Tax Applicability Options

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

You need to decide when to:

• Create tax rules

• Set up tax zones

• Use Allow tax applicability option

• Use Perform additional applicability for imported documents option

Create Tax Rules

If the tax authority levies tax on all sales and purchase transactions at the same rate, and neither tax applicability nor the tax rates and recovery rates vary by any factors, you don't have to set up tax rules. Oracle Fusion Tax can simply use the default tax status, tax rate, and tax recovery rate defined for the tax. If, however, the applicability of tax is dependent upon certain criteria, you may need to use default values in combination with one or many tax rules to define the logic necessary to derive the values in the tax determination process.

The tax rules used for tax applicability determination are:

• Place of supply rules

• Tax applicability rules

Place of Supply Rules

Use place of supply rules to determine the place where the transaction is deemed to have taken place when this determination is based on certain criteria.

For example, consider a German company supplying physical services, such as work on goods at a customer's site in the UK, where the customer is registered for UK VAT. With a default value of Ship to for place of supply, the customer's tax registration number is used on the transaction.

Next, consider the same German company supplying physical services at a customer's site in the UK, where the customer is not registered for UK VAT. The default value of Ship to for place of supply yields no tax registration number since the customer isn't registered for UK VAT. In this case, you create a place of supply rule to deem the Ship from as the place of supply when the customer isn't registered.

At transaction time the application derives the place of supply from the transaction as shown in the table. It is important to consider how place of supply translates for the event classes being considered for tax calculation in a regime since this can include and exclude candidate taxes.

Place of Supply	Order-to-Cash Transactions	Procure-to-Pay Transactions
Bill from	Legal entity address	Supplier site header level address
Ship from	Warehouse address	Supplier site header level address
Bill to	Customer site bill-to address	Business unit address on the associated party tax profile
Ship to	Customer site ship-to address	Ship-to location at line level
Ship to, use bill to if ship to not found	Customer site bill-to or ship-to address	Ship-to location at line level

Tax Applicability Rules

Use tax applicability rules to apply a specific tax to certain transaction lines, or conversely, exempt certain transaction lines from a specific tax. For example, a given tax may not apply to a domestic supply of goods to an exempt customer.

An important consideration in creating your tax applicability rules is that when a tax is deemed not applicable, a tax line isn't created. However when a tax is deemed exempt based on an exemption or special rate, the tax line is still created for reporting purposes.

Note: For migrated data using the Standard Tax Classification Code approach, which uses a tax code to derive tax, tax status, and tax rate, you can set the tax to be applicable or not applicable by default or by using a tax applicability rule.

Direct Tax Rate Determination Rules

If you need to create tax rules but don't require separate rules for tax applicability, tax status, and tax rate, you can create a Direct Tax Rate Determination rule type. Direct rate rules and account based direct rate rules determine tax applicability, tax status, and tax rate without evaluating applicability rules and defaults.

If a direct tax rate determination rule is evaluated successfully, then the tax is applicable and the tax status and tax rate defined for the rule are used in tax determination. If a direct tax rate determination rule isn't evaluated successfully, then the tax determination process resumes with the tax applicability rules.

Create Tax Zones

Use tax zones to group existing geographical regions that share the same tax requirement. You can use tax zones with tax regimes, to identify tax requirements for a special geographic area. You can also use tax zones to create parent tax regimes that represent a related grouping of geographic regions for tax reporting purposes. Use tax zones with tax rules, to create tax rules that refer to a specific geographic location. The use of tax zones is optional and depends on your overall tax setup planning.

For example, if a separate economic community exists in part of a country only, you can either set up a:

• Tax zone and corresponding tax regime for the applicable geographic area.

• Country tax regime and use applicability rules to exclude the parts of the country where the tax requirement doesn't apply.

Use Allow Tax Applicability Option

Use the Allow tax applicability option to determine if Oracle Fusion Tax calculates tax on transactions for a specific event class. This option is available on the Configuration Owner Tax Options page, which enables you to review the default tax settings for each application event class. Oracle Fusion Tax uses these settings as the basis for determining and calculating taxes on transactions belonging to each event class.

If the Allow tax applicability option is set, you can set this option:

• On the party tax profile of third parties and third-party sites acting as suppliers or supplier sites that are involved in transactions belonging to this event class.

• For customers that also act as suppliers on transactions.

Use Perform Additional Applicability for Imported Documents Options

Use the Perform additional applicability for imported documents option to indicate whether Oracle Fusion Tax runs the tax applicability process to identify missing taxes on an imported document. This option is also available on the Configuration Owner Tax Options page, and applicable to Payables event classes only. Taxes not included in the imported document are marked as Self-Assessed, if self-assessment applies to the transaction.