Minimum Tax Configuration Setup

Define the minimum tax configuration setup to handle the majority of your tax requirements. As part of defining transaction and withholding taxes, decide the direct and indirect tax rule defaults for the tax and set up the associated tax accounts.

For complex tax requirements, create tax rules that consider each tax requirement related to a transaction before making the final tax calculation.

Setting Up Direct Tax Rule Defaults

The direct tax rule defaults are the default values for the direct tax rule types, which include:

Place of supply
Tax applicability
Tax registration
Tax calculation formula
Taxable basis formula

The following table describes the direct tax rule defaults and examples:

Direct Tax Rule Default	Usage	Example
Place of Supply	Indicates the specific tax jurisdiction where the supply of goods or services is deemed to have taken place.	In Canada, the place of supply for Goods and Services Tax (GST) is typically the ship-to location. To handle the majority of GST transactions, select Ship to as your default place of supply. Note: The corresponding place of supply differs based on the type of transaction. For example, a place of supply of Ship to corresponds to the location of your first-party legal entity for Payables transactions. For Receivables transactions, Ship to corresponds to the location of your customer site.
Tax Applicability	Indicates whether the tax is typically applicable or not applicable on transactions.	The GST in Canada is a tax that applies to the supply of most property and services in Canada. When you create the GST tax, select Applicable as your default tax applicability.
Tax Registration	Determines the party whose tax registration status is considered for an applicable tax on the transaction.	With a direct default of bill-to party, the tax registration of the bill-to party is considered. The application stamps their tax registration number onto the transaction, along with the tax registration number of the first-party legal reporting unit.
Tax Calculation Formula	Represents the typical calculation of tax for a transaction line.	A common formula, STANDARD_TC, is predefined, where the tax amount is equal to the tax rate multiplied by the taxable basis.
Taxable Basis Formula	Represents the amount on which the tax rate is applied.	The following common formulas are predefined: STANDARD_TB: The taxable basis is equal to the line amount of the transaction line. STANDARD_QUANTITY: The taxable basis is equal to the quantity of the transaction line. STANDARD_TB_DISCOUNT: The taxable basis is the line amount of the transaction line less the cash discount.

Note: Use the Manage Tax Rules task to define exceptions to the direct tax rule defaults you define for the tax.

Setting Up Indirect Tax Rule Defaults

The indirect tax rule defaults for a tax include:

Tax jurisdiction
Tax status
Tax recovery rate
Tax rate

The following table describes the indirect tax rule defaults and examples:

Indirect Tax Rule Default	Usage	Example
Tax Jurisdiction	Indicates the most common geographic area where a tax is levied by a specific tax authority.	Value-added tax (VAT) is applicable to the supply of most goods and services in Portugal. For the tax PT VAT, create the default tax jurisdiction as the country of Portugal. To address specific tax regions such as Azores and Madeira, which have lower VAT rates than Portugal, define jurisdiction rates with different VAT rates.
Tax Status	Indicates the taxable nature of the majority of your transactions.	If your operations primarily include zero-rated transactions, select the default tax status as Zero instead of Standard. This setting facilitates tax determination when multiple zero rates are defined to handle different reporting requirements for zero rate usage, such as intra-EU, zero-rated products, or zero-rated exports.
Tax Recovery	Indicates the recovery rate to apply to each recovery type for each applicable tax on a purchase transaction.	In Canada, both federal and provincial components of Harmonized Sales Tax (HST) are 100% recoverable on goods bought for resale. In this case, with two recovery types, you can set up two recovery rate defaults for the HST tax.
Tax Rate	Specifies the default tax rate that is applicable to the majority of your transactions associated with this tax. You can create additional tax setup, such as jurisdiction rates, or create tax rules to set alternate values as required.	HST in Canada is applied at a 13% rate in most provinces that have adopted HST. The exceptions are British Columbia where the rate is 12% and Nova Scotia where the rate is 15%. To satisfy this requirement: Define a single rate of 13% with no jurisdiction. Define a 12% rate and associate it with the British Columbia jurisdiction. Assign a 15% rate to Nova Scotia. This minimizes the setup required by creating an exception-based setup.

Note: Use the Manage Tax Rules task to define exceptions to the indirect tax rule defaults you define for the tax.

Setting Up Tax Accounts

Set up tax accounts at the tax level. The application automatically copies the tax account combination to the tax rate accounts or tax jurisdiction accounts that you create for the tax for the same ledger and optionally, the same business unit. Any subsequent changes you make to existing tax accounts at the tax level aren't copied to the tax rate or tax jurisdiction level.

Define tax accounts at any of the following levels. The defaulting option is only available at the tax level.

Tax
Tax jurisdiction
Tax rate
Tax recovery rate

Note: When you create your tax, the tax recoverable account and tax liability account may be prepopulated from default account values defined in the Rapid Implementation for General Ledger spreadsheet upload. You can override these values.

Set up tax accounts for the following:

Account	Description
Ledger and Business Unit	The ledger and business unit for which you are creating the tax accounts.
Interim Tax	An account that records tax recovery or liability until the event prescribed by the statute is complete. Generally, the payment of the invoice is the event that triggers the generation of the tax recovery or liability. You must set up an interim tax account for taxes and tax rates that have a deferred recovery settlement. Once you set up an interim tax account for this tax rate, you can't change the recovery settlement to Immediate.
Tax Recoverable Account	An account that records tax recovery amounts. If you set up recovery rates for a tax that you also self assess, then define a tax recovery account for the associated recovery rates.
Tax Liability Account	An account that relieves tax liability amounts. If you set up recovery rates for a tax that you also self assess, then define a tax liability account for the associated tax rates.
Finance Charge Tax Liability	An account that records the tax liability associated with finance charges that is used as a deduction against overall tax liability.
Nonrecoverable Tax Accounts	Accounts that record tax amounts on earned and unearned discounts and adjustments that you can't claim as a deduction against tax liability.
Expense and Revenue Accounts	Accounts that record net changes generated by adjustments, earned and unearned discounts, and finance charges. Receivables activities such as discounts and adjustments reduce the receivable amount, and are therefore considered an expense.