1. Using Financials for Asia/Pacific
  2. Transactional Flow with Case Study

Transactional Flow with Case Study

Here's a case study that explains how inbound transaction taxes can be calculated and accounted on purchase order, receipt accounting distributions, and Payables invoice with the assumption that you’ve opted in for the feature and configured the applicable tax rules.

  1. Create purchase order.

    This table lists sample PO transactional data and predefined applicable tax rules:

    Sample PO Transactional Data and Predefined Applicable Tax Rules

    Sample PO Transactional Data Comments
    Procurement BU Vision Corporation BU
    Requisition BU Vision Corporation BU
    Sold to Legal Entity Vision Corporation
    Ship-to location Vision Corporation CA
    Supplier First manufacturer Ltd.
    Supplier site First manufacturer NY
    Item Cost 960
    Quantity 10
    Assessable value 9600
    Product fiscal classification HSNAA5788Z A tax determinant used to derive item codes and define applicable tax rate rules. Let's assume that the user has defined 18% tax rate for this PFC.
    Intended Use PARTIAL RECOVERABLE

    A tax determinant used to define tax recovery rate rule. Let's assume that the user has defined the tax recovery rate rule with partial recoverable intended use, which attracts 60%

    recoverable tax and 40% non-recoverable tax on the transaction.
    Tax rate 18%
    Invoice Match Option Receipt

    Defines how to calculate taxes on Receipt Accounting Distributions:

    • If the match option is Receipt, taxes are recalculated on receipt accounting distributions per tax determinants on receiving lines.
    • If the match option is Order, taxes are prorated from the purchase order to receipt accounting distributions and no tax recalculation happens.

    Oracle Fusion Tax calculates taxes on the purchase order. This table lists the detailed tax lines on the purchase order’s user interface:

    Tax Lines

    Line Tax Regime Tax Rate Name Taxable Amount Tax rate Tax Amount Recoverable Tax non-recoverable Tax

    Tax point

    Basis
    1 Regime1 GST1 GST1 18% 9600 18% 1728 1036.8 691.2 Invoice
  2. Create a receipt for the purchase order.

    When you create a receipt referencing the purchase order, all tax determinants are copied from PO lines/schedules to Receipt Lines. You can update tax determinants on receipt lines.

    For example, at the time of receiving the goods, per the Tax Invoice provided by supplier, the tax rate has changed from 18% to 28%.

    You can update the tax rate rule on receipt lines to calculate taxes at 28% on receipt accounting distributions.

    Once you create the receipt, you need to run the Create Receipt Accounting Distributions process to calculate taxes per tax determinants on receiving line for the receipt. Taxes are calculated and detailed tax lines are displayed on the Review Receipt Accounting Distributions user interface. The item’s cost and non-recoverable taxes are accrued on creation of receipt accounting distributions. As the tax point basis is Invoice, recoverable taxes are accounted on the Payables invoice.

    Transactional Data

    Transactional data on receipt Comments
    Item Cost 960
    Ordered Quantity 10
    receipt Quantity 10
    Assessable value 9600
    Product fiscal classification HSNAA5788Z This tax determinant is copied from the PO to the receipt. You can update the tax rate rule to attract 28% tax rate on receipt per the supplier tax invoice or you can manually select the product fiscal classification that derives 28% tax rate.
    Intended Use PARTIAL RECOVERABLE Copied from PO to receipt lines

    Tax rate

    28%

    Updated per the supplier tax invoice and the new tax rate.

    This table lists the detailed tax lines on Receipt Accounting Distributions:

    Tax Lines on Receipt Accounting Distributions

    Line Tax Regime Tax Rate Name Taxable Amount Tax rate Tax Amount Recoverable Tax non-recoverable Tax Tax point Basis
    1 Regime1 GST1 GST1 28% 9600 28% 2688 1612.8 1075.2 Invoice

    This table shows the transaction details for Receipt Accounting Distributions:

    Transaction details and Receipt Accounting Distributions

    Accounting Line type

    		 Cost Source Debit Credit
    Receiving Inspection Purchase Order 9600
    Accrual Purchase Order 9600
    Receiving Inspection non-recoverable transaction taxes 1075.2
    Accrual non-recoverable transaction taxes 1075.2
    Note: As this is a Receipt Matched Invoice, the taxes are calculated on receipt accounting distributions per the updated tax determinants on receipts lines.

    If this is an Order matched invoice, there won’t be any tax calculation on receipt accounting distributions. Tax distributions are prorated from the purchase order to receipt accounting distributions.

    This table shows the tax distributions are prorated from the purchase order:

    Prorated Tax Distributions From the PO to Receipt Accounting Distributions

    Accounting Line type Cost Source Debit Credit
    Receiving Inspection Purchase Order 9600
    Accrual Purchase Order 9600
    Receiving Inspection Transaction Taxes- non-recoverable 691.20
    Accrual Transaction Taxes-Non Recoverable 691.20
  3. Create Payables invoice.

    Now you can create a Payables invoice for the inbound transaction by matching Receipt. You should run Create Receipt Accounting Distributions process before creating a Payables invoice for this transaction. If you create a Payables invoice without creating receipt accounting distributions, the invoice is placed on a system hold and can’t be validated without creating receipt accounting distributions.

    You can create receipt accounting distribution even after creating Payables invoice if it is Order matched. If you create the Payables invoice by matching the PO without creating receipt accounting distribution, no hold is placed on the invoice.
    Note: After you opt in for this feature, you must run the Receipt Accounting Distributions process before creating a Payables invoice (by matching receipts). If you don't run the same, a hold is placed on the Payables invoices. The hold is only lifted after you create receipt accounting distributions for the receipt.

    This table shows the tax distributions on the Payables invoice:

    Table

    Transactional Data on Payables Invoice Comments
    Item Cost 960
    Ordered Quantity 10
    receipt Quantity 10
    Assessable value 9600
    Product fiscal classification HSNAA5788Z Copied from receipt lines to Payables invoice on receipt matching.
    Intended Use PARTIAL RECOVERABLE Copied from receipt lines to Payables invoice on receipt matching.
    Tax rate 28% The tax rate is the rate prevailing on the receipt date even if there are changes in tax rate on invoice date per the updated tax rate configuration. The tax point date is Receipt Date.

    This table shows the transactional data on the Payables invoice:

    Transactional Data on the Payables Invoice

    Line Tax Regime Tax Rate Name Taxable Amount Tax rate Tax Amount Recoverable Tax Non-recoverable Tax Tax point Basis
    1 Regime1 GST1 GST1 28% 9600 28% 2688 1612.8 1075.20 Invoice

    This table shows the accounting entries on Payables invoice:

    Accounting entries on Payables invoice

    Account Class Type Cost Source Debit Credit
    Item cost/Accrue Accrued on receipt accounting Distributions 9600
    non-recoverable tax/ Accrue Accrued on receipt accounting Distributions 1075.2
    Recoverable Tax Recognized on Payables invoice 1612.8
    Liability Supplier Liability 12,288
  4. Tax rate variance (TRV) calculation:

    For a receipt matched invoice, if there is a difference between the non-recoverable tax calculated on the receipt accounting distribution and the Payables invoice, the Tax Rate Variance (TRV) is calculated for the non-recoverable portion of the tax on a Payables invoice. For an order matched invoice, if there is a difference between the non-recoverable tax calculated on the purchase order and the Payables invoice, then the TRV is calculated for the non-recoverable portion of the tax on the Payables invoice. The non-recoverable tax portion may vary based on:

    • The tax rate on the Payables invoice,
    • The tax recovery rate,
    • The tax determinant such as intended use on the Payables invoice, and so on.

    With reference to the given case study, let’s assume that the user has changed the Intended use tax determinant of the transaction from Partial Recoverable to Non-Recoverable on the Payables invoice. Now 100% of the tax calculated is non-recoverable and the difference in the non-recoverable portion on receipt accounting distributions and Payables invoice is accounted as TRV:

    This table tax calculations on receipt accounting distributions and Payables invoice is accounted as TRV:

    Accounting Distributions and Payables Invoice

    Transactional Data on the Payables Invoice Comments
    Item Cost 960
    Ordered Quantity 10
    receipt Quantity 10
    Assessable value 9600
    Product fiscal classification HSNAA5788Z Copied from receipt lines to the Payables invoice on receipt matching.
    Intended Use NON RECOVERABLE Updated on the Payables invoice.
    Tax rate 28% Even if there is a change in tax rate on Invoice date as per updated tax rate configuration, the tax rate is the rate prevailing on the receipt date. The tax point date is the Receipt Date.

    This table lists the detailed tax lines on Payables invoice:

    Detailed Tax Lines on Payables Invoice

    Line Tax Regime Tax Rate Name Taxable Amount Tax rate Tax Amount Recoverable Tax Non-recoverable Tax Tax point basis
    1 Regime1 GST1 GST1 28% 9600 28% 2688 0 2688 Invoice
    This table shows the accounting entries on the Payables invoice:

    Accounting Entries on Payables Invoice

    Account Class Type Cost Source Debit Credit
    Item cost Accrued on receipt accounting Distributions 9600
    non-recoverable tax Accrued on receipt accounting Distributions 1075.2
    Tax rate variance Variance Recognized on Payables invoice 1612.8
    Liability Supplier Liability 12,288
    Note: When you create cost accounting distributions, the accounted tax rate variance is treated as cost adjustment to the item cost.
  5. Upgrade impacts:

    If you’re an existing user opting in for this feature, this table lists the pre-upgrade and post-upgrade tax calculations.

    Pre Upgrade and Post-Upgrade Tax Calculations

    Tax point basis Tax Point date Match Option Purchase Order Receipt Receipt Accounting Distributions AP Invoice Behavior
    Invoice Receipt Date Order Pre-upgrade Pre-upgrade Pre-upgrade Pre-upgrade
    • Calculates taxes on the PO.
    • Taxes are prorated from the PO to receipt accounting distributions.
    • Calculates taxes on the Payables invoice.
    Invoice Receipt Date Receipt Pre- upgrade Pre- upgrade Pre- upgrade Pre- upgrade
    • Calculates taxes on the PO.
    • Taxes are prorated from the PO to receipt accounting distributions.
    • Calculates taxes on the Payables invoice.
    Invoice Receipt Date Order Post- upgrade Post- upgrade Post- upgrade Post- upgrade
    • Calculates taxes on the PO.
    • Taxes are prorated from the PO to receipt accounting distributions.
    • Calculates taxes on the Payables invoice.
    Invoice Receipt Date Receipt Post- upgrade Post- upgrade Post- upgrade Post- upgrade
    • Calculates taxes on the PO.
    • Calculates taxes on receipt accounting distributions.
    • Calculates taxes on the Payables invoice.
    Invoice Receipt Date Receipt Pre- upgrade Pre- upgrade Post- upgrade Pre- upgrade
    • Calculates taxes on the PO.
    • Taxes are prorated from the PO to receipt accounting distributions.
    • Calculates taxes on the Payables invoice. There is no invoice hold.
    Invoice Receipt Date Receipt Pre- upgrade Pre- upgrade No Run Post- upgrade
    • Calculates taxes on the PO.
    • Taxes are prorated from the PO to receipt accounting distributions.
    • Invoice is placed on hold as the receipt accounting distribution not created.