1Overview

This chapter contains the following:

Oracle Fusion Tax provides a single-point solution for managing your transaction and withholding tax requirements. The Define Tax Configuration activity lets you manage the entire configuration and maintenance of tax content.

Oracle Fusion Tax:

  • Uniformly delivers tax services to all Oracle Fusion application business flows through one application interface

  • Provides a single integration point for third-party tax products and services

  • Lets you configure and add country-specific tax content

  • Ensures control over manual intervention and update

With Oracle Fusion Tax, you can model your taxes according to the needs of the following local and international tax requirements:

  • Simple and complex country-specific tax legislation

  • Cross-border transactions, including exports and Intra-European Community transactions

  • Intercompany transactions

  • Local compliance requirements for recording and reporting

  • Continual changes to tax legislation, such as:

    • New taxes

    • Local law changes

    • Special tax rates

    • Special exceptions for products and customers

Task Lists

The Define Tax Configuration activity contains the following task lists

  • Define Tax Configuration: Use these tasks to create a basic tax configuration for each of your tax regimes.

  • Define Advanced Tax Configuration: Use these tasks to configure optional tax setup that addresses more complex tax requirements, such as exceptions to standard tax calculations.

Considerations for Defining Tax Configuration for Transaction Taxes

To determine how to set up your tax configuration, you must first analyze your requirements.

Analyzing Your Transaction Tax Requirements

When you analyze your transaction tax requirements and use Oracle Fusion Tax and other Oracle Fusion applications to implement a solution, you must consider the following questions:

Question Consideration Impact to Tax Configuration

Who am I?

You must first answer questions about yourself and your relationship to the legal and regulatory agencies that enable you to operate in one or more counties.

 

Where do I have operations and businesses?

Identify the countries:

  • Which you operate in

  • Where you are legally registered

  • Where you have subsidiary companies that are legally registered or have a legal presence

Use Oracle Fusion Legal Entity Configurator to capture information about your legal entities and legal registration.

What taxes am I subject to?

Analyze your tax environment for each of the countries in which you operate.

Set up your tax regimes, taxes, and tax jurisdictions according to the tax requirements for each country.

What are the operations and businesses that I have?

Consider the types of operations and businesses in which you are engaged and the countries where you have legal entities or reporting units.

The following may impact your taxability:

  • The type of industries for which you work. For example, mining, telecommunications, and pharmaceuticals.

  • The kind of operations in which you engage. For example, trading, manufacturing, and services.

  • The scale of your operations. For example, your turnover, company size, and growth.

Use the classifications feature to categorize or classify your first parties under various classification schemes.

In analyzing your operations, you can associate the three main classifications of a transaction to:

  • What you do: Use transaction fiscal classifications.

  • What products you buy or sell: Use product fiscal classifications.

  • Who your customers and suppliers are: Use party fiscal classifications.

What do I do?

Identify and classify the transactions that you perform.

For example, do you primarily sell physical goods? If you do, do you manufacture them, or do you buy and sell them without additional manufacturing? Do you sell these goods in another state or province? Do you export these goods? Do you provide or use services?

Create fiscal classifications to classify and categorize your transactions in a common manner across your organization. Use these fiscal classifications in tax rules to obtain the appropriate tax result.

What products do I buy or sell?

Determine the products that you buy and sell. The taxes that you are subject to depend on them.

For example, you must register for, and therefore collect and remit service taxes only if you provide taxable services. If you manufacture goods for export, you may not be subject to taxes on the purchases that are part of the manufacture of such goods.

Where Oracle Fusion Inventory is installed use the Inventory Catalog feature with Oracle Fusion Tax product fiscal classifications and intended use functionality to classify the taxable nature and intended use of the items. You can then define tax rules using these classifications to obtain the appropriate tax result.

To address classification needs of transactions that do not use inventory items, define product category and noninventory based intended use fiscal classifications.

Who are my customers and suppliers?

Determine the types of customers and suppliers. They can affect the taxes to which you are subject, the tax status, or tax rate that applies.

For example, you are a UK based company that supplies physical goods to another country, which is also a member of the European Union. The transaction rate for UK VAT is dependent on whether the customer is registered for VAT in the country to which the supply is made.

Use the party classifications feature to categorize your customers and suppliers. You can use the classifications while defining tax rules to derive the appropriate tax result.

You can create a party fiscal classification by assigning a Trading Community Model class category to a predefined party fiscal classification type code. The Trading Community Model class codes defined under the class category become fiscal classification codes belonging to the party fiscal classification type. You can create a hierarchy of party fiscal classification types to reflect the levels of codes and subcodes within the Trading Community Model classification.

The scope defines the parameters of your implementation project by setting the context of a task list during the initial configuration. When you export setup data based on setup migration services, the scope values serve as parameters to control the data selected for export to the respective configuration package.

The foundation tax setup is an incremental setup where each step of the foundation configuration builds on the previous step. The task list is sequentially organized. You can define scope values at incremental steps in the implementation project to move to subsequent tasks and to ensure continuity and ease of setup.

Note: Scope is a valuable tool during implementation, but tax scope values are not mandatory. You can elect to not define them.

Defining Scope

When implementing transaction or withholding tax, you can define scope values for taxes, tax jurisdictions, tax statuses, tax rates, tax recovery rates, and tax rules. To set scope, you can:

  • Select and add multiple values

  • Create a new value

The scope value you select defines the context of that setup. For example, if you select a tax regime to use as a scope value for a tax, that value is automatically populated in the search attributes on the Manage Tax page. That tax regime's attributes are also populated on the Create Tax page. The same logic applies to the next step in the tax setup.

Scope Values

The following table identifies where you define the scope value in the Define Tax Configuration and Define Advanced Tax Setup task lists:

Where Scope is Defined Scope Values

Manage Taxes

Tax regime

Manage Tax Rates and Tax Recovery Rates

  • Tax regime

  • Tax

  • Tax status

Manage Tax Rules

  • Tax regime

  • Tax

Manage Tax Jurisdictions

  • Tax regime

  • Tax

Manage Tax Statuses

  • Tax regime

  • Tax

Use Oracle Fusion Tax to set up and maintain your transaction and withholding tax requirements in all geographic locations where you do business. Foundation tax configuration refers to a set of tax setup components that you use to satisfy your tax requirements.

At transaction time, the tax configuration determines the following taxes and tax amounts:

  • Taxes that apply to each transaction

  • Transaction tax amount

  • Withholding tax amount

Foundation tax configuration components consist of:

Foundation Tax Configuration

Complete the setup tasks to create a basic tax configuration for each of your tax regimes. A foundation tax configuration contains the data applicable to the taxes belonging to a tax regime. The following table describes the levels of specifying setup options for foundation tax components with Canada Goods and Services Tax (GST) and Harmonized Sales Tax (HST) as an example.

Component Tasks you can perform: Tasks you cannot perform: Canada GST and HST Example

Tax Regime

  • Share tax content among legal entities and business units.

  • Enable partner integration.

  • Associate fiscal classifications.

  • Define tax reporting types and codes.

  • Define features to influence setup task list.

  • Define configuration owner tax options.

  • Define application tax options.

  • Define party tax profiles.

CA GST and HST

Tax

  • Enable controls to influence tax behavior.

  • Specify defaults that are commonly applicable.

  • Define applicability tax rules.

  • Define customer exemptions.

  • Specify party registrations.

  • Share tax content.

  • Define integration with partners.

  • CA GST

  • CA HST

Tax Jurisdictions

  • Define location-based tax rates.

  • Define customer exemptions and rate exceptions.

Specify tax rule defaults.

  • CA Alberta GST

  • CA BC HST

Tax Status

  • Define common rules for tax rates.

  • Drive reporting needs.

  • Allow manual override to tax rates.

  • Specify tax rule defaults.

  • Define customer exemptions.

  • Specify party registrations.

  • GST Standard

  • HST Standard

  • HST Reduced

Tax Rates

  • Define tax rates by effective periods.

  • Specify tax account variations.

  • Define tax rate exceptions.

  • Define tax recovery rates.

  • Define customer exemptions.

  • Define applicability tax rules.

  • Define taxable calculation formulas.

  • Share tax content.

  • CA GST Standard

  • CA GST Reduced

  • CA GST Exempt

  • CA HST Standard

Create a simple tax model using tax rule defaults predefined in the foundation tax configuration. You can also create tax rules for complex tax requirements that consider each tax requirement related to a transaction before making the final tax calculation.

When running the tax determination process, the tax rules defined against the foundation tax configuration setup and the details on the transactions are evaluated in the order of priority. If the first rule is:

  • Successfully evaluated, the result associated with the rule is used.

  • Not successfully evaluated, the next rule is evaluated until either a successful evaluation or a default value is found.

Tax Rule Configuration

The complexity of tax rule setup is categorized on the following basis:

  • No tax rules required

  • Simple tax rule regimes

  • Complex tax regimes

The following table presents the scenarios and actions associated with each of these categories:

Category Scenario Action

No tax rules required

The tax authority levies tax on all sales and purchase transactions at the same rate. Tax applicability, tax rates and recovery rates do not vary based on:

  • Parties to the transaction

  • Products or services in the transaction

  • Business processes involved in the transaction

For the tax, define tax rule defaults for the tax status, tax rate, and tax recovery rate.

The tax determination process uses the tax rule defaults to determine the tax.

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 apply to either:

  • One part of the transaction only, such as to certain parties.

  • A combination of parties, products, and transaction processes that you can summarize in a simple way.

Create a simple set of rules.

For example, to identify the place of supply and tax registration, and use the tax rule default values for the other processes.

The tax determination process uses tax rules and tax rule defaults to determine the tax.

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 may vary based on:

  • The place of origin

  • The place of destination

  • The party registration

  • The tax status

  • Service

  • 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.

Set up tax rule to define the logic necessary to identify each step of the tax determination process.

The tax determination process uses the tax rules to determine the tax.

Set a tax rule default value to the most commonly used value to determine tax. Use tax rules to define exceptions to the default results. The following scenario illustrates when you might want to create a tax rule to provide additional logic when calculating tax.

Defining a Tax Registration Tax Rule

In the case of tax registration, the default or most commonly used value for registration party is ship-from party. However, you can set up a tax rule to provide additional logic to use the registration of the bill-to party if the registration status is Not Registered for the ship-from party for purchase transactions. Create:

  • A determining factor set with the registration status and transaction business category determining factors.

  • Condition sets to provide values for the respective determining factors.

For this example, the following setup exists for the Determine Tax Registration tax rule:

  • Tax rule default: The default for tax registration is ship-from party.

  • Tax rule: If the supplier is not registered, then you should consider the tax registration of the bill-to party.

When the following conditions are true, then the tax registration is the same as that defined for the bill-to party:

Tax Determining Factor Class Tax Class Qualifier Tax Determining Factor Operator Value

Registration

Ship-from party

Registration status

Equal to

Not registered

Transaction Generic Classification

Level 1

Transaction business category

Equal to

Purchase transaction

The tax determination process determines the tax registration by first considering the Determine Tax Registration tax rule and then the default party registration. As a result of this rule, for a purchase transaction, if the supplier is not registered, the tax registration of the bill-to party is considered.