Example of Using Party Fiscal Classifications

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.