Transaction Tax Processing for Brazil

You can use Oracle ERP Cloud to determine the tax applicability on each transaction line and create the applicable tax lines.

Each tax line displays the tax regime, tax name, tax jurisdiction, tax status, tax rate, and tax amount. The required distribution lines are created for each tax line.

Here is an example that illustrates a simple purchase transaction and how the tax determination process is configured to create tax lines. An organization based in Sao Paulo (SP) sells and dispatches two different products to one of its customers located in SP. This transaction is subject to ICMS tax, which is levied on the movement of goods. A buyer enters the invoice in Payables with these transaction lines:

Line	Item	Unit	Quantity	Line	Bill	Ship
1	A (Inventory Item)	1.83 BRL	1000	1830.00	SP	SP
2	B (Inventory Item)	2.63 BRL	1000	2630.00	SP	SP
Total in BRL				4460.00	-	-

The transaction tax processing is followed after you enter and validate the invoice.

After successful upload of the tax configuration workbook, the required ICMS regime, ICMS Tax, Jurisdictions, and the tax rates are in place.

At invoice validation, the tax determination processes calculate taxes on the transaction.

Note: Each step in the process requires the completion of the setup tasks. For more information, see the Components Used column in the Tax Determination Processes table.

Tax Determination Processes

The table lists the tax determination processes in order.

Process Name	Activities Included	Components Used	Result
Determine Applicable Tax Regimes	Identify the applicable tax regimes	Based on the location (Country) of the transaction	Applicable regime = ICMS
Determine Place of Supply and Tax Jurisdiction	Identify the jurisdiction and place of supply	ICMS tax definition > tax rule defaults > place of supply = ship from party	Place of supply = SP Tax jurisdiction = SP
Determine Tax Applicability	Consider the taxes based on the tax applicability rule for each tax	Tax Applicability Rules Tax conditions -Registration Status (Qualifier Ship-from party) = Registered Product Type =Goods	Applicable tax = ICMS
Determine Tax Registration	Determine the party type to derive the tax registration for each applicable tax	ICMS tax definition > tax rule defaults > tax registration = ship-from party	Ship-from party

Process Name	Activities Included	Components Used	Result
Determine Tax Status	Consider the tax statuses of applicable taxes	User-defined tax status for ICMS = Standard and defaults to tax status Navigate - ICMS tax definition > ICMS tax rule defaults > Indirect defaults > tax status = Standard	Standard
Determine Tax Rate	Consider the tax rates of each applicable tax status of each applicable tax	Tax Rate Rules Tax conditions: Ship From = SP Ship To = SP	Applicable tax rate = 18%
Determine Tax Basis	Determine the taxable basis on which the tax rate for each tax is applied	Standard taxable basis formula =STANDARD_TB	Taxable basis = Line Amount For example, Two line amounts 1830 and 2630
Calculate Taxes	Identify the tax calculation formula to calculate taxes	Standard tax calculation formula = STANDARD_TC	Taxable basis * tax rate = 1830*18% +2630*18% =329.40+ 473.40 =802.80 BRL
Determine Recovery Rate	Determine tax recovery rates, tax recoverable amounts and nonrecoverable amount. For more information see note 3 below.	Define 100% tax recovery rate. For example, ICMS TAX STANDARD RECOVERY and set as default tax recovery rate. Navigation steps: ICMS tax definition > ICMS tax rule defaults > Indirect defaults > Tax recovery rates> ICMS TAX STANDARD RECOVERY	Tax recoverable amount = Tax amount * 100% = (329.40*100%) + (473.40*100%) = 802.80 BRL

The Determine Place of Supply step identifies the applicable place of supply - the location where the supply of goods or services is deemed to have taken place for a specific tax. Oracle ERP Cloud identifies the tax jurisdiction for the location corresponding to the place of supply. Here the place of supply is the Ship From location. However, in some cases the Ship To location is the place of supply. Oracle ERP Cloud supports both the ship from and ship to locations as the place of supply.

Set up tax registrations for the legal reporting units of the company and the customers or suppliers. 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.

Tax recovery is a full or partial recovery of tax paid on purchases by a registered legal reporting unit to offset the taxes collected from sales transactions. Some of the transaction taxes for Brazil are recoverable when they comply with applicable regulations. In Oracle ERP Cloud, tax recovery functionality can be configured and managed. In Brazil, 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.

Transaction Line No	Tax Regime	Tax Name	Tax Status	Tax Jurisdiction	Tax Rate	Tax Amount	Recoverable Tax Amount
1	ICMS	ICMS	Standard	State SP	18%	329.40	329.40
2	ICMS	ICMS	Standard	State SP	18%	473.40	473.40
Total of transaction tax for payables invoice						802.80	802.80

Note: Non-recoverable Tax Amount is blank for these recovery rate rules.

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Tax Line

Oracle ERP Cloud inserts tax lines at the summary level, one line for each applicable tax after the tax determination process successfully completes. Here's one tax line for ICMS tax.

Rate Name	Rate	Tax Amount	Tax Regime	Tax Name	Tax Status	Tax Jurisdiction
ICMS_18	18	82.80	ICMS	ICMS	Standard	SP

The respective distributions are created for transaction and tax lines, after a tax line is added. In this example, the ICMS tax inclusion method is Special Inclusive Handling.

Tax Regime	Tax Name	Tax Status	Tax Jurisdiction	Tax Rate	Tax Amount	Recoverable Tax Amount
ICMS	ICMS	Standard	State SP	18%	329.40	329.40
ICMS	ICMS	Standard	State SP	18%	473.40	473.40
Total of transaction tax for payables invoice					802.80	802.80

Note: Non-recoverable Tax Amount is blank in the above table.

After the tax determination process successfully completes, Oracle ERP Cloud inserts tax lines at the summary level, one line for each applicable tax. Here's the tax line for ICMS tax.

Rate Name	Rate	Tax Amount	Tax Regime	Tax Name	Tax Status	Tax Jurisdiction
ICMS_18	18	802.80	ICMS	ICMS	Standard	SP

In the above table, Tax Line value is 1.