How You Use Tax Setup Components in Tax Determination Process

The tax determination process uses your tax configuration setup and the details on the transactions to determine which taxes apply to the transaction and how to calculate the tax amount.

How Tax Is Calculated Using Tax Setup Components

You must complete a certain number of setup tasks for each step of the tax determination and tax calculation process. The number and complexity of your setups depends upon the requirements of the tax authorities where you do business.

This table describes the order in which Oracle Fusion Tax calculates taxes on transactions. You can use this table to:

• Review the details of each process.

• Identify the setups that you need to complete in each step of tax determination and calculate process.

Order	Process Name	Activities	Components Used and Rule Type (if Applicable)
1	Determine Applicable Tax Regimes and Candidate Taxes (preliminary step)	Determine the first party of the transaction. Identify location types to derive candidate tax regimes. Identify tax regimes. Identify taxes using subscriber configuration option.	Party tax profile Regime determination set Configuration options
2	Determine Place of Supply and Tax Jurisdiction	Identify location type. Identify tax jurisdiction.	Tax rule: Determine Place of Supply, or the default value for Place of Supply for the tax. Tax jurisdictions
3	Determine Tax Applicability	Consider candidate taxes from the previous process. Eliminate taxes based on tax applicability rule for each tax.	Tax rule: Determine Tax Applicability and the default value for applicability for the tax.
4	Determine Tax Registration	Determine the party type to use to derive the tax registration for each applicable tax.	Tax rule: Determine Tax Registration, or the default value for the tax. Party tax profile Tax registration
5	Determine Tax Status	Consider tax statuses of applicable taxes. Consider tax status rules or use default tax status.	Tax rule: Determine Tax Status, or the default value defined for the tax.
6	Determine Tax Rate	Consider tax rates of each applicable tax status of each applicable tax. Determine the tax rate code to use for the tax status, for each applicable tax. Determine the tax rate percentage or per-unit tax amount for a quantity based tax. If a tax exception applies, update the tax rate for each applicable tax. If a tax exemption applies, update the tax rate.	Tax rule: Determine Tax Rate, or the default value defined for the tax status derived in the previous process. Tax rates Product tax exceptions Customer tax exemptions
7	Determine Taxable Basis	Identify the taxable basis formula for each applicable tax. Determine the taxable basis and compounding details based on the taxable basis formula. Consider the tax inclusive settings of the applicable taxes.	Tax rule: Determine Taxable Basis, or the default value for the tax. Taxable basis formula Tax inclusive settings at the tax rate level
8	Calculate Taxes	Identify the tax calculation formula. Calculate taxes using the tax calculation formula. Perform applicable tax rounding.	Tax rule: Calculate Tax Amounts Calculate tax formula, if applicable Tax rounding rule from tax registration, party tax profile, or tax Configuration owner tax options
If tax recovery is applicable	Determine Recovery Rate	Allocate tax amount per item distributions. Determine tax recovery types. Determine tax recovery rates. Determine the tax recoverable amounts. Determine the nonrecoverable amount.	Tax rule: Determine Recovery Rate, or the default value defined for the tax. Tax recovery rates