Example of Using Product Fiscal Classifications
Many tax regimes use product classification to control tax applicability as well as the tax rate to be applied. In value-added tax (VAT) regimes, the type of product being purchased can drive recoverability.
This scenario illustrates how tax is determined and reported for newspapers, books, and periodicals in Luxemburg.
Scenario
In Luxemburg, transactions involving newspapers, books, and periodicals are invoiced with VAT at a reduced rating (currently 3%).
To determine tax:
-
Configure the Oracle Inventory catalog functionality.
-
Create a catalog specifically for Luxemburg VAT with the name LU VAT PRODUCT CLASSIFICATION. To create the catalog, create class categories including Reduced Rate 1 Goods.
This catalog is used for other classifications such as Reduced Rate, Exempt Rate, and Standard Rate. Link all of the items that are rated as Reduced Rate 1 Goods in Luxemburg to this class category. In this case, link any relevant newspapers, books, and periodicals to this class category.
Introduce a coding structure. An example is shown in the following table:
Code
Name
LUG01
Goods
LUG0100
Normal Rated Goods
LUG0101
Zero Rated Goods
LUG0102
Exempt Goods
LUG0103
Reduced Rate Goods
LUG0103-01
Reduced Rate 1 Goods
LUG0103-02
Reduced Rate 2 Goods
LUG0103-03
Reduced Rate 3 Goods
LUS01
Services
LUS0100
Normal Rated Services
LUS0101
Zero Rated Services
LUS0102
Exempt Services
LUS0103
Reduced Rate Services
LUS0103-01
Reduced Rate 1 Services
LUS0103-02
Reduced Rate 2 Services
LUS0103-03
Reduced Rate 3 Services
Tip: While using the product fiscal classification, classify the nonstandard items of your business as standard items. You can model this as a default tax rule that doesn't require an explicit classification or an explicit rule. Classify only exception items and define specific tax rules for them. For a standard item, none of the explicit rules are applicable and the default rate applies.Tip: Don't add the explicit percentage to the naming or coding convention used for product fiscal classifications. When the rate changes, you change the rate period on the specific rate and you don't have to change classification or associated tax rules. -
Create a product fiscal classification and link it with the catalog using the code LU VAT PRODUCT FISCAL CLASSIFICATION. In this scenario, only a single level is needed, although other levels may be needed to model nonstandard services or subclassifications of product types for reporting purposes. The following table represents this multiple level requirement:
Level
Type Code
Type Name
Start Position
Number of Characters
1
LU Goods or Services
Luxemburg Goods or Service Level
1
5
2
LU Type of Goods or Services
Luxemburg Type of Goods or Service Level
1
7
3
LU Type of Reduced Rate
Luxemburg Type of Reduced Rate Goods or Service
1
10
-
Create or amend the Luxemburg country default record and set the primary inventory category set to LU VAT PRODUCT FISCAL CLASSIFICATION.
-
Create the determining factor set and condition set which refer to the product fiscal classification.
Use Product inventory linked as the determining factor class, the level to be defined in the rule as the class qualifier, and the specific LU product fiscal classification level as the determining factor as shown in the following table:
Determining Factor Class
Class Qualifier
Determining Factor Name
Product inventory linked
-
LU Type of Reduced Rate
-
Create the condition set that refers to the product category fiscal classification as shown in the following table:
Determining Factor Class
Class Qualifier
Determining Factor Name
Value
Product inventory linked
-
LU Type of Reduced Rate
Reduced Rate 1 Goods
-
Create the tax status rule based on the determining factor set and condition set with zero tax rate status as the result as shown in the following table:
Determining Factor Class
Class Qualifier
Determining Factor Name
Value
Result
Product inventory linked
-
LU Type of Reduced Rate
Reduced Rate 1 Goods
LU Reduced Rate 1 Status