Tax Rule Configuration

Create a simple tax model using tax rule defaults predefined in the foundation tax configuration. You can also create tax rules for complex tax requirements that consider each tax requirement related to a transaction before making the final tax calculation.

When running the tax determination process, the tax rules defined against the foundation tax configuration setup and the details on the transactions are evaluated in the order of priority. If the first rule is:

• Successfully evaluated, the result associated with the rule is used.

• Not successfully evaluated, the next rule is evaluated until either a successful evaluation or a default value is found.

Tax Rule Configuration

The complexity of tax rule setup is categorized on the following basis:

• No tax rules required

• Simple tax rule regimes

• Complex tax regimes

The following table presents the scenarios and actions associated with each of these categories:

Category	Scenario	Action
No tax rules required	The tax authority levies tax on all sales and purchase transactions at the same rate. Tax applicability, tax rates and recovery rates do not vary based on: Parties to the transaction Products or services in the transaction Business processes involved in the transaction	For the tax, define tax rule defaults for the tax status, tax rate, and tax recovery rate. The tax determination process uses the tax rule defaults to determine the tax.
Simple tax rule regimes	The tax authority levies tax on your transactions at the same rate, with a simple set of identifiable exceptions. The exceptions apply to either: One part of the transaction only, such as to certain parties. A combination of parties, products, and transaction processes that you can summarize in a simple way.	Create a simple set of rules. For example, to identify the place of supply and tax registration, and use the tax rule default values for the other processes. The tax determination process uses tax rules and tax rule defaults to determine the tax.
Complex tax regimes	Tax regimes in certain countries require a complex logic to determine the applicable taxes and rates on a transaction. Both tax applicability and tax rates may vary based on: The place of origin The place of destination The party registration The tax status Service A combination of factors In some cases, the taxable amount of one tax may depend upon the amount of another tax on the same transaction. And in rare cases, the tax amount itself may depend on the tax amount of another tax.	Set up tax rule to define the logic necessary to identify each step of the tax determination process. The tax determination process uses the tax rules to determine the tax.