Tax Rules

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.