicable Tax Regimes process can be the predefined TAXREGIME, STCC (standard tax classification code), or another regime determination set that is user-defined. TAXREGIME or user-defined regime determination sets derive the applicable tax regimes or tax regime through country or zone of the location. The country or zone of the location is identified in the processing of the regime determination determining factor set location values. STCC determination is typically used for purposes of migrated data and has a different processing logic driven by tax classification code. A third option of determination is third-party integration.

Determine Applicable Tax Regimes and Candidate Taxes

Tax regimes are considered based on geography and subscription. Either a country or zone associated with the tax regime definition must be the same as the country or zone identified through the location that evaluates to true on the regime determination set of the first party of the transaction. In addition, the tax regime must have a subscription to the applicable configuration owner. Once the tax determination process identifies the tax regimes the list of candidate taxes can be evaluated based on the configuration option setting of the first party in the tax regime subscription definition:

  • Common Configuration: Consider all taxes with the configuration owner of global configuration owner.

  • Party Specific Configuration: Consider all taxes with the first party as configuration owner.

  • Common Configuration with Party Overrides: Consider all taxes with the first party and the global configuration owner as configuration owner. If a tax is defined by both the first party and the global configuration owner, the application only uses the tax defined by the first party.

  • Parent First-Party Configuration with Party Overrides: Consider all taxes with the first party and the parent first party as configuration owner. If a tax is defined by the first party and the parent first party, the application only uses the tax defined by the first party.

Determine Tax Applicability and Place of Supply and Tax Jurisdiction

This process determines the tax applicability of each candidate tax based on direct rate determination, place of supply, tax applicability, and tax jurisdiction. The first step in tax applicability is to process any direct rate rules defined for a tax regime, configuration owner, and candidate taxes. If a direct rate rule evaluates to true then place of supply is processed for this transaction tax. If successful the tax is applicable and the tax status and tax rate defined for the direct rate rule are used in the tax calculation. If a direct rate rule does not evaluate to true for this tax regime, configuration owner, and tax the tax applicability rules are processed next. After a tax is found applicable based on an applicability rule or a default value the process verifies the place of supply and associated tax jurisdiction. This is required except in the cases of migrated taxes.

The place of supply process identifies the applicable location type and associated tax jurisdiction where the supply of goods or services is deemed to have taken place for a specific tax. If the tax determination process cannot find a tax jurisdiction for the location that corresponds to the place of supply location type, the tax doesn't apply. It is removed as a candidate tax for the transaction.

For example, the place of supply for UK value-added tax (VAT) on goods is generally the ship-from country. Thus, the place of supply of a sale or purchase within the UK is the UK itself. However, if a UK legal entity supplies goods from its French warehouse to a German customer, then the place of supply will not find a jurisdiction for UK VAT in France, and therefore UK VAT doesn't apply.

Determine Tax Registration

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

Determine Tax Status

This process determines the tax status of each applicable tax on the transaction. If the process cannot find a tax status for an applicable tax, then Tax raises an error.

Determine Tax Rate

This process determines the tax rate code for each tax and tax status derived from the previous process. First the application looks for a rate based on rate code and tax jurisdiction. If this isn't found then the application looks for a rate with no tax jurisdiction. If applicable, the tax rate is then modified by any exception rate or tax exemption that applies. The result of this process is a tax rate code and tax rate for each applicable tax.

Determine Taxable Basis

This process determines the taxable base for each tax rate code. Depending on the tax rate type the taxable basis is amount based or quantity based. The tax determination process typically determines the tax by applying the tax rate to the taxable base amount. In some cases, the taxable basis either can include another tax or is based on the tax amount of another tax. Define taxable basis formulas to manage these requirements.

Determine Tax Calculation

This process calculates the tax amount on the transaction. In most cases, the tax amount is computed by applying the derived tax rate to the derived taxable basis. In some exceptional cases, the tax amount is altered by adding or subtracting another tax. Define tax calculation formulas to manage these requirements.

Determine Tax Recovery

This process determines the recovery rate to use on procure-to-pay transactions when the tax allows for full or partial recovery of the tax amount. For example, for UK manufacturing companies VAT on normal purchases used for company business is 100% recoverable. However, if you are a financial institution which only makes VAT exempt on sales then you aren't allowed to recover any taxes and your recovery rate is zero percent on all purchases. The recovery process impacts the distribution level, tax amounts, and inclusiveness of taxes. The resulting distribution amounts are adjusted as a result of the recovery process. The recovery type is defined on the tax and identifies whether there are one or two recovery types; primary and secondary. For each tax and recovery type the application determines the recovery rate based on a tax rule or default value defined on the tax.

Tax determination can be configured as a simple process with all default values for the determination points. It can also be enhanced with the definition of tax rules to identify and process any exceptions to the common treatment scenario.

The tax rules that are part of the tax determination process are organized into rule types. Each rule type identifies a particular step in the determination and calculation of taxes on transactions. The tax determination process evaluates, in order of priority, the tax rules that are defined against the tax configuration setup and the details on the transaction. The application processes tax rules in order of evaluation until one evaluates successfully, then the process stops. If none of the rules defined evaluate successfully the associated default value is used.

The tax line determination process uses the information of the transaction header and the transaction line and any information derived by the transaction attributes such as party fiscal classification to determine the tax lines. The rule types and related processes are used for tax line determination and tax calculation.

Tax rules have the following elements as part of the definition:

  • Rule type and rule attributes:

    • Tax regime, configuration owner, tax and optionally, tax status and tax recovery type

    • Event class association

    • Geography association

    • Effective dates

  • Determining factors and condition sets

  • Rule order and status

A rule type associates a tax rule to a particular point in the determination process. The following are the possible tax rules you can define:

  • Place of Supply Rules

  • Tax Applicability Rules

  • Tax Registration Determination Rules

  • Tax Status Determination Rules

  • Tax Rate Determination Rules

  • Taxable Basis Rules

  • Tax Calculation Rules

  • Tax Recovery Rate Determination Rules

  • Manage Direct Tax Rate Determination Rules

  • Account Based Direct Tax Rate Determination Rules

  • Tax Classification Based Direct Tax Rate Determination Rules

Define a tax rule in the context of a tax regime, configuration owner, and tax. Define Tax Rate Determination Rules within the context of a tax regime, configuration owner, tax, and tax status. Define Tax Recovery Rate Determination Rules within the context of a tax regime, configuration owner, tax, and recovery type. When processing a transaction the transaction date must be within the effective date of the rule.

Associate a tax rule with an event class or tax event class on the tax rule header to identify the tax rule as only being applicable to a specific event class. The tax determination process evaluates event-specific rules and tax event-specific rules before nonevent-specific rules for the same rule type, tax regime, configuration owner, and tax. Set up more specific event classes to less specific tax event classes to generic tax rules applicable to all event classes. Include geography information on the tax rule header as well as within the determining factor or condition set detail. Including geography detail doesn't change evaluation order but improves the performance of tax rule processing. Include reference information, such as tax law or other text, in the definition of the tax rule.

Tip: Always try to minimize tax rules and setup for tax regimes and taxes. Tax rules are specific to a tax regime and tax. Thus, by minimizing the number of tax regimes and taxes, the number and complexity of the tax rules can be minimized.
Tip: Move any complexity from the beginning to the end of the rule types and supporting setup. For example, use tax recovery rate rules in preference to setting up specific tax rates with individual defaults associated with tax recovery rates.

Tax reporting requirements add some level of complexity to the pure tax setup needed to support the tax determination and calculation processes. Try to minimize this additional level of complexity. Write tax reports wherever possible to use tax reporting codes or use the determination factors that identify your reporting requirements. These reporting determination factors should replace the need to create specific taxes, tax statuses, and tax rates purely defined to allow tax reporting.

For extreme cases, you may need to create a more complex tax setup to meet your tax reporting needs. For example, currently there are no determining factors that can easily identify asset purchases. In many countries, it is a requirement to report the tax associated with asset purchases separately. In this case, create tax status and tax rate rules based on asset account segments to uniquely allocate a specific tax status and tax rate to these asset purchases. These asset purchases can then be reported by searching for the specific tax status and tax rate or specific tax reporting codes associated with the specific tax status or tax rate.

Define tax rules on an exception basis to handle requirements that foundation tax setup can't address. You can define tax status rules, tax rate rules, direct tax rate rules, account-based direct tax rate rules, or tax classification-based direct tax rate rules to derive the applicable tax rate.

The tax determination process uses direct tax rate rules to determine tax applicability, tax status, and tax rate. The tax determination process uses a tax rate rule to determine the tax rate once the tax status is determined. A direct tax rate determination rule is a good choice if there are specific requirements to drive a specific tax, tax status, and tax rate and no variation in tax status or tax rate is required.

Tip: If tax applicability is impacted by the tax rate but not the tax law, set up a tax status rule to point to a different tax status and use a default tax rate associated with that tax status. If the tax status doesn't need to be unique a tax rate rule can drive a specific tax rate but keep the tax applicability and tax status based on existing rules.

Direct Tax Rate Determination

Use the Direct Tax Rate Determination rule type for situations where you don't need to create separate tax rules for tax applicability, tax status, and tax rate. The following must occur for a Direct Tax Rate Determination rule to be applicable:

  • The Direct Tax Rate Determination rule must evaluate to true

  • The tax rate code must be defined for the product family

  • The place of supply must evaluate successfully except in the case of migrated taxes when Allow multiple jurisdictions is selected

If a Direct Tax Rate Determination rule is not evaluated successfully, then Determine Tax Applicability rules are processed to determine if tax is applicable. If the tax is not applicable then the determination process ends for tax.

Account-Based Direct Tax Rate Determination

Account-based rules are direct rate rules that are driven by the line account of the transaction. A matching account drives the applicability, tax status, and tax rate defined on the tax rule. These tax rules apply only when the regime determination method is Determine applicable regimes and the configuration owner tax option for the event class has the Enforce from account option selected. These tax rules are evaluated after standard applicability rules. If a standard applicability rule evaluated the tax to Not applicable then it can't be applicable through an Account-Based Direct Tax Rate Determination rule.

Tax Classification-Based Direct Tax Rate Determination

Use the Tax Classification-Based Direct Tax Rate Determination rule when the regime determination for the configuration owner tax option is defined as STCC (standard tax classification code). This setup is primarily intended for migrated tax classification codes, specifically tax classification groups. The tax classification code populated on the transaction line drives the tax determination and tax rate directly. A default tax rate associated to a tax rate code is not applicable in this case. Tax classification codes are created automatically as user-configurable lookup codes when you save a tax rate definition.

Note: The Tax Classification-Based Direct Tax Rate Determination rule is an extension to an existing migrated configuration where the tax calculation was based on tax classification codes.

The tax determination process uses your tax configuration setup and the details on the transactions to determine which taxes apply to the transaction and how to calculate the tax amount.

How Tax Is Calculated Using Tax Setup Components

You must complete a certain number of setup tasks for each step of the tax determination and tax calculation process. The number and complexity of your setups depends upon the requirements of the tax authorities where you do business.

This table describes the order in which Oracle Fusion Tax calculates taxes on transactions. You can use this table to:

  • Review the details of each process.

  • Identify the setups that you need to complete in each step of tax determination and calculate process.

Order Process Name Activities Components Used and Rule Type (if Applicable)

1

Determine Applicable Tax Regimes and Candidate Taxes (preliminary step)

  • Determine the first party of the transaction.

  • Identify location types to derive candidate tax regimes.

  • Identify tax regimes.

  • Identify taxes using subscriber configuration option.

  • Party tax profile

  • Regime determination set

  • Configuration options

2

Determine Place of Supply and Tax Jurisdiction

  • Identify location type.

  • Identify tax jurisdiction.

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

  • Tax jurisdictions

3

Determine Tax Applicability

  • Consider candidate taxes from the previous process.

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

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

4

Determine Tax Registration

Determine the party type to use to derive the tax registration for each applicable tax.

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

  • Party tax profile

  • Tax registration

5

Determine Tax Status

  • Consider tax statuses of applicable taxes.

  • Consider tax status rules or use default tax status.

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

6

Determine Tax Rate

  • Consider tax rates of each applicable tax status of each applicable tax.

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

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

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

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

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

  • Tax rates

  • Product tax exceptions

  • Customer tax exemptions

7

Determine Taxable Basis

  • Identify the taxable basis formula for each applicable tax.

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

  • Consider the tax inclusive settings of the applicable taxes.

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

  • Taxable basis formula

  • Tax inclusive settings at the tax rate level

8

Calculate Taxes

  • Identify the tax calculation formula.

  • Calculate taxes using the tax calculation formula.

  • Perform applicable tax rounding.

  • Tax rule: Calculate Tax Amounts

  • Calculate tax formula, if applicable

  • Tax rounding rule from tax registration, party tax profile, or tax

  • Configuration owner tax options

If tax recovery is applicable

Determine Recovery Rate

  • Allocate tax amount per item distributions.

  • Determine tax recovery types.

  • Determine tax recovery rates.

  • Determine the tax recoverable amounts.

  • Determine the nonrecoverable amount.

  • Tax rule: Determine Recovery Rate, or the default value defined for the tax.

  • Tax recovery rates

Tax Rule Qualifiers

Tax rules with a rule qualifier are used only when the qualifier matches with the transaction line. Use the tax rule qualifiers to restrict or apply specific tax rules to an event or geography.

Event Qualifiers

The event qualifier is of two types: normal event and tax event.

Normal events comprise of the following events:

Event Name Oracle Fusion Application Name

Credit Card Expenses

Expenses

Employee Expense Report

Expenses

Expense Report

Payables

Standard Invoices

Payables

Prepayment Invoices

Payables

Purchase Order and Agreement

Purchasing

Change Orders

Purchasing

Debit Memo

Receivables

Invoice

Receivables

Credit Memo

Receivables

The event class qualifiers have a direct affect on the evaluation order of tax rules. The following list summarizes the affect:

  1. When a normal event-based qualifier is used then it's used in preference to tax rules qualified by tax event qualifiers or other nonevent-based qualified tax rules regardless of the rule priority.

  2. When multiple normal event-based qualified tax rules are applicable, the application uses rule priority to define the rule processing order.

  3. When a tax event based qualifier is used then it's used in preference to other nonevent-based qualified rules regardless of rule priority.

  4. When multiple tax events-based qualified tax rules are applicable, the application uses rule priority to define the rule processing order.

  5. When no event-based qualifier, normal event or tax event-based, is used, tax rule evaluation is used for rule priority order.

  6. When a geography qualifier is used, it doesn't affect the tax rule evaluation order. That is, tax rules are evaluated based on the mentioned points regardless of whether a geography qualifier is used or not.

Tax rules qualified by tax event qualifiers are processed after normal event qualified tax rules but before tax rules with no event or tax event qualifiers. When there are two or more rules with normal event class qualifiers that match the transaction line details, the application uses rule priority to determine the order in which the tax rules are processed.

Note: Geography qualifiers don't function in this way. When a tax rule has a geography qualifier and no event class qualifier, the tax determination process processes the tax rules based on the rule priority against other tax rules that don't have any tax event rule qualifiers.

Geography Qualifiers

Enable the Set as geography specific rule option to use the geography qualifier. Once you enable this option you can enter either a normal geography or a tax zone geography.

When you use a normal geography, select the parent geography type and parent geography to restrict the list of geography type and subsequently, the geography name fields. For example, when you want to select counties for a specific state such as California, define the:

  • Parent geography type as State

  • Parent geography name as CA (California)

  • Geography type as County

This limits the list of values for the geography name field to the counties that are in the state of California instead of listing all of the counties.

Tip: When selecting the normal geography qualifiers, use the parent geography to ensure that the correct geography element is selected, as there are many multiple geography elements with the same name across the world. For example, Richmond is a city in Canada's provinces of British Columbia, Ontario, and Quebec. Richmond is also a city in the state of Virginia in the United States.

Example of Evaluating Tax Rules with Event Qualifiers

Tax rule qualifiers help you restrict or apply specific tax rules to an event or geography. The event class qualifiers have a direct affect on the evaluation order of tax rules.

Scenario

The following table considers five tax rules, namely, A, B, C, D, and E with or without event qualifiers and rule order and the resulting evaluation sequence:

Tax Rule Normal Event Qualified Tax Event Qualified Rule Order Evaluation Sequence

A

Yes

No

100

2

B

Yes

No

50

1

C

No

No

10

5

D

No

Yes

20

3

E

No

Yes

30

4

Rule B is evaluated first because it's the highest priority rule with a normal event rule qualifier. Rule A is identified as second in evaluation sequence it's the only other tax rule with a normal event rule qualifier. Rule D is third in evaluation sequence as it's the highest priority rule with a tax event rule qualifier followed by rule E as the only other tax rule with a tax event rule qualifier. Finally, the application evaluates rule C as it doesn't have any event rule qualifiers.

The use of normal event or tax event rule qualifiers alters the way in which the tax determination process processes the tax rules. For an event class qualified tax rule, normal event or tax event-based, the tax rule is evaluated first in preference to tax rules qualified by tax event qualifiers or a nonevent class qualified tax rule of higher priority.

Consider that you have two rules: rule A and rule C with rule priority 100 and 10 respectively. The rules are associated with condition sets that match against the transaction line details. Rule A has a normal event class qualifier which is satisfied while rule C doesn't have an event class qualifier, rule A is processed and used first regardless of the rule priority order, even though rule A has a lower priority than rule C.

During tax determination processing, Oracle Fusion Tax considers the tax rules belonging to each rule type in the order that you defined them.

How Tax Rules Are Evaluated

The sequence of tax rules evaluation is:

  • Generally, you define tax rules for a configuration owner, tax regime, tax, and rule type. When a tax regime is subscribed to an entity as:

    • Common configuration, all the tax rules you defined for the Global configuration owner are considered for rule evaluation.

    • Party-specific configuration or Parent first-party organization, then only the tax rules you defined for that entity or the reference entity are considered.

    • Common configuration with party overrides then all the tax rules you defined for the entity as well as for the Global configuration owner are combined and evaluated in the order specified.

    If the effective dates of a tax rule does not cover the transaction date or if it is disabled, then the tax rule is ignored during rule evaluation.

  • From the previous listed rules, if one or more tax rules belonging to a tax regime, tax, and rule type are defined for a normal event class or tax event class, then such rules are evaluated first by normal event class and then by tax event class regardless of the overall rule order. If more than one event class rule is listed for a rule type, then such set of rules are further sequenced according to their corresponding rule orders

  • Further to the previous sequencing, if one or more tax rules belonging to a tax regime, tax, and rule type are defined for a tax event class, then such rules are next sequenced for evaluation, regardless of the overall rule order. If more than one tax event class rule is listed for a rule type, then the set of rules are further sequenced according to their given rule order.

  • Finally, the tax rules belonging to a tax regime, tax, and rule type are listed according to their defined rule order for evaluation.

While processing each tax rule in the evaluation sequence, the tax determination process evaluates the condition sets defined within a tax rule. This is according to the defined condition set order sequence. If a condition set criteria doesn't match with the transaction details, the tax determination process evaluates the next condition set. If none of them match with the transaction details, the next rule within the ordered rule set is considered. If a condition set criteria matches with the transaction details, the tax determination process considers the rule result defined against that condition set. The tax rule is then marked as successfully evaluated. If none of the defined rule conditions match the transaction details, then the tax determination process considers the default result defined for that tax.

During tax determination processing, Oracle Fusion Tax considers the tax rules belonging to each rule type in the order that you defined them.

The following is an example of a tax regime that is subscribed to by a business unit with common configuration treatment. To meet the tax law requirements to determine the tax rates, the following tax rate rules are defined against the global configuration owner. The details shown in the following table are a summary of the rate rules including rule order, geography specific details, associated conditions sets, and the rate results associated to these condition sets:

Rule Order Normal Event Class Geography-Specific Rule Condition Set Condition Set Order Result

10

Blank

Blank

  • CS-1

  • CS-2

  • CS-3

  • 10

  • 20

  • 30

  • VAT10%

  • VAT12%

  • VAT15%

20

Purchase invoice

  • Location type: Bill from

  • Geography name: California

CS-4

10

VAT12.5%

30

Purchase invoice

Blank

CS-5

10

VAT13%

Tax Rule Processing for a Payables Invoice

If a Payables invoice is involved and Texas is the bill-from party state, the tax rule processing sequence is as follows:

  1. The tax rules are listed according to the sequencing logic. For example, the tax determination process evaluates tax rules involving normal event class qualifiers first regardless of having a lower rule order.

  2. The tax determination process further evaluates condition sets listed within each tax rule.

The tax determination process is represented as follows:

Rule Order Normal Event Class Geography-Specific Rule Condition Set Condition Set Order Result Evaluation Status Result

20

Purchase invoice

  • Location type: Bill from

  • Geography name: California

CS-4

10

VAT12.5%

  • Condition set: Not evaluated

  • Tax rule: Fail, because the bill-from party state is Texas

Move to next tax rule

30

Purchase invoice

Blank

CS-5

10

VAT13%

  • Condition set: Evaluated and passed

  • Tax rule: Passed, because the condition set values match with the transaction details

Condition set result considered and exit rule evaluation

10

Blank

Blank

  • CS-1

  • CS-2

  • CS-3

  • 10

  • 20

  • 30

  • VAT10%

  • VAT12%

  • VAT15%

 

 

Tax Rule Processing for a Receivables Invoice

If a Receivables invoice is involved, the tax rule processing sequence is as follows:

  1. The tax rules are listed according to the sequencing logic. For example, the tax determination process evaluates tax rules involving normal event class qualifiers first regardless of having a lower rule order.

  2. The tax determination process further evaluates condition sets listed within each tax rule.

Rule Order Normal Event Class Geography-Specific Rule Condition Set Condition Set Order Result Evaluation Status Result

20

Purchase invoice

  • Location type: Bill from

  • Geography name: California

CS-4

10

VAT12.5%

  • Condition set: Not evaluated

  • Tax rule: Fail, because the event class criteria does not match

Move to next tax rule

30

Purchase invoice

Blank

CS-5

10

VAT13%

  • Condition set: Not evaluated

  • Tax rule: Fail, Passed, because the event class criteria does not match

Move to next tax rule

10

Blank

Blank

  • CS-1

  • CS-2

  • CS-3

  • 10

  • 20

  • 30

  • VAT10%

  • VAT12%

  • VAT15%

For CS-1:

  • Condition set: Fail

  • Tax rule: In process, because the condition set values do not match with transaction details

For CS-2:

  • Condition set: Pass

  • Tax rule: Pass, because the condition set values match with transaction details

For CS-1: Move to next condition set

For CS-2: Condition set result considered and exit rule evaluation

The performance of the tax determination process is in inverse proportion to the number of tax rules and conditions that the process needs to evaluate in order to arrive at a specific result.

Creating Tax Rules

Use these guidelines and examples to help plan your tax rules implementation:

  • If the tax condition results and rule results always equal the default values, then you don't need a tax rule. You only need to define a tax rule for a result that is different from the default value. For example, if more than one tax rate is possible for a given tax and tax status, then you need to create at least one tax rule.

    These qualifications apply to tax rules and default values:

    • If you require many different results other than the default value for a given tax and rule type, it probably means that the default value itself sometimes applies. In these cases, you should also define a tax rule for the default value. Otherwise the tax determination process must always process and eliminate the tax rules defined for all other values before arriving at the default.

    • As an alternative to defining a tax rule for the default value, you can assign the least frequent result as the default value. The tax determination process processes the maximum number of tax rules on the minimum number of occasions. In this kind of an implementation, you must ensure that your tax rules and conditions cover all of the more common results in order to prevent the tax determination process from using an incorrect result as a default.

  • If more than one tax rate is possible for a given tax this may be a consideration for a tax rule.

  • If you define multiple tax rules to derive distinct results for a process, assign the least frequent result as the default value for the process. The most frequent value should be the first tax rule. There are occasions for the default to be the most frequent value so you may want to define tax rules for exceptions, such as by item. In general, define tax rules for exceptions, but if there are a lot of tax rules that you need to define, then you may want to define a tax rule for the most common scenario to avoid processing all of the exceptions.

  • When you define tax rules consider the need to repeat tax conditions in multiple rule types if the condition is part of the applicability evaluation. For example, if you define a Determine Tax Applicability rule for UK VAT that only applies when ship to is equal to United Kingdom, then you do not need to repeat this condition in a tax rule for a subsequent tax determination process, such as a Determine Tax Status rule.

  • Where possible, use the tax rule header information instead of creating tax conditions that arrive at the same result. For example, if tax rules apply to the Purchase business process, set the tax event class to Purchase transaction rather than defining a tax condition within the tax rule, such as tax event class is equal to Purchase transaction.

  • When you order the tax condition sets within a tax rule, assign the higher priority to the set of conditions that occurs more frequently. Similarly, when you order the tax rules within a rule type and tax, assign the higher priority to the tax rule that gives the most frequently arrived at process result.

  • Use product tax exceptions for special rates based on product fiscal classifications rather than defining a Determine Tax Rate rule based on product fiscal classifications. For example, if three out of five product fiscal classifications use a special rate, define three product tax exceptions based on the three product fiscal classifications that need a special rate, and set the standard rate as the default rate.

  • Define the minimum number of tax conditions necessary for a tax rule. For example, if a special rate applies to goods shipped outside a state as opposed to within a state, define one tax condition as ship from state isn't equal to ship to state, rather than defining two separate tax conditions for each ship from and ship to location, such as ship from state is equal to Nevada and ship to state is not equal to Nevada.

  • Consider using the existing determining factor sets during the creation process. Any determining factor not set as required in the determining factor set definition can be set to ignore in the condition set. You don't have to define the condition and it is not evaluated. This allows flexibility in the condition set definition not requiring a unique determining factor set for every variation in condition set logic.

  • For tax rules that involve the shipping to and from a tax zone, for example the European Union. Define a tax condition for all ship to countries within the tax zone rather than separate tax conditions for each country, such as ship to is equal to Great Britain, ship to is equal to France, and so on.

  • For tax rules that apply to a specific geographic area, define tax rules with the additional context of the geographic area rather than adding location-based equal to tax conditions. For example, consider that you have a tax rule that only applies if the ship to state is California. In that case, you must define the tax rule such that it's only evaluated when the ship to state is California. You can do this by associating geography during the first step of the tax rule definition at the tax rule header level.

  • Define tax rules that are common across all legal entities or business units under the global configuration owner. This prevents the need to create the same tax rules for each legal entity or business unit. If all tax rules aren't commonly applicable to all legal entities or business units, then:

    • Set the configuration option of the legal entities or business units that require additional rules to Common configuration with party overrides

    • Define supplementary party-specific rules under the applicable legal entities or business units. You can set priority values for party-specific rules that complement the tax rules of the global configuration owner, in accordance with the tax requirements.

This example illustrates how to set up tax rules based on tax regulation in the Her Majesty's Revenue and Customs (HMRC) VAT guide. It provides the detailed business conditions under which goods can be reverse charge (self-assessment) as part of the Intra-EU Supply legislation.

Scenario

You are a UK business registered for VAT in the UK. You purchase goods from other European Union (EU) countries and therefore fall under the HMRC Tax Regulation Intra-EU Purchase of Goods legislation.

HMRC Tax Regulation

Consider that you purchase goods from a VAT-registered business in another EU country, and then move them to the UK. According to HMRC VAT guide, you may be required to account for VAT in the UK on the acquisition of goods. This VAT can be recovered as input tax on the same VAT return, subject to the normal rules for reclaiming input tax.

Analysis

Analyze the text of the legislation and identify the key phrases in the legislation.

Here's a figure to give you an extract of the UK HMRC VAT guide regarding the Intra-EU Supply legislation.

This figure shows an extract of the UK HMRC VAT
guide regarding the Intra-EU Supply legislation.

Break these phrases down into product, party, process, and place determining factors that describe under what conditions the legislation is applicable. Look at the legislation and identify the outcome when the legislation is applicable and determine which rule types are appropriate.

Here are these determining factors and rule types in detail. Also, see how you can turn them into expressions that can be modeled in Oracle Tax.

This figure shows determining factors and rule
types in detail. It also shows how you can turn them into expressions
that can be modeled in Oracle Tax.

Have a look at the phrases identified in this tax legislation as represented in the previous figure:

Legislation Phrase Text Requirement

1

If you purchase goods...

The tax rule is limited to purchase transactions.

2

...from a VAT-registered business in another European Community country...

The tax rule requires that the supplier be registered in another EU country.

3

...and the goods are removed...

The tax rule is limited to the Goods product type.

4

...are removed to the United Kingdom...

The tax rule refers to goods delivered to the United Kingdom from another country in the EU country.

5

...you may be required to account for...

The party must reverse charge (self-assess) the tax.

6

...for VAT in the United Kingdom...

The tax is UK VAT.

Resulting Tax Rules

Legislation Phrase 1

Tax legislation phrase 1 indicates that the determining factor that defines this specific tax rule is only applicable to purchase transactions. This equates to a tax event class equal to purchase transactions. Use a tax event class rather than an event class as the tax event class covers other products in the procure-to-pay flow. This covers Oracle Fusion Payables and Oracle Fusion Purchasing processing with a single approach.

This figure shows you that the determining factor that defines this specific tax rule is only applicable to purchase transactions.

This figure shows that the determining factor that
defines this specific tax rule is only applicable to purchase transactions.

This table describes the contents of the tax condition set as represented in the previous figure:

Legislation Phrase Determining Factor Name Operator Value

1

Tax Event Class

Equal to

Purchase transaction

Tip: Always look for the most generic approaches that cover more of the business requirements in a single tax rule. For example, here the tax event class is used instead of a specific event class for Payables transactions and another similar rule for Purchasing transactions.

Determining factors like this enable you to define tax rules that are only applicable to specific types of transactions. The previous approach presents a convenient way of splitting order-to-cash and procure-to-pay transactions. By using event class, you can make a more detailed refinement so that tax rules are only applicable to specific product transactions. This flexibility drives the simplification of combining procure-to-pay tax setup with order-to-cash tax setup into a single model. In most cases, you don't have to distinguish between procure-to-pay or order-to-cash transactions within the tax rules. However, do this where you must create specific procure-to-pay or order-to-cash tax rules using this key design concept.

Legislation Phrase 2

Tax legislation phrase 2 indicates that the determining factor that defines the supplier is registered in another EU. You can model this in several ways. However, the recommended approach for you is to use a registration status on the tax registration record. These records are set up for the GB tax regime. Another recommendation is to have a business process in place. Retain documentary evidence to show that the supplier is validated as a true supplier registered in another EU country. Until you complete this manual business process, don't mark the supplier as registered in another EU country.

Here's the determining factor that defines that the supplier is registered in another EU country.

This figure shows the determining factor that defines
that the supplier is registered in another EU country.

This table describes the contents of the tax condition set as represented in the previous figure:

Legislation Phrase Determining Factor Name Class Qualifier Operator Value

2

Registration Status

of supplier

Equal to

Registered in another EU country

Tip: Always look for approaches which coupled with business procedures provide the necessary controls. In this case, sufficient level of checking must be done before creating the supplier or supplier site tax registration record. Also, you must enter the correct registration status. Recommendation is that you set up a business procedure for these tasks. This business procedure ensures that the supplier is a valid supplier and that their tax registration number is a valid tax registration number.

Legislation Phrase 3

Tax legislation phrase 3 indicates that the determining factor that defines the product type is goods. Another way of modeling this is to use a product fiscal classification which can automatically be derived from the item defined on the transaction. However, if an item isn't specified on the transaction, then there is no product fiscal classification derived. Consider the case where an unmatched purchase invoice gets processed. You must create additional tax rules and setup to address this situation.

The following figure shows the determining factor that defines that the product type is goods.

This figure shows the determining factor that defines
that the product type is goods.

This table describes the contents of the tax condition set as represented in the previous figure:

Legislation Phrase Determining Factor Name Operator Value

3

Product Type

Equal to

Goods

Tip: Always look for an approach which provides an automated process that covers as many transactions as possible. For example, use the product type of Goods rather than a product fiscal classification. This tax rule can on its own also cover unmatched Purchase invoice tax processing.

Legislation Phrase 4

Tax legislation phrase 4 indicates that the determining factors that define the supply is from another EU country. Here's how this is modeled:

  1. Goods are being shipped to UK

  2. Goods are being shipped from an EU country

  3. The shipped-from country isn't UK

You can take items 2 and 3 to ensure that the goods are being sent from another EU country outside the UK.

Here you can see the determining factor that defines the supply is from another EU country.

This figure shows the determining factor that defines
the supply is from another EU country.

Have a look at the tax condition set represented in the previous figure:

Legislation Phrase Determining Factor Name Class Qualifier Operator Value

4

Country

of ship to

Equal to

United Kingdom

4

Economic Region

of ship from

Equal to

European Economic Community

4

Country

of ship from

Not equal to

United Kingdom

Tip: Geography and tax zones are powerful features of Oracle Tax. You can use them to identif