Overview of Product-Based Fiscal Classifications

Many tax regimes define rules for specific products or types of products. This is done to stimulate or enhance trade in specific products or ensure that certain products or product types are excluded from taxes.

To support these requirements, Oracle Fusion Tax provides features to allow items to be classified. They make extensive use of the Oracle Fusion Inventory catalog functionality. If you don't implement Inventory, you can use product category fiscal classifications as an alternative classification in Oracle Fusion Tax. Set up your product classifications using the Manage Product-Based Fiscal Classifications task.

For example, value-added tax (VAT) in the UK exempts children clothing and normal foods from Great Britain's (GB) VAT. It's also common that tax authorities vary the tax status of product types depending on how they're planned to be used. For example, a company purchases products that are subject to VAT. The use of these items isn't related to the company's sale of taxable supplies. Therefore, the company can't recover any VAT or can only partially recover VAT on those purchases.

There has also been a recent trend to introduce antifraud tax legislation for specific products so that they can be treated in a different way to prevent fraud. For example, the GB Missing Trader IntraCommunity antifraud legislation specifies that certain types of business-to-business domestic supplies of certain high value electronic products, such as mobile phones, computer equipment and accessories are reversed charged. For more information about GB Missing Trader IntraCommunity legislation, see Her Majesty's Revenue and Customs (HMRC) - Business Brief 10/06.

The following product classifications for tax purposes can be used within Oracle Fusion Tax and are summarized in the following table:

Product Classification	Description
Product fiscal classification types and codes	Use this classification to group items for tax determination and reporting purposes. This functionality uses the Oracle Fusion Inventory catalog and item functionality and therefore, you can only use it when this functionality is installed.
Product category fiscal classification codes	Use this classification where Inventory is not installed. It helps classify transaction lines for tax determination and reporting purposes.
Intended use fiscal classifications	Use this functionality for tax determination and reporting purposes. Use this classification where transaction lines need to be classified based on the intended use of the product defined on that item.

Tip: When available, use the product fiscal classifications in preference to product categories. This is because the application automatically derives product fiscal classifications at transaction time based on the items defined on the transaction line and their relationship to the applicable catalog classification.

You can use product category fiscal classifications in conjunction with product fiscal classifications. This combination enables you to define two different determining factors at transaction time.