Configuring European VAT

About European VAT

The European Union value added tax (EU VAT) is a tax levied on the movement of goods which are bought and sold within the countries of the European Union. Oracle Transportation Management (OTM)  currently supports the European VAT tax engine that is mainly used for EU VAT calculations. Most of the EU VAT calculation is determined at the country level.

OTM requires various components to calculate the European VAT correctly. Let’s look at each component in detail and how it relates to European VAT.

Setup required for European VAT:

• VAT Code: Specifies how much VAT rate is to be applied to an invoice or bill, and where the tax is applicable. European VAT rates vary by country. For example, for the VAT Code V1 which represents LOCAL VAT, you can define VAT rates for various countries. For Denmark the VAT Rate is 25%, Finland is 24% and Spain is 21%. For more details, see VAT Code.
• VAT Outcome: See VAT Outcome, to view predefined potential VAT outcomes which ships with OTM.
• VAT Configuration: When creating a VAT Configuration,  assign an ID, a name and select whether the Tax Type is a Provincial VAT or a European VAT. For more details, see VAT Configuration.
• Designate Countries as EU members: For a country to be considered valid for European VAT calculation, the country must be designated as a member of the European Union (EU). There is an EU Member check box on the Country Code. If you need to change the definition of a country, you find all countries in the public domain.
• Assign VAT Configuration to a domain default Parameter Set: Create a new parameter set and select the VAT Configuration ID value against the VAT Configuration ID parameter. See Parameter Sets.

Here’s a process flow that determines how European VAT is applied.

Configuring European VAT

First, let’s look at a scenario to determine how European VAT is applied.

In this specific scenario, let’s consider an EU import. For example, a shipment is being imported within European countries. OTM uses European VAT engine. The European VAT is determined based on Country of Export, Country of Service Provider, or Country of Customer etc, controlled by VAT Configuration.

Perform the following steps to configure European VAT for the above scenario:

1. Create a VAT Code. For example, create a VAT code, F5.
2. Select the Provincial check box which enables you to enter the provincial code for a specific province. You can now give VAT Rate based on Country and Province Code combination in the VAT Code.

The province code is determined the same as how the country code was determined i.e., based on the VAT Country Source value. For example, if the VAT Country Source value is "Service Provider", then the country code and province code of the service provider is taken and the VAT rate for this combination is applied finally. If the province code is not found on that VAT Country Source, then only the country is considered and any VAT rate that applies for that country is chosen.

For example, define VAT Code F5 with the details below:

Country Code	Province Code	Rate
ESP	PE	7%
FRA		9%
SWE		9.50%

 

3. Create a VAT Outcome as IMPORT_LOCAL_SERVPROV.

For European VAT Configuration:

1. Create a VAT Configuration ID as EURO VAT.
2. Select the Tax Type as EUROPEAN VAT.
3. Click New Perspective. See Tax Type - European VAT, on the VAT Configuration page.
4. On the VAT Configuration Perspective page, select Buy Perspective. This perspective specifies that the VAT is applicable for buy-side shipments.
5. Select Goods Location Type as Order. OTM reviews the shipment and applies any VAT to the appropriate order.
6. Select the Customer Involved Party Qualifier which specifies the qualifier for the invoice or bill involved party that should be considered. The invoice or bill on which you want to calculate VAT must have this Involved Party Qualifier along with the involved party. This involved party should be registered in the EU country to pick the VAT Outcome IMPORT_LOCAL_SERVPROV.
7. Enter the VAT Outcome ID as IMPORT_LOCAL_SERVPROV. This is determined for the invoice on which we are calculating the VAT based on various rules. For example, if the goods origin is outside EU then it is an IMPORT. These rules also include Service Provider's and Customer's VAT registration countries. So in this scenario, both the service provider andcustomer are registered in the EU countries, hence the IMPORT_LOCAL_SERVPROV VAT Outcome applies.
8. Enter VAT Code and VAT Country Source. OTM checks how much the VAT rate is for the country matching it with the VAT Country Source. For example, if the country source is "Service Provider", the country of the Service Provider's location is considered. If the country source is "Shipment", then the shipment’s origin country is considered and so on. If the primary registration of the customer is not known, then the Foreign VAT Code Overrides is considered.
9. Click Save. If there are multiple VAT Outcomes, then the one with the highest priority is chosen.
10. Click Finished. Your EURO VAT configuration ID is created.

Once you have configured your VAT Configuration for calculating European VAT, you must assign it as a parameter. Setting your VAT Configuration ID as a parameter tells OTM which VAT configuration ID to use in case there are multiple configuration IDs. A parameter must be set in your domain’s default parameter set. The VAT Configuration ID parameter must be associated with the VAT configuration ID that you want OTM to use when running the calculate VAT action.

To Configure Parameter Sets:

1. Go to Shipment Management > Power Data > General > Parameter Sets.
2. Follow the steps given under the Creating Parameter Sets section. Create EU-VAT as the parameter set ID.
3. Edit EU-VAT which is domain’s specific parameter set ID which you have created.
4. On the Parameter Set page, under the Settlement section, go to the VAT Configuration ID parameter. From the Parameter Value drop-down list, select the EURO VAT which you have created.
5. Go to Configuration and Administration > Preferences > User Preference and Copy User Preference and create EU_VAT.
6. Edit the User Preference which you have created. Under the Preference section, select Parameter Set  from the Name drop-down list and select the EU_VAT from the Value drop-down list.
7. Click Save and then Finished.
8. Go to Configuration and Administration > User Configuration > Manage User Access.
9. On the Manage User Access page, select the user EU_VAT which you have created.
10. Select Admin from the Level drop-down list.
11. Click Edit User Access. Under the User Preference Access section, enter EU_VAT in the User Preference field. You are providing administration rights for the user which you have created.

To Calculate VAT:   

1. Create an Order Release with source and destination locations.
2. Bulk Plan an order to create a shipment and generate an invoice on the shipment.
3. Now, make sure that the invoice has the same involved party with the same involved party qualifier which was mentioned in the VAT Configuration.
4. Go to Financials > Payment Invoice and search for the Invoice ID which was created in step 2.
5. Select the invoice, and click Calculate VAT. Now you can see VAT Code ID and amount on the Calculate VAT Results page.