1. Using Financials for EMEA
  2. Tax Exemption Processing for Italy

Tax Exemption Processing for Italy

This topic explains the implementation and usage guidelines for the following:

  • Defining Letter of Intent Limits (VAT Plafond)
  • Recording Letters of Intent that are
    • Sent to suppliers.
    • Received from customers.
  • Reporting
    • Exemption Letter Report for Italy
    • Supplier Exemption Limit Consumption Report for Italy
    • Subledger Letter of Intent Register for Italy
    • Letter of Intent Receivables Invoice Register

In Italy, after agreeing on the VAT exempt amount with the tax authority, you set this as the Letter of Intent limit. You can generate and print Letters of Intent to send to your suppliers, requesting them not to include VAT on invoices. Likewise, you'll receive Letters of Intent from your customers, and you need to record them. When making purchase and sales invoices, you link the Letter of Intent number with the invoice.

The Italian payables exemption process is for the VAT Plafond requirements in the regular exporter's transaction cycle. The VAT Plafond amount is the VAT non-taxable sum a regular exporter can claim from suppliers when purchasing or importing goods or services. A regular exporter is someone with exported sales exceeding 10% of the total annual sales, allowing them to acquire goods and services without VAT. This process is now known as the Letter of Intent process.

Once the VAT Plafond amount is calculated, the regular exporter allocates it to domestic suppliers and customers in one of three ways:

  • For a specific operation with the operation's description - print for operations specified in the exemption letter UI.
  • For several operations up to a predefined amount - print for operations performed in the given year up to the amount in the Exemption Letter user interface.
  • For all operations in a predefined date range within the same calendar year - print for operations in the given year from date to date (date specified in the exemption letter UI).

Use the Supplier Exemption Limit Consumption Report for Italy to track the supplier consumption of the Letter of Intent amount throughout the calendar year. You can also print the Subledger Letter of Intent Register for Italy and the Letter of Intent Receivables Invoice Register.

In summary, the process involves:

  • Setting letter of intent limits.
  • Creating letters of intent for suppliers and customers.
  • Sending letters of intent to suppliers.
  • Receiving letters of intent from customers.
  • Recording letters of intent against invoices.
  • Running reports.
The letter of Intent feature is fully integrated with Oracle Fusion Tax.

Initial Setup Requirements

The following entities are assumed to have already been configured:

  • Data Security
  • Geographies
  • Enterprise Structure
  • Tax Regime to Rate setup
  • Tax Party Profiles
  • Tax Rules
  • Suppliers
  • Customers
  • Procurement Business Function
  • Common Options for Oracle Payables and Oracle Receivables

Manually include the Manage Letter of Intent Limits for Italy task in your implementation project. Here's the process:

  1. Edit your implementation project.
  2. Click on Select and Add.
  3. Search for the task Manage Letter of Intent Limits for Italy.
  4. Apply the change.

It is recommended that the ‘Implementation Project’ is complete for your organization before starting the setup for tax exemption processingComplete Setup for Tax Exemption Processing

Define Letter of Intent Limits (VAT Plafond)

The exemption limit refers to the total amount of VAT exemption that a standard exporter can request from its suppliers. Each year, the initial exemption limit is determined by adding up all reported export invoices from the previous year. There are two types of VAT Plafond:

  • Annual Plafond: This involves manually calculating the VAT Plafond at the beginning of the year based on the previous year's operations.
  • Monthly Plafond: This requires manual calculation at the start of each month, considering the operations of the previous 12 months. Currently, regular exporters prefer this method as it allows for a progressive increase in exports since it is recalculated monthly.

Here’s how to define the letter of intent limits:

  1. Navigate to the Manage Letter of Intent Limits for Italy task.
  2. Define the VAT Plafond for a Legal Entity and Calendar Year.
  3. Specify the annual Letter of Intent limit, which the application automatically apportions equally over twelve calendar months. Alternatively, you can set a monthly limit amount if you want different limits for each month

Adjust a Letter of Intent Limit (VAT Plafond)

Here’s how to adjust a letter of intent limits:

  1. Navigate to the Manage Letter of Intent Limits for Italy task.
  2. Adjust the Exemption Limits throughout the calendar year in case the VAT Plafond amount must be rectified. Search for the Legal Entity, Limit Type and Calendar Year.
    • Choose the Period you want to adjust.
    • Edit the limit value and save.

Tax Reporting Types and Codes

Here’s how to manage tax reporting types:

  1. Navigate to the Manage Tax Reporting Types task.
  2. Set up Tax Reporting Codes to categorize your transactions for reporting purposes. For instance, establish a tax reporting code for the Letter of Intent. This configuration allows you to generate reports based on the Tax Reporting Code.
  3. Configure the Letter of Intent reporting type and code, associating it with tax exemptions (letter of intent) and tax rates. Transactions flagged with the Letter of Intent reporting type code will be included in the reporting.
  4. Enable the Reporting Type Use for Tax exemptions.
  5. Assign the Tax Reporting Code to the applicable tax rate(s) linked to your transactions. This step is necessary, as the reports will only include transactions with the assigned tax reporting code.

Party Tax Profile Tax Exemption

The Letter of Intent (Lettera di Intento) is the formal letter regular exporters need to send to suppliers and customs. In this letter, there are instructions either to invoice without VAT or to revoke/suspend a previous Letter of Intent, along with instructions to invoice with VAT.

A Letter of Intent is valid only for the calendar year. It's possible to register more than one Letter of Intent within the calendar year for the same third party. These letters are kept as exemptions in the party tax profile. Both customers and suppliers can qualify for tax exemption. To set up these exemptions:

  1. Go to the Manage Party Tax Profiles task.
  2. Search for the Third-Party Tax Profile for your Party Name.
  3. Edit the Party Name.
  4. Select the Tax Exemptions tab and create a Tax Exemption.
  5. Define the Letter of Intent as a Third-Party Tax Profile Tax Exemption.
    • The Letter of Intent can be defined for customers and suppliers.

Create Tax Exemption Region

Here are the details to enter in the tax exemption region:

  1. Enter the Party Type of Supplier or Customer.
  2. Enable the Letter of Intent option. This indicates the VAT exemption limit applies to a supplier or customer.
  3. Enter the start and end date to indicate letter validity.
  4. Enter the Recording Date to represent the date when the letter of intent is created for a supplier, or registered for a customer in Tax.
    • The Certificate Number represents the internal chronological number consisting of the year and a progressive number generated sequentially. It is automatically generated when the exemption is saved and can’t be updated. If the Party Type = Supplier, the Certificate Number is not available. It is only available if the Party Type = Customer.
    • The Protocol Number is generated for internal use and is applicable when the Party Type Supplier. Protocol Number is an internal chronological number consisting of the year and a progressive number generated sequentially. It is automatically generated when the exemption is saved and may not be updated.
    • The Letter Date is automatically updated with the system date when the letter created for a supplier is printed. It is printed on the Italian Supplier Exemption Limit Consumption Report and the Subledger Letter of Intent Register.
  5. Enter the Tax Reporting Type and Tax Reporting Code for the letter of intent that you previously setup. These are also used as report parameters and the Tax Reporting Code is then associated to the transactions.

Exemption Details Region

Here are the details to enter in the exemption details region:
  1. Enter the Exemption Status. It can be Primary, Discontinued, or Rejected.
    • Suspended letters should be Discontinued.
    • Revoked letters should be Rejected.
    • Active letters should be Primary.
  2. Enter the Suspension or Revocation From Date when you suspend or revoke an exemption. Suspended letters can be re-activated later, whereas Revoked letters are end dated and can’t be reversed.
  3. If the status is set to Suspended, then enter the Suspension To Date to record the period the letter is suspended.
  4. Use the Exempt Reason to indicate the correct reason for the Letter of Intent. Available values are:
    • Exempted amount.
    • Exempted period, which does not allow overlapping dates.
    • Specific Operation, which automatically selects the Address to customs office option.
  5. Enter the supplier or customer Exemption Amount that is printed on the Letter of Intent.
  6. Enter the Clause which indicates which act is cited in the Letter of Intent. Valid values are:
    • art.8 (Export Sales)
    • art.8 bis (Transactions treated as Export Sales)
    • art.8 lett.C (Indirect Exports)
    • art.9. (International services or related to international trade)
  7. Enable the Prepare Letter of Intent option to direct the application to create a printed copy of the letter for mailing.
  8. Enable the Letter of Intent ready to print option to generate and print a letter or a reprint of a letter.

    When you need to send a copy of the Exemption Letter to the Italian Customs Office, set the Exempt Reason to Specific Operation. The Specific Operation indicates that letters are to be sent to the Customs Office, instead of the supplier.

RECORD LETTERS OF INTENT

Record Letters of Intent Against Invoices in Payables

Here are the steps to record letters of intent against invoices in payables:

  • Enter the invoices in Payables that relate to your suppliers to whom you have sent a Letter of Intent.
  • Assign the tax code that has the Letter of Intent reporting type code associated. The transaction should have the tax status code associated with the tax exemption.
  • Ensure that the Tax Exemption details apply to the transaction and enter the Tax Exemption Certificate Number on the invoice tax lines user interface.
    • Invoices entered in Payables that relate to suppliers to whom you have sent a Letter of Intent will be displayed in the Supplier Exemption Limit Consumption Report.
  • Validate and account all invoices you require to appear in the Supplier Exemption Limit Consumption Report.

Record Letters of Intent Against Transactions in Receivables

Here are the steps to record letters of intent against transactions in receivables:

  1. Enter the transactions in Receivables that belong to your customers who have sent you a Letter of Intent.
  2. Ensure that the Tax Exemption details apply to the transaction and verify the certificate number and reason in the invoice lines user interface.
    • Transactions entered in Receivables that belong to customers from where you have received a Letter of Intent will be displayed in the Letter of Intent Receivables Invoice Register Report and Subledger Letter of Intent Register.
  3. Complete, account and post all transactions you require to appear in the Letter of Intent Receivables Invoice Register Report and Subledger Letter of Intent Register.

REPORTING

Here are the reports you should print for auditing purposes:

Exemption Letter Report for Italy

The Exemption Letter Report for Italy produces an exemption letter for each supplier, instructing them not to include VAT on invoices that they submit. Use the Exemption Letter Report for Italy to create and print the Letters of Intent. Only letters that have Letter of intent ready to print option selected, are generated and printed. To Reprint a letter of intent, enable the Letter of intent ready to print option in the Exemption Details of the Manage Party Tax Profiles UI. All report parameters are mandatory.

Supplier Exemption Limit Consumption Report for Italy

The Supplier Exemption Limit Consumption Report for Italy lists details about Italian suppliers and their consumption of the Letter of Intent amount that is assigned to them. The report will be grouped by supplier, showing the invoice and Letter of Intent details. You can monitor the consumption of the Letter of Intent amounts to make sure you do not exceed the agreed limit. Enter all the mandatory report parameters to generate the report. The report output displays details of each supplier showing the monthly consumption. The report details will also show the consumed amount during the period and the letter of intent limit amount still available at the end of the period. The Supplier Consumption Amount and invoice details will be printed for each supplier. There is a report total Letter of Intent Amount Consumed During the Period, that represents the total consumed for the whole period for all suppliers.

Subledger Letter of Intent Register

The Subledger Letter of Intent Register lists all Italian exemption letters issued within a given period range. Choose to list either the Letters of Intent you received from your customers or the Letters of Intent you sent to your suppliers. Select Source as Receivables to list letters of intent received from customers. Select Source as Payables to list letters of intent sent to suppliers. All report parameters are mandatory.

Letter of Intent Receivables Invoice Register

The Letter of Intent Receivables Invoice Register lists details about Receivables transactions issued with a Letter of Intent for a given calendar year. It also prints information about the customer who sent the letter.