E-business Tax – A PurchasingPerspectiveAn Oracle White PaperOct 2007

E-business Tax – A Purchasing PerspectivePurpose ............................................................................................................... 4Overview............................................................................................................. 4Prior Tax Structure ........................................................................................... 5Key Concepts..................................................................................................... 7Integration With Purchasing............................................................................ 9Tax Events..................................................................................................... 9Configuration Owner Tax Options ........................................................... 9Party Tax Profile ......................................................................................... 10Implementation Considerations .......................................................... 11Country Defaults ........................................................................................ 12Tax Defaulting............................................................................................. 13Displaying Tax Information...................................................................... 15Modifying Tax Information ...................................................................... 16Overriding Tax ....................................................................................... 16Manually Adding Tax Information...................................................... 18Application Tax Options - Tax Hierarchy.............................................. 19Supplier .................................................................................................... 20Supplier Site ............................................................................................ 20

Item.......................................................................................................... 20Tax Rules...................................................................................................... 21Expert Rule ............................................................................................. 22Guided Rule ............................................................................................ 23Fiscal Classification..................................................................................... 24Party Fiscal Classification...................................................................... 24Product Fiscal Classification................................................................. 27Transaction Fiscal Classification .......................................................... 35Tax in Interface........................................................................................... 36Requisition Import................................................................................. 36PDOI ....................................................................................................... 36Tax During AutoCreate............................................................................. 36Quantity Based Tax .................................................................................... 36Tax Setup.......................................................................................................... 38Upgrade considerations.................................................................................. 43Data Flow......................................................................................................... 44Troubleshooting .............................................................................................. 47Tax Simulator.......................................................................................... 47Troubleshooting Tips ............................................................................ 47Tax Log and File Versions.................................................................... 48Appendix .......................................................................................................... 50

References.................................................................................................... 50Oracle Internal References........................................................................ 50Tax Determination Attributes .................................................................. 51

E-business Tax – A Purchasing PerspectiveEbusiness Tax provides a repository to store tax information and record tax events. Individual applications (for e.g. Purchasing) avails the tax services provided by Ebusiness Tax to create/update/display tax information for its transactions.

PURPOSEPurpose of creating this document is to review impact of Ebusiness Tax introduced in R12 to Oracle Purchasing. This document will help you in implementing tax solution in Purchasing using R12 Ebusiness Tax solutions. This document will also help you in understanding the integration and troubleshooting your tax setups in Oracle Purchasing.

OVERVIEWIn release 12 EBusiness Tax has been introduced to provide an improved Tax solution to customers.

Ebusiness Tax provides a repository to store tax information and record tax events. Individual applications (for e.g. Purchasing) avails the tax services provided by Ebusiness Tax to create/update/display tax information for its transactions. The tax services that can be availed from Ebusiness Tax are listed below.

a. Define Tax Contentb. Determine Taxc. Manage Taxd. Record Taxe. Report Taxf. Reconcile Tax

Architecture has been built considering country specific tax requirements and applicability of rules for determining taxes. Based on the tax laws of a specific country, the transaction tax rates may vary by jurisdictions, products or product category, how the product will be used, type of transacting parties, type of transactions, the place of supply etc. Various rules are applicable for determining the appropriate tax on a specific transaction.

The Tax Setups including rules are based on requirements used by the Tax Rules Engine, which will create/update Tax Lines. These lines are later reported using EBusiness Tax Reporting features. Figure below shows the e-business structure.

EBusiness Tax Reporting features. Figure below shows the e-business structure.

Figure 1: E-Business Tax Architecture

PRIOR TAX STRUCTURE

Prior to release 12, tax was defined in Accounts Payables module. Taxes were associated with rates, non-recoverableratio and recovery rules. Country Specific tax requirements could not be incorporated seamlessly into the application.

Prior to release 12, tax was defined in Accounts Payables module. A tax component on the document total could be associated with the purchasing documents for portion of the tax which was non recoverable. Purchasing would default taxes based on hierarchy defined either in Oracle Payables (Setup > Options > Payables > Tax code defaults) or in Oracle Purchasing (Setup > Organization > Purchasing Options > Tax Default Alternate Region) if "Enforce Tax From Purchase Order" box in Payable Options (Setup > Options > Payables > Tax code defaults) was checked.

Taxes were associated with rates, non-recoverable ratio and recovery rules. Taxes were then defined in at least one of the levels (also called the tax source) for e.g. Item, Supplier, Supplier Site, and Location etc. The order of defaulting was decided by the hierarchy defined in the Payables/Purchasing options discussed previously.

Tax calculation was called on a Requisition/ Standard Purchase order or a Blanket release based on the hierarchy, recovery rules and rates. Tax calculation is performed using the AP Tax Engine, which was called from the distribution, or PO/Requisition. Once the tax is defaulted and saved tax cannot be redefaulted even on changing the tax source in the document.

It was possible to override the tax defaulted on Purchasing documents prior to receipt or prior to reservation on funds on the document incase of encumbrance accounting. To override tax we need to have the profile option Tax: Allow Override of Tax Code set to Yes. Profile "Tax: Allow Override of Recovery Rate" allows override of recovery rate if the value of this profile is set to "Yes". Due to

complexity of the tax specifications based on country/product, Oracle used to provide certain country/product specific solutions for diverse tax related requirements. (For e.g. Latin Tax Engine in GTE, Brazil AP/PO Tax Engine,India R11i localizations) E-business tax design was completely new for release 12. Most of the features available in 11i have been accommodated in release 12 e-business tax. Following are some of the features that will not be available in release 12 e-business tax as compared the 11i features:

1. Tax Code is removed from the ‘Enter Purchase Order’ form. Instead tax classification field will be available in tax page available through ‘Manage Tax’ link. Users can no longer make a purchase order shipment nontaxable by removing the tax code from the PO shipment.

2. Recovery Rate field at the distributions level will no longer be defaulted based on the Tax Code and will no longer display the default recovery rate of the transaction. Override of recovery rate will be subject to controls setup within e-business tax.

3. User updated Tax Code on the requisition lines will no longer be carried over to the PO document during autocreate. The Tax Classification will always be re-defaulted on the PO document.

4. Summarized tax information on purchase order has been eliminated. Only detailed tax line can be viewed on the purchase order.

5. Tax Code cannot be populated through the purchase order Preferences form.

6. Tax cannot be modified through AutoCreate requisition 'Modify' action, as the tax is re-defaulted on the PO regardless of the tax in the requisition.

7. Detailed tax information based on tax classification will not be available in the requisition. For requisitions, users will only be able to view the tax amounts (total, recoverable and non-recoverable).

8. Tax code has been removed from RFQs and Quotations form. Tax will be defaulted when a quotation is autocreated to a standard purchase order.

9. PO documents cannot be reserved or submitted for approval if tax calculation error has occurred.

10.While importing documents in the interface with Authorization status ‘Approved’ using PDOI, a tax calculation error will result in creation of a document with ‘Incomplete’ status or in updating of an already ‘Approved’ document to ‘Requires Reapproval’ status, if the ‘Initiate Approval’ parameter was set to ‘Yes’.

11.Tax calculation error in Requisition Import will create imported requisitions with interface authorization status in ‘Approved’ status as ‘Incomplete’.

12.Withholding tax will no longer be supported. Withholding Tax does not affect any taxes that organizations owe the tax authority, so there is no significance to the organization’s accounts/budgeting. It serves more as a way to direct payment of portion of the taxes already owed.

KEY CONCEPTS

Following are some of the key concepts in eBusiness tax as provided by this product. This will be used further in this discussion.

Tax Regime: A Tax Regime contains the set of tax rules that determine the treatment of one or more taxes that have been grouped together for administration or other purposes. For e.g. VAT Regime in Argentina that

sets the rules for Standard VAT, Additional VAT, and Perception VAT and US Sales Tax Regime in US with State, County and City/District taxes.

Tax: A classification of a charge imposed by a government through a fiscal or tax authority. For e.g.: Standard VAT, Additional VAT, and Perception VAT in Argentina and State, County and City/District sales/use taxes in US

Tax Status: Tax Status is the taxable nature of a product or service in the context of a transaction for a tax. For e.g. Zero Rated, Standard Rated etc.

Tax Rate: The rate specified for a tax status in effect for a period of time; the tax rate can be expressed as a percentage or as a value per unit quantity. For e.g. Sweden Standard Rate VAT is 25% or US California State Sales/Use Tax Standard Rate is 7.25%

Tax Jurisdiction: A geographic area where a tax is levied by a specific tax authority. For e.g. The Jurisdiction for the US California County Sales Tax for Imperial County is Imperial County.

Party Tax Profile: Holds all party tax related information. For e.g. Party Profile for Establishments, Party Profile for Suppliers and Sites or Party Profile for Customers and Sites.

Registrations: The registration of a party with a tax authority that confers tax rights and imposes certain obligations. For e.g. ESA78211646 (VAT - Spain), SE123456789012 (VAT - Sweden) etc.

Fiscal Classifications : Provides for the definition of tax fiscal classifications. A fiscal classification is a way that a tax authority classifies each part of a transaction. Party Fiscal Classifications: A classification used by a tax authority to categorize a party for a tax. For e.g. Brazil Establishment Type (e.g. Commercial, Industrial, Manufacturing)

Product Fiscal Classifications: A classification used by a tax authority to categorize a product for a tax. For e.g. Brazil Product Nature (e.g. electronic goods, dairy goods, professional fees, non-professional fees)

Intended Use Fiscal Classifications: The purpose for which a product may be used. For e.g. Brazil Intended Use (e.g. Commercialization, Consumption, Industrialization) User defined Fiscal Classifications: A user defined Transaction Fiscal Classification Type.

Document Fiscal Classifications: A classification used by a tax authority to categorize the documents associated with a transaction for a tax.

Fiscal Classifications: Transaction Business Category: A business classification used by Oracle to identify and categorize an external transaction into a Tax transaction.

INTEGRATION WITH PURCHASING

There are a few fields on purchasing documents, which determine application of a tax. These 'Tax determination attributes' on purchasing documents are used to calculate the applicable taxes on the transaction. These attributes, along with ‘Additional Tax Attributes’ for e.g. Intended Use, Product Fiscal Classification (Seen on the ‘Additional Tax Information’ Page) and other internal factors determine the calculation of tax. Tax calculation is initiated on creation (saving/importing) of the purchasing document. Tax is recalculated if there are any changes that affect the tax calculation. Tax will be calculated by calling tax services available through ebusiness tax at the following events:

1. Document creation and update (Requisitions, POs, Releases)2. Receipt transactions (Charges)

Tax recalculation will be supported on a PO shipment line has been received/accrued or matched to invoice provided retroactive pricing is enabled. In Purchase Orders/Releases, tax is calculated at the PO shipment level and distributed to recoverable and non-recoverable components that determine tax amount at the PO distribution level. In requisitions, tax will be defaulted based on the tax setups in eTax and cannot be overridden. The requisition line and distribution will have the summary tax amount(total, recoverable and nonrecoverable). The tax is calculated in e-business tax by calling e-business Tax services and stored in e-business tax repository as mentioned in the 'Overview of EBusiness Tax Architecture in R12' section in this article.

Tax Events

Based on similarity in handling tax information and tax determination tax events are classified based on purchasing document types.

Tax events are classified in purchasing based on the purchasing document types. Following are the event classes in purchasing.

Purchase and Internal Requisition (REQUISITION) Purchase Orders and Agreements (PO_PA) Blanket and Scheduled Release (RELEASE)

The above event classes are based on the consideration of whether any tax determination is necessary and the similarity in the handling of the tax information.

Configuration Owner Tax Options

The event class is associated with a first party legal entity/operating unit owning tax content. Tax configurations can subscribe to the event class and additional options available based on each application using the ‘Configuration Owner Tax Options’. At transaction time, e-business Tax uses the tax option settings of the configuration owner and application event class instead of the default settings. Therefore it is necessary that the available options (for update) through configuration owner tax options and defaulting rule should both be set with the same value for the option to take effect. For purchasing application only the following option is available for updating.

1. Allow Tax Applicability2. Offset Tax Basis

Figure 2: Configuration Tax Owner Option

Other options are not updatable for purchasing application and will not available.

This will be the standard behavior in release 12.

By default the ‘Regime Determination Set’ is ‘Determine Applicable Regimes’ which uses the location based taxes. For migrated tax, using ‘Direct Tax Rate Determination’ with tax classification codes, configuration owner tax options must be setup to use STCC as the regime determination set.

Party Tax Profile

This is a centralized repository that holds information related to parties involved in tax transaction. It is important for the party definitions to exist in party tax profile so that it can be used in the tax transactions with e-business tax. A parties involved in e-business tax is classified into four types:

1. First Party Legal Entity: An entity identified though registration with a legal authority within a jurisdiction. This entity has rights to enter into transactions with other parties, own property and incur debt. One of the responsibilities of this entity is to pay and report tax liabilities to the legal authority.

2. First Party Legal Establishment: Legal establishments (also called branch, division, inventory organization or physical location) are building blocks of a legal entity. A legal entity is made up of at least one legal establishment. When a legal entity is created, an establishment is automatically linked to it. This is called the main establishment of the legal entity. You may need to create additional establishments based on registrations required within

local level jurisdiction. Local level jurisdictions can have separate tax requirements for the establishments registered under it. E-business tax rules identify tax registration status of legal establishments involved in a transaction and through Party Tax Profile.

3. Operating Unit Owning Tax Content: This option allows you to enter and maintain tax content for an operating unit. In releases prior to R12, the tax content was owned by Payables, Receivables and other applications that had data stripped by operating unit. Upon upgrade the tax is migrated to e-business tax as operating unit owning tax content.

4. Third Party: External parties involved in a transaction are third party to tax configuration owners for e.g. supplier for purchasing business transactions.

5. Third Party Site: For e.g. supplier site for purchasing business transactions. Third party can operate from multiple sites. Tax calculation can differ based on the location of the site.

6. Tax Authority: A government entity that regulates tax law, administers, and/or audits one or more taxes. A tax authority promulgates a set of tax rules and regulations, for taxes under a given tax regime. The tax authority party tax profile identifies a tax authority party as a collecting authority and/or a reporting authority. A collecting tax authority manages the administration of tax remittances. A reporting tax authority receives and processes all company transaction tax reports.

Implementation Considerations

1. It is necessary to associate a first party legal entity and its main legal establishment in party tax profiles. In case they have not been associated a tax calculation error will result while saving the transaction. To create a new first party legal entity / legal establishment, query the legal entity and choose the party type as first party legal entity or first party legal establishment for legal entity and legal establish respectively. Click on the icon under the label titled ‘Create Tax Profile’. Now follow the instructions under chapter ‘Managing Tax Profiles and Registrations’ in Oracle E-Business Tax User Guide to create a new tax profile for both the legal entity and its main legal establishment.

2. If you had been using tax configurations defined under the ‘Operating Unit Owning Tax Content’, then tax content defined under the ‘First Party Legal Entity’ will not be applicable. You may choose to use the tax content of its associated legal entity. To start using tax defined for the legal entity, navigate to party tax profile page and choose the party type as ‘Operating Unit Owning Tax Content’ and query the operating unit concerned. Click on the icon under the label titled ‘Update Tax Profile’. Check the ‘Use Subscription of the Legal Entity’ box and save the party tax profile. After setting this checkbox, all tax content subscribed to ‘Operating Unit Owning Tax Content’ will no longer be applicable. In order to use tax regimes subscribed under ‘Operating Unit Owning Tax Content’, add the ‘First Party Legal Entity’ to the regimes party subscription. Warning: Checking the ‘Use Subscription of the Legal Entity’ box for the ‘Operating Unit Owning Tax Content’ is an irreversible setting. Once you associate the operating unit with its legal entity, you cannot update the operating unit tax profile or maintain separate tax content for this operating unit.

3. Before using the third party tax profiles, it is necessary to set up the party / party site. You can create / update the third party information from the e-business tax page. Please follow the instructions under chapter ‘Managing Tax Profiles and Registrations’ in Oracle E-Business Tax User Guide to create a third party tax profile.

Country Defaults

Country default controls let you default the transaction tax-related values in the countries that you do business. You can also setup the default ‘Tax Authority’ for the country. You can default tax regime and tax for tax registrations belonging to the legal establishment in the applicable country by choosing the option against the tax regime or tax you entered as the default tax. For more details about this option, please refer to the Oracle E-Business Tax User Guide.

Figure 3: Country Defaults

Tax Defaulting

Purchase documents call the eTax services for tax calculation every time the purchase order is saved regardless of the taxabilityof the document line/schedule/distribution.

Regardless of the availability of tax definitions in e-business tax, Purchase documents call the eTax services for tax calculation on saving the purchase documents (Requisition/PO/Releases). If calculation results in applicable tax lines, then these tax lines are defaulted on the purchase document. Tax calculation is based on the values of the 'Tax determination attributes' along with the ‘Additional Tax Attributes’ on purchasing documents. The 'Tax determination attributes', and ‘Additional Tax Attribute’ available on both purchase order and requisitions are available in the ‘Appendix’ section below. The purchase documents make a call to eTax services for tax calculation even if there are no

tax definitions available in tax repository. Therefore ebusiness tax determines the tax applicability and purchasing only controls calls to the eBTax services. The eTax API is called to avail the eBTax services to calculate the tax applicability. Once the purchase document is saved theManage Tax menu is enabled.

When saving the purchase document, if there are tax calculation errors in ebusiness tax, a message will be displayed to the user. Subsequently, the tax lines will not be defaulted. Following is the error message that appears.

An error occurred during Tax Calculation. Please correct the problem or contact your System Administrator. Your transactions have been saved. Tax will be recalculated when the document is submitted for Approval.

The tax will be recalculated on submission for approval. If the tax calculation is still erroring the document cannot be submitted for approval. The following error message will be display on clicking the 'Approve' button.

Error Messages: Unexpected error occurred during Tax Calculation Exception: xxx - An unexpected error has occurred. Please contact your system administrator.

Please correct the problem or contact your System Administrator.

For troubleshooting the tax setups, please refer the troubleshooting section of this article.

Steps:1. Setup Ebusiness tax.2. Enter the purchase document details.(PO/Release/Requisition)3. Save the purchase document (PO/Release/Requisition)

Tax information will be displayed only after the purchase document is saved. The ‘Manage Tax’ link is enabled, whichnavigates to a web page where the tax details can be viewed.

Figure 4: Manage Tax link on purchase order entry form

Displaying Tax InformationTax information will be displayed only after the purchase document is saved. The 'Manage Tax' link on the toolbar of the purchase document will be enabled on saving the purchase document and the users can navigate to the "Tax" page where defaulted tax information can be viewed. This page has the following two tabs for PO/Releases.

1. Schedules2. Distributions

The above tabs will display the tax line details for each shipment in the Schedules tab and non-recoverable and recoverable tax distributions for each distribution in the distributions tab.

The Tax page will have the following tabs for requisition.1. Lines2. Distributions

If there are no taxes applicable for the purchase document the Manage Tax menu will still be enabled. There will be no tax lines seen on expanding the 'Details' in the 'Schedules Tab' of this 'Tax' page.

Also the taxability of a shipment (schedule) can be seen from the purchase order summary (Shipment window > Taxable flag can be added to the ‘Folder View’). This is no longer available in the ‘Enter Purchase Order’ screen as seen in releases prior to R12. In other places, if the tax is applied on the purchase order

then the details of the tax on schedule / distributions are available through the ‘Manage Tax’ link.

We can no longer make a shipment as non-taxable by setting the tax classification to NULL in ebusiness tax. Overriding the defaulted tax with a zero-rated tax classification is intended to minimize regression due to non-availability of this functionality.

Tax code details and recovery rate cannot be viewed from the Purchase Order Summary/Requisition Summary form. In purchase order summary form ‘Taxable Flag’ will be displayed. This is the only place where we can find the ‘Taxable Flag’ unlike the previous versions where they could be viewed from the distributions and purchase order entry form. Manage Tax is available as a drop down in the ‘Professional Buyer’s Workcenter’.

Figure 5: Purchase Order Tax Page

Steps:1. Query the purchase document or save the purchase document (Enter

Purchase Order (POXPOEPO)/Enter Releases (POXPOERL))2. Click on Actions > Manage Tax from the toolbar from Enter Purchase

Order (POXPOEPO)/Enter Releases (POXPOERL) forms and Tools > Manage Tax for Requisition Entry (POXRQERQ) form.

Modifying Tax Information

Defaulted Tax information can be overridden in purchase orders and releases. Tax line can be manually added to the purchase orders/releases even if they have not been defaulted.

Overriding Tax

The following setups govern tax rate override.1. 'Allow Override of Calculated Tax Line' option in the 'Defaults and Controls'

> 'Configuration Owner Tax Options'. This will be greyed out if you choose purchasing applications.

2. 'Allow Override of Calculated Tax Lines' option in 'Tax Configuration' > 'Tax'. This needs to be checked for overriding tax line.

3. 'Allow Tax Rate Override' option in 'Tax Configuration' > 'Tax Statuses'. This checkbox should be set to checked. Prior to e-business tax, profiles were used to govern if override was allowed. With e-business tax the override is controlled with above-mentioned setups.

Also the following profiles are no longer useful for tax rate override.1. 'eBTax: Allow Override of Tax Classification Code'. This should be set to

Yes to allow override.2. 'eBTax: Allow Override of Tax Recovery Rate'. This is set to Yes to allow

override.

Tax can be overridden by navigating to the ‘Additional Tax Information’ page available from the ‘Manage Tax’ page. This link is available after saving the purchase order. If there is a tax calculation error while saving the purchase documents, the additional tax information page will be greyed out and the tax cannot be overridden in such a case.

Figure 6: Additional Tax Information Page

Steps:1. Query the purchase document (Purchase Order Summary/Requisition

Summary form) or save the purchase document (Enter Purchase Order (POXPOEPO)/Enter Releases (POXPOERL))

2. Click on Actions > Manage Tax (Tools > Manage Tax for Requisition) from the toolbar from Purchase Order Summary/Requisition Summary/Enter Purchase Order (POXPOEPO)/Enter Releases (POXPOERL) forms.

3. The tax page will appear with details of tax lines. Click on the 'Additional Tax Information' button.

4. Locate the tax classification field. This field will have the existing tax classification for each tax line. Choose the new tax from the LOV.

5. Click on Apply and this will navigate you back to the manage tax page. This page will have the new tax calculation based on the new tax classification rate.

6. If the tax classification is not overridden, then the tax classification is not setup for override. Kindly check the setup for both the taxes for above mentioned setups and profile.

Manually Adding Tax Information

If the purchase order/release/requisition do not have any taxable lines, you can update the shipments with tax classification through the 'Additional Tax Information' window provided by ebusiness tax. The tax line will be calculated based on the new tax classification rate. If the tax is not defaulted, one of the setups/profile options mentioned in the tax override setup above does not allow a tax line override.

Steps:1. Query the purchase document (Purchase Order Summary/Requisition

Summary form) or save the purchase document (Enter Purchase Order (POXPOEPO)/Enter Releases (POXPOERL))

2. Click on Actions > Manage Tax (Tools > Manage Tax for Requisition) from the toolbar from Purchase Order Summary/Requisition Summary/Enter Purchase Order (POXPOEPO)/Enter Releases (POXPOERL) forms.

3. The tax page will appear with details of tax lines. Click on the 'Additional Tax Information' button.

4. Locate the tax classification field. Choose the new tax from the LOV.5. Click on Apply and this will navigate you back to the manage tax page.

This page will have the new tax calculation based on the new tax classification rate.

Application Tax Options - Tax Hierarchy

The tax hierarchy is now available in ebusiness tax through ‘Application Tax Options’ available by each operating unit for Purchasing application. This is similar to defining the tax hierarchy in ‘Purchasing Options’ prior to release 12. ApplicationTax Options is available only for backward compatibility of the former Tax Defaulting Hierarchy.

Prior to ebusiness tax, a tax hierarchy would be defined either in payable options or in purchasing options, which would determine the source and the order of defaulting on purchase orders. The tax hierarchy is now available in ebusiness tax through ‘Application Tax Options’ available by each operating unit for Purchasing application. This is similar to defining the tax hierarchy in ‘Purchasing Options’ prior to release 12. The tax will be defaulted based on the defaulting order and the source option specified. Application Tax Options is available only for backward compatibility of the former Tax Defaulting Hierarchy. If you are using complex tax rules you may choose to disable the application tax options. This is a one-time option. Once the application tax option has been disabled, it would not possible to re-enable this option again for that operating unit.

For purchasing application we can choose up to the following 5 sources to default the tax.

1. Supplier2. Supplier Site3. Item4. Ship-To Location5. Payables Financial Option

Figure 7: Application Tax Options

Supplier

You can attach tax to the supplier using the following steps.1. In the tax page navigate to Parties > Party Tax Profiles.2. Choose ‘Party Type’ as “Third Party” and query the Supplier in the ‘Party

Name’ for whom you like to define the tax.3. Click on update icon (Pencil icon).4. In the Main Tab check on ‘Allow Tax Applicability’.5. Check ‘Set for Self Assessment / Reverse Charge’ if this is a self-assessed

tax*.6. Navigate to Tax Registrations tab and click on ‘Create’ button and add the

tax regimes/taxes applicable to the supplier.

* A self-assessed tax is a tax calculated and remitted for a transaction, where tax was not levied but it is deemed as due.

Supplier Site

You can attach tax to the supplier site using the following steps.1. In the tax page navigate to Parties > Party Tax Profiles.

2. Choose ‘Party Type’ as “Third Party Site” and query the Supplier (using the ‘Party Name’ field) for whom you like to define the tax.

3. Choose the site for which you want to define the tax and click on update icon (Pencil icon).

4. In the Main Tab check on ‘Allow Tax Applicability’.5. Check ‘Set for Self Assessment / Reverse Charge’ if this is a self-assessed

tax*.6. Navigate to Tax Registrations tab and click on ‘Create’ button and add the

tax regimes/taxes applicable to the supplier site.

A self-assessed tax is a tax calculated and remitted for a transaction, where tax was not levied but it is deemed as due.

Item

You can attach tax to the item using the following steps.1. Navigate to Inventory/Purchasing Responsibility.2. Navigate to Items > Master Items3. Query the item for which you want to define the tax.4. Navigate to the ‘Purchasing’ tab.5. Choose ‘Yes’ from drop down for the ‘Taxable’ field.6. Now choose the tax from ‘Input Tax Classification Code’ field LOV*.

The tax will only be available in ‘Input Tax Classification Code’ field LOV if the tax has been associated with a ‘Tax Type’ in the tax configuration for this tax prior to enabling the tax.

The place of supply rule determines the tax on the ship-to location based on the tax jurisdiction for the tax. This is available though the subscription owner profile in ebusiness tax. Tax for the Payables Financial Option can be applied through the ‘Application Tax Options’ where tax to be applied can be selected for this option.

Tax Rules

Tax rules provide flexibility to use the tax as required by the business / tax authority. The User-friendly interface makes it easierfor the implementation team to configure rules based on their requirements.

E-business tax provides flexibility to define all kinds of taxation rules that you normally encounter in your business scenario. Tax engine requires some of the mandatory tax rule types to be defined either by definining defaults available for these rule types, or by defining tax rules that will determine the value for these mandatory tax rule types. If both are defined, the tax engine will first use the rule.

In case the rule does not evaluate a value, the default for the tax rule will be used. Rules can be defined even after the tax is live. Following are mandatory tax rule types required before enabling the tax for transactions.

Determine Place of Supply - The specific jurisdiction where the supply of goods or services is deemed to have taken place for tax purposes, for a given tax; it is the result of the place of supply derivation.

Determine Tax Applicability - The process and the data that identifies all the taxes that need to be determined/levied for a given transaction; the result will be an ordered list of applicable taxes.

Determine Tax Registration - The registration of a party with a tax authority to ensure tax rights; responsibilities and rights are upheld.

Determine Taxable Basis - The arrived at value, quantity or action, on which tax is calculated, after the tax rules which would affect it have been taken into consideration for a specific tax. These rules may include deductions, modifications, exemptions and discounts.

Calculate Tax Amounts - The calculation of tax amount and formula to be used for calculating this amount.

Figure 8: Tax Rules

There are 2 methods available to define a rule.1. Expert Rule2. Guided Rule

Expert Rule

The below steps will guide you through a step-by-step process to create a tax rule using the expert rule. You can alternatively use the ‘Guided Rule Entry’ option to define tax rules. For e.g. define applicability of tax only for ship to location as New York City

1. Go to responsibility 'Tax Managers'2. Navigate to Advanced Setup Options > Tax Determining Factor Sets

3. Click on 'Create' button4. Enter the following values

a. Tax Determining Factor Set: <Enter a code for your Tax Determining Factor Set>

b. Name: <Enter a name for your Tax Determining Factor Set>5. Set Usage: Tax Rules6. Optionally Enter:

a. Regime Code: <Regime code where the rule will be applicable>7. Scroll down to the 'Associate Tax Determining Factors' region.8. Enter the following values

a. Determining Factor Class: <In our case it is 'Geography'>b. Class Qualifier: <In our case it is 'Ship To'>c. Determining Factor Name: <In our case it will be 'City'>

9. Click on 'Apply' to save the 'Tax Determining Factor Set'10.Navigate to Advanced Setup Options > Tax Condition Sets11.Click on 'Create' button12.Enter the following

a. Tax Condition Set: <Enter a code for 'Tax Condition Set'>b. Determining Factor Set: <Enter the value from the LOV for the

13. 'Tax Determining Factor Set' defined in step 4 above>14.Click on 'Continue' button15.We will see the 'Determining Factor Class', 'Class Qualifier' and

'Determining16.Factor Name' defaulted and greyed out17.15. Enter the following values:

a. Operator: Not Equal Tob. Value/From Range: NEW YORK

18.16. Click on 'Finish' button.19.17. Query the tax in the Tax Configuration > Tax Rules page20.18. Click on Expert Rule Entry icon against the ‘Determine Tax

Applicability’ rule.21.19. Enter the following values:

a. Rule Code: <Enter a Rule Code>b. Name: <Enter a Rule Code>c. Effective From: <Enter the effective date for this rule>d. Determining Factor Set Code: <Choose the 'Determining Factor

22.Set Code' defined in step 4 above from the LOV>23.20. Click on Next to complete Step 1 of 324.21. Enter the following details:

a. Condition Set Code: <Select the 'Tax Condition Set' defined in25.step 12 above from the LOV>

c. Result: <for our case the value is 'Not Applicable'>26.22. Click on Next to complete Step 2 of 327.23. Enter the value of Rule Order and check the 'Enable' checkbox28.24. Click on 'Finish' to create the rule.

Guided Rule

You can also use the Guided Rule entry to define the rules for each tax. This step guides you through a step-by-step process to create a tax rule. You can alternatively use the ‘Expert Rule Entry’ option to define tax rules. For e.g. define applicability of tax only for ship to location as New York City

1. Query the tax in the Tax Configuration > Tax Rules page

2. Click on Guided Rule Entry icon against the ‘Determine Tax Applicability’ rule.

3. Provide a name for the tax rule code and the effectivity.4. You can choose to apply this rule for all transactions or only for specific

transactions.5. Click on Enable and the click on ‘Next’ button.6. In the ‘Transactions’ tab enter the details for the location. In our case it

will be New York.7. Also choose the operations. For e.g. equal to/not equal to. In our case

choose not equal to.8. Click on ‘Next’ button.9. Enter the condition set code and the order of preference for this rule.10.Choose the result for the rule and its operation. In our case the rule

combined with operation was: If Ship To not equal to New York. The result for this rule is that tax will not be applicable in such a case. So choose the option ‘Not Applicable’. So the rule becomes: If Ship To not equal to New York the tax is ‘Not Applicable’.

11.Click on Next and choose Enable to apply this rule.

Fiscal Classification

Fiscal Classification allows you a way to classify each part of your transaction and define tax rules based on theseclassifications. E-business tax allows you classifications based on party, product and nature of transaction.

As already defined ‘Key Concepts’ section, Fiscal Classification is a way that tax authority classifies each part of a transaction. It is not necessary to define fiscal classification to setup taxes in e-business tax. It only allows you to classify each part of a transaction so that you may create rules based on them for specific tax requirements. We can model three types of fiscal classification in e-business tax.

1. Parties involved in the transaction - Party Fiscal Classification2. Products involved in the transaction - Product Fiscal Classification3. Nature of the transaction - Transaction Fiscal Classification

Party Fiscal Classification

The classification is used to categorize parties. For example a tax authority could claim a reduced tax rate for transaction in which the goods are purchased from a supplier establishment that have been classified as ‘Research and Development’ organization by the tax authority in order to promote research activities.

Steps:The below is an example of defining a rule for party fiscal classification for the above mentioned example:1. Define Party Classification in TCA

a. Go to responsibility ‘Trading Community Manager’b. Navigate to Trading Community > Administration > Classificationsc. Click on ‘Create Class Category’ button.d. Enter the following details

i. Class Category Name: <Enter a name for you party classifications>ii. Meaning: <Enter the name for meaning of your party classification>iii. Description: <Enter the description for your party classification>

e. Click on ‘Apply and Create Class Codes’f. Enter the value for Class Code, Meaning and Description (Description is

optional) by which you would like to define your supplier establishment. For

this example the following needs to be entered to define a party classification of type ‘Research and Development’:

i. Class Code: Research and Developmentii. Meaning: Research and Developmentiii. Description: Research and Development

g. Click on ‘Apply’ button.h. Click on Compile and this would submit concurrent program to define your

party classification in TCA. (This step also returns the concurrent request id submitted for definition to take effect).

i. Click on ‘OK’.2. Create Fiscal Classification for the party in e-business tax

a. Go to responsibility ‘Tax Managers’b. Navigate to Parties > Party Classificationc. Click on ‘Create’ button.d. Party Classification: <Choose the ‘Party Classification’ defined in TCA during step 1 above>e. Fiscal Classification Type Code: <Define a code for your party fiscal classification code>f. Name: <Define a name for your party fiscal classification code>g. Effective From: <Enter the effective date>h. In the Tax regimes define all regimes to which this party fiscal classification will be applicable. Enter the following details for each regime:

i. Regime Codeii. Effective Fromi. Click on ‘Apply’ to save the party fiscal classification.

Figure 9: Party Fiscal Classification

Figure 10: Party Fiscal Classification (Supplier Type)

3. Attach the Party Fiscal Classification to the party in PTP (Party Tax Profile)a. Go to responsibility ‘Tax Managers’b. Navigate to Parties > Party Tax Profiles

c. Select the party type and party from the LOV and click on ‘Go’. In our case choose Party Type as ‘Third Party’ and Party as the supplier that needs to be defined as a ‘Research and Development’ type organization.

d. Click on Update pencil icon.e. Navigate to the ‘Classifications’ tab.f. Click on button ‘Add Another Row’.g. Choose the ‘Fiscal Classification Type Code’ defined step 2 above from the LOV.h. Choose the ‘Fiscal Classification Code’ for the supplier based on the

available codes defined in TCA. In our example the supplier ‘Fiscal Classification Code’ is ‘Research and Development’.

i. Click on ‘Apply’ to save the party tax profile.4. Create a new tax status and tax rate. (Follow steps 3, 5 and optionally 6 in-case recovery is required in the section ‘TAX SETUP’ below)5. Create an Expert / Guided Rule as shown in the ‘Tax Rules’ section above. Please use the following specification to create the rule.

a. Tax Determining Factor Seti. Determining Factor Class: Party Fiscal Classificationii. Class Qualifier: Ship From Partyiii. Determining Factor Name: <'Fiscal Classification Type Code' defined in step 3 above>

b. Tax Condition Setsi. Operator: Equal Toii. Value/From Range: <In our case 'Research and Development'>

c. Tax Status: <Defined in step 4>d. Tax Rate: < Defined in step 4>

Therefore the rule becomes:When Ship From Party has a Party Fiscal Classification Value of ‘Research and Development’ then apply the tax rate defined in step 4 above.

Product Fiscal Classification

The classification is used to categorize a product. There are three types of product classification available in e-business tax.

1. Inventory Based2. Non-Inventory Based3. Intended Use Classification

Inventory Based

This is used to classify categories defined in Oracle Inventory. This can only be used if Oracle Inventory is in installed status. For example, all domestically purchased items that are used as office supplies, will be sold at a lower rate.

Steps:1. In Oracle Inventory define a category. For e.g. in our case we will define a

category called ‘Office Supplies’. (Please refer to the page 4-66 of Oracle Inventory User's Guide for steps to create an inventory category)

2. Create a new category set and associate the category set with the category created in step 1 above. In our example associate the category defined in step 1 above to the Purchase Category Set (This is a seeded category set available by default i.e. we will associate the category ‘Office Supplies’ in the Purchasing Category Set. (Please refer to the page 4-68 of Oracle Inventory User's Guide for steps to update an inventory category to a category set)

3. Assign items to the category defined in step 1. For e.g. in our case we will create an item ‘File 6x6’ which is a purchased item with the category ‘Office Supplies’. (Please refer to the page 4-74 of Oracle Inventory User's Guide for Assigning Items to Categories and page 4-74 of Oracle Inventory User's Guide for defining an item)

4. Define a ‘Product Fiscal Classification’ for the above category in ebusiness tax.

a. Go to ‘Tax Managers’ responsibility.b. Navigate to Products > Product Classificationsc. Click on ‘Create’ button to create a new ‘Product Fiscal

Classification’.d. Inventory Category Set: <Choose the category set defined in step 2

above>. In our example we need to choose Purchasing (Purchasing Category Set) against which we have defined a category ‘Office Supplies’.

e. Fiscal Classification Type Code: <Define a code for your product fiscal classification >

f. Name: <Define a name for your product fiscal classification code>g. Effective From: <Enter the effective date>h. In the Tax regimes define all regimes to which this product fiscal

classification will be applicable. Enter the following details for each regime:

I. Regime Code

II. ii. Effective FromIII. Click on ‘Apply’ to save the product fiscal classification.

Figure 11: Product Fiscal Classification (Inventory Based)

5. Create a new tax status and tax rate. (Follow steps 3, 5 and optionally 6 incase recovery is required in the section ‘TAX SETUP’ below)

6. Create an Expert / Guided Rule as shown in the ‘Tax Rules’ section above. Please use the following specification to create the rule.a. Tax Determining Factor Set

I. Determining Factor Class: Product – Inventory LinkedII. Determining Factor Name: <'Fiscal Classification Type Code'

defined in step 4 above >b. Tax Condition Sets

i. Operator: Equal Toii. Value/From Range: <In our case 'Office Supplies'> (Please note the value of the category segments are concatenated without delimiters therefore query this LOV with value of one of the segments and use the category description to choose the correct segment)

c. Tax Status: <Defined in step 5>d. Tax Rate: < Defined in step 5>

7. Create a purchase order with category ‘Office Supplies’. The rate should be one created in step 5 above.

Therefore the following rule will be applied:

If the category used in purchase order is ‘Office Supplies’ then apply the rate used in step 5 above.

Non-Inventory Based

This is used to classify categories that are not defined in Oracle Inventory. The advantage of such a classification is that, it can also be used if Oracle Inventory is not in installed status. We will continue to use the above example we without using Oracle inventory example, all purchased items that are used as stationary materials for your office supplies, will be sold at a lower rate.

Steps:

1. Define a ‘Product Fiscal Classification’ for the non-inventory category in e-business tax.

a. Go to ‘Tax Managers’ responsibility.b. Navigate to Products > Product Classificationsc. Product Classification Source: From the drop down ensure to choose

Oracle E-Business Tax.d. Click on ‘Go’ button.e. This would retrieve the seeded fiscal classification type code:

PRODUCT_CATEGORY.f. Click on the pencil icon below the ‘Update’ field of PRODUCT_CATEGORY

fiscal classification code, to update the information in this category.g. Click on ‘Create’ button to create a new category.h. Enter the following details

a. Fiscal Classification Code: <Enter a code for the fiscal classification which will be used as the category>. In our example we will define it as ‘OFFICE_SUPPLIES’

b. Name: <Enter a name for the fiscal classification which will be used as the category>. In our example we will define it as ‘Office Supplies’

c. Effective From: <Enter an effective date>d. Click on ‘Apply’

i. You will now be able to view the ‘OFFICE_SUPPLIES’ under ‘PRODUCT_CATEGORY’. (If you are not able to view it. Click the Next 5 arrow to check the entire list under ‘PRODUCT_CATEGORY’).

j. You may create sub categories by clicking on the ‘+’ icon under ‘Create Sub – Level’ heading. For example in our case we will create a sub-category called ‘STATIONARIES’.

k. Enter the following detailsi. Fiscal Classification Code: <Enter a code for the fiscal classification

which will be used as the sub-category>. In our example we will define it as ‘STATIONARIES’

ii. Name: <Enter a name for the fiscal classification which will be used as the sub-category>. In our example we will define it as ‘Stationeries’

iii. Effective From: <Enter an effective date>l. Click on ‘Apply’m. You will now be able to view the ‘STATIONARIES’ under ‘OFFICE_SUPPLIES’

category of ‘PRODUCT_CATEGORY’.n. (If you are not able to view it. Click the Next 5 arrow to check the entire

list under ‘PRODUCT_CATEGORY’).

o. Click on ‘Apply’ to save the fiscal classification.

Figure 12: Product Fiscal Classification (Non-Inventory Based)

2. Create a new tax status and tax rate. (Follow steps 3, 5 and optionally 6 incase recovery is required in the section ‘TAX SETUP’ below)

3. Create an Expert / Guided Rule as shown in the ‘Tax Rules’ section above. Please use the following specification to create the rule.a. Tax Determining Factor Set

i. Determining Factor Class: Product – Non-Inventory Linkedii. Determining Factor Name: ‘Product Category’

b. Tax Condition Setsi. Operator: Equal Toii. Value/From Range: <In our case 'Office Supplies/Stationeries'>

c. Tax Status: <Defined in step 5>d. Tax Rate: < Defined in step 5>

4. Create a purchase order and save.5. Click on the Actions > Manage Tax link from menu.7. Click on ‘Additional Tax Information’ button.8. Scroll to the ‘Product Classification’ field and choose the product

classification ‘Office supplies/Stationeries’ from the LOV.9. Click on Apply and the new tax rate will be used based on the rule created

above.

Therefore the following rule will be applied:

If the ‘Product Classification’ field entered in additional tax information page from the ‘Manage Tax’ link on the purchase order is ‘Office Supplies/Stationeries ’ then apply the rate used in step 2 above.

Intended Use

This is used to classify transactions based on purpose for which a product maybe used. There are two types of intended use.

1. Inventory Based2. Non-Inventory Based

For upgraded instances intended use is always inventory based. For non-upgrade customers this choice can be made only once.

Example of Intended Use can be recovery tax on alcohol is based on its use. If it is used for ‘Industrial Manufacturing’, the recovery rate will be higher than when it is used for direct ‘Retail Sale’. In this whitepaper we will discuss example of inventory based ‘Intended Use’. The difference is that for inventory based defaulting automatically occurs when we choose the inventory-based items. While for noninventory based intended use, the Intended use must be explicitly specified from the ‘Intended Use’ field seen from the ‘Additional Tax Information’ page after navigating to the tax page though the ‘Manage Tax’ link. Also for non-inventory based intended use, the codes for ‘Intended Use’ must be created in e-business tax.

Steps:1. In Oracle Inventory define categories for intended use. For e.g. in our case

we will define a category called ‘Industrial Use’ and ‘Retail Sales’. (Please refer to the page 4-66 of Oracle Inventory User's Guide for steps to create an inventory category)

2. Create a new category set and associate the category set with the category created in step 1 above or use the default INTENDED_USE category set. In our example associate the categories defined in step 1 above to the INTENDED_USE Category Set (This is a seeded category set available by default i.e. we will associate the category ‘Industrial Use’ and ‘Retail Sales’ in the INTENDED_USE Category Set. (Please refer to the page 4-68 of Oracle Inventory User's Guide for steps to update an inventory category to a category set)

Figure 13: Intended Use (Inventory Category)

3. Assign items to the categories defined in step 1. For e.g. in our case we will create an item ‘Industrial Alcohol’ which is a purchased item with the category ‘Industrial Use’. (Please refer to the page 4-74 of Oracle Inventory User's Guide for Assigning Items to Categories and page 4-74 of Oracle Inventory User's Guide for defining an item)

Figure 14: Intended Use (Item Assignment)

4. Create a new recovery rate for your tax. (Follow step 6 in the section ‘TAX SETUP’ below)

5. Create an Expert / Guided Rule as shown in the ‘Tax Rules’ section above. Please use the following specification to create the rule.

a. Tax Determining Factor Seti. Determining Factor Class: Transaction Input Factorii. Determining Factor Name: Intended Use

b. Tax Condition Setsi. Operator: Equal Toii. Value/From Range: <In our case ‘Industrial Use’> (Please note the

value of the category segments are concatenated without delimiters therefore query this LOV with value of one of the segments and use the category description to choose the correct segment)

c. Tax Recovery Rate: < Defined in step 4>6. Create a purchase order with category ‘Office Supplies’. The recovery rate should be defaulted from the one created in step 4 above.

Therefore the following rule will be applied:

If the ‘Intended Use’ of the item in purchase order is ‘Industrial Use’ then apply the recovery rate used in step 4 above.

Transaction Fiscal Classification

The classification is used to categorize transactions according to the requirements of a tax authority. This is used when the nature of the transaction itself determines the tax and the tax rate that applies. The ‘Transaction Fiscal Classification’ must be entered manually from the ‘Additional Tax Information’ page (Purchase Orders > Manage Tax > Click on ‘Additional Tax Information’ button). Three Types of Transaction Fiscal Classification’ can be defined in e-business.

Transaction Business Category: To classify transactions based on the nature of business. Seeded Transaction Business Categories

Expense Report Purchase pre-payment transaction Purchase transaction Sales transaction Sales transaction adjustment Intercompany transaction

New categories can be created under the seeded categories.

Document Fiscal Classification: To classify based on the documents required / the type of documents used for the transaction. For e.g. Export Sales User Defined Fiscal Classification: Used for defining transaction based on any other classifications from transaction other then the above mentioned. For e.g. a sample sale may invite a lower tax. So users can define a user defined fiscal classification of type ‘Sample Sales’ and create rules to define tax rates for such a transaction.

Tax in Interface

. Tax information provided through the interface will be considered as an override and not defaulting information. If taxdetails are not specified in the interface, then ebusiness tax will determine the appropriate tax classification and recoveryrate.

Requisition Import

If the requisition lines interface (PO_REQUISITIONS_INTERFACE_ALL) does not specify any tax details, then ebusiness tax will determine the appropriate tax classification and recovery rate. Tax information provided through the interface will be considered as an override and not defaulting information. Therefore it should fulfill all the criteria for overriding a tax as mentioned in above under the heading ‘Modifying Tax Information’ (Overriding Tax). A new field TAX_NAME is introduced in release 12. Tax classification can be provided for overriding the tax line information. TAX_CODE_ID field is supported on the data import for backward compatibility. If TAX_CODE_ID field based on the old AP tax codes is specified, then the tax classification will be derived and passed on to ebusiness tax.

PDOI

Tax classification can be provided in the PO_LINES_INTERFACE for overriding the tax line information using the TAX_NAME. If the PO lines interface (PO_LINES_INTERFACE) does not specify any tax details, then ebusiness tax will determine the appropriate tax classification and recovery rate.

TAXABLE_FLAG will be used as an item attribute for item creation in Oracle Inventory to update the taxability of the item. However, taxable flag on the PO

document transaction table, which will be derived based on the existence of tax lines on the shipment and will not be affected by the TAXABLE_FLAG provided in the interface.

Tax During AutoCreate

During AutoCreate the tax will be redefaulted on the purchase order based on the tax determining attributes of the purchase order. Tax overridden on the requisition will no longer be passed to the purchase order, as was the functionality prior to release 12.

During AutoCreate the tax will be redefaulted on the purchase order based on the tax determining attributes of the purchase order. Tax overridden on the requisition will no longer be passed to the purchase order, unlike the functionality prior to release 12. Tax will not be part of shipment grouping criteria so it is possible to have requisition lines with different tax values being grouped into a single PO shipment. Tax will be recalculated on the PO document created through autocreate.

Quantity Based Tax

One of the features of e-business tax for purchasing is the capability to define tax on the basis of quantity instead of the Line amount. In order to define tax based on quantity we can follow the steps mentioned in the ‘TAX SETUP’ section below.

Please follow the below mentioned changes in the1. Tax Rate: In tax rate define the following (Step 5 in ‘TAX SETUP’ section):

a) Rate Type: Quantity b) UOM: <Unit of Measure for the purchase>c) Quantity Rate: <Rate of tax per quantity>

Figure 15: Quantity Based Tax (Tax Rate)

2. Tax Rule: In tax rules of for the tax, use the following as default value (Step 7 in ‘TAX SETUP’ section):a) Determine Taxable Basis: STANDARD_QUANTITY

Figure 16: Quantity Based Tax (Tax Rules)

TAX SETUP

Following are the brief setup steps for defaulting basic tax in purchasing. Based on the business requirement the setups can be complex involving multiple tax rules.

These steps can be used for performing quick tests for using tax in purchasing.1. Set up Tax Regime (Responsibility: Tax Managers, Navigation: Tax Configuration >

Tax Regime)a. Regime Level - A Tax Regime is usually defined for a countryb. Controls and defaults – Following options can be checked. Instead of

replicating choices for different OUs, define which regimes need to support recovery / Exemptions / Exceptions / Overridesi. Allow Tax Recoveryii. Allow Tax Exemptionsiii. Allow Tax Exceptions

c. Click on ‘Next’ to choose the subscriptions for the regime.d. Party Subscription Options

i. Define the parties (legal Entity / operating unit) that subscribe to this tax.

ii. Configuration for Taxes and Rules: Choose if the regime will be available as ‘Common Configuration’ i.e. Tax setups will be available for tax across legal entities / operating units (use ‘Global Configuration Owner’ as the Configuration Owner in the rest of the setups) or you may use ‘Party Specific’ that only allows tax setups to be used for the specific legal Entity / operating unit or you may use ‘Common Configuration with Party Overrides’ which will allow you to define portion of the tax setups to be overridden and available only for your specific legal Entity / operating unit.

iii. Configurations for Product Exceptions: Choose if the product exceptions can be ‘Common Configuration’ to allow the regime to use product exceptions across all the legal entities / operating units units (use ‘Global Configuration Owner’ as the Configuration Owner when setting up product exceptions) or choose ‘Party-Specific Configuration’ to configure party specific product exceptions.

e. Click on ‘Finish’ to save the tax regime.2. Set up Tax (Responsibility: Tax Managers, Navigation: Tax Configuration >

Taxes)a. Configuration Owner: <Based on the tax regime setup for ‘Configuration

for Taxes and Rules’ in Step 1>b. Geography Type: Based on the applicability of the tax to a geography c. Parent Geography Type: Based on the geography of the tax regime. d. Tax Type: Based on the type of tax for e.g. VAT, Sales etc. e. Applied Amount Handling: Recalculated is set by default. Set to Prorated

for tax to arrive at an amount calculated previously. f. Controls: Check the options required for your tax. For e.g. the following

can be checked for overriding tax rounding/tax line and entry of manual tax line.i. Allow Tax Rounding Overrideii. Allow Override for Calculated Tax Linesiii. Allow Entry of Manual Tax Lines

g. Tax Exceptions/Exemptions Controls: Check the following options to allow Tax Exceptions and Tax Exemptions.I. Allow Tax ExceptionsII. Allow Tax Exemptions

h. Tax Recovery Controls: Recovery rate is not mandatory and is totally optional. Once the allow recovery rate tab is checked for a tax then it will not be live till recovery rate is defined. Check the following options to allow tax recovery and override.I. Allow Tax RecoveryII. Allow Tax Recovery Rate Override

i. Defaults: Set the following options/defaults.I. Allow Tax Rate Rules: CheckedII. Default Recovery Settlement: Immediate

j. Save the Tax details by clicking on ‘Apply’3. Setup Tax Status (Responsibility: Tax Managers, Navigation: Tax Configuration >

Tax Status)a. Configuration Owner: <Based on the tax regime setup for

‘Configuration for Taxes and Rules’ in Step 1>b. Set as Default Tax Status: Checked (For defaulting it as the tax

status)

c. Default Controls: Following options are available. Choose the options required for your tax.i. Allow Tax Exemptionsii. Allow Tax Exceptionsiii. Allow Tax Rate Override

d. Tax Rate Defaults: Set the following option.i. Default Recovery Settlement: Immediate

e. Save the Tax Status details by clicking on ‘Apply’4. Setup Tax Jurisdiction Code (Responsibility: Tax Managers, Navigation: Tax

Configuration > Tax Jurisdiction)a. Geography Type: Based on the applicability of the tax to a geographyb. Parent Geography Type: Based on the geography of the tax regime.c. Parent Geography Name: Name of the parent geography. For e.g. if the

parent geography type was country, the geography name could be United States, UK, India etc (based on your tax).

d. Geography Name: Name of the jurisdiction geography. For e.g. if the geography type was country, the geography name could be United States, UK, India etc (based on your tax).

e. Effective From: <specify the effective date>f. Default Tax Jurisdiction Settings: Set the following options / defaults

i. Set as default Tax Jurisdiction: Checkedii. Default Effective From: <specify the effective date>

* There should be at least one default jurisdiction.5. Setup Tax Rate (Responsibility: Tax Managers, Navigation: Tax Configuration >

Tax Rate)a. Configuration Owner: <Based on the tax regime setup for ‘Configuration

for Taxes and Rules’ in Step 1>b. Rate Type: Percentage (For calculating the tax rate based on percentage)c. Percentage Rate: <Set the rate for the tax> d. Rate Details: Click on the icon under the ‘Rate Details’ and set the

following.i. Set as Default Rate: Checkedii. Default Effective From: <Date effective>

e. Tax Accounts: Click on the icon under the ‘Tax Accounts’ and set the following.i. Ledger: Primary Ledger Nameii. Click on ‘Create’iii. Operating Unit: <Enter the value of Operating Unit>iv. Tax Recoverable/Liability: <Enter the code combination for this

account>v. Click on ‘Apply’vi. Click on ‘Apply’

*Tax accounts can to be defined at the tax and rate level. If defined at both the places then rate level takes precedence.

f. Save the Tax Rate details by clicking on ‘Apply’*There can be multiple taxes under a regime, multiple statuses under a tax and multiple tax rates under a status.

6. Setup Tax Recovery Rate* (Responsibility: Tax Managers, Navigation: Tax Configuration > Tax Recovery Rate)a. Configuration Owner: <Based on the tax regime setup for‘Configuration

for Taxes and Rules’ in Step 1>b. Recovery Rate Periods: Set up the following values

i. Percentage Recovery Rate: <Recovery Rate%>ii. Effective From: <specify the effective date>iii. Set as Default Rate: Yesiv. Default Effective From: <specify the effective date>

*Recovery rate is not mandatory and is totally optional. Once the allow recovery rate tab is checked for a tax then it will not be live till recovery rate is defined. Recovery rate can to be defined at the tax and rate level. If defined at both the places then rate level takes precedence.

7. Setup Tax Rules (Responsibility: Tax Managers, Navigation: Tax Configuration > Tax Recovery Rules)a. Query the tax for the Configuration Owner (Based on the tax regime setup

for ‘Configuration for Taxes and Rules’ in Step 1)b. Setup the following default rule types

i. Determine Place of Supply: Ship Toii. Determine Tax Applicability: Applicableiii. Determine Tax Registration: Ship From Partyiv. Determine Taxable Basis: STANDARD_TBv. Calculate Tax Amounts: STANDARD_TC

8. Update Tax to make it available for transactionsa. Query the Taxb. Update the following option:

i. Make Tax Available for Transactions: Checkedii. Default Primary Recovery Rate*: <Choose the setup in step 6 from the

LOV>c. Apply the changes.

9. Setup Configuration Owner Tax Options (Responsibility: Tax Managers, Navigation: Defaults and Controls > Configuration Owner Tax Options)a. Set up the following for enabling tax on Purchase Orders

i. Configuration Owner: <As defined in the tax regime>ii. Entity Name: Purchase Orderiii. Application Name: Purchasingiv. Effective From: <specify the effective date>v. Event Class: Purchase Order and Agreementvi. Enabled: Checked

10.Setup Application Tax Options* (Responsibility: Tax Managers, Navigation: Defaults and Controls > Application Tax Options)

i. Application Tax Options: <Operating Unit>ii. Operating Unit: Vision <Operating Unit>iii. Application Name: Purchasingiv. Defaulting Order 1: <Choose from the drop down list>v. Defaulting Order 2: <Choose from the drop down list>vi. Defaulting Order 3: <Choose from the drop down list>vii. Defaulting Order 4: <Choose from the drop down list>viii. Defaulting Order 5: <Choose from the drop down list>

*Defining ‘Application Owner Tax Options’ is optional11.Setup Tax on Source: Depending on the source from where tax needs to be

defaulted, please define the setups as mentioned in the section for ‘Application Tax Options - Tax Hierarchy’. (i.e. Supplier, Supplier Site, Item, Ship-To Location or Payables Financial Options). For e.g. for supplier, following setups are required.a. In the tax page navigate to Parties > Party Tax Profiles.

b. Choose ‘Party Type’ as “Third Party” and query the Supplier in the ‘Party Name’ for whom you like to define the tax.

c. Click on update icon (Pencil icon).d. In the Main Tab check on ‘Allow Tax Applicability’.e. Check ‘Set for Self Assessment / Reverse Charge’ if this is a selfassessed

tax.f. Navigate to Tax Registrations tab and click on ‘Create’ button and add the

tax regimes/taxes applicable to the supplier.12.Create a Purchase Order with a supplier defined in step 11 above and save the

purchase order. Click on Actions > Manage Tax to navigate to the tax details page.

You could also view a demonstration of the tax setups for purchasing though the viewlets attached with this white paper.

DATA FLOW

Following is the mechanism of calls to the ebusiness tax to calculate tax.1. Purchasing will populate tax-determining attributes to global temporary

tables.2. It will then call ebusiness tax API's to calculate tax.3. Once the tax lines are calculated, appropriate tables in ebusiness tax is

populated with tax details and the purchasing tables are updated to indicate taxable line.

4. The data from the global temporary tables will be deleted.

Following are the main ebusiness tax tables that will contain the setup information that will help support in troubleshooting ebusiness tax information.

a. Tax Regimes: ZX_REGIMES_Bb. Taxes: ZX_TAXES_Bc. Tax Status: ZX_STATUS_Bd. Tax Rates: ZX_RATES_Be. Tax Jurisdictions: ZX_JURISDICTIONS_Bf. Tax Rules: ZX_RULES_B

To get a dump of the eTax setups, you can use the following set of queries.

Please provide the tax regime code when prompted. If the issue is limited to a tax then provide the tax name when prompted else please leave it blank.

SELECT *FROM zx_regimes_bWHERE tax_regime_code = '&tax_regime_code';SELECT *FROM zx_taxes_bWHERE DECODE('&tax_name',null,'xxx',tax) = nvl('&tax_name','xxx')AND tax_regime_code = '&tax_regime_code';SELECT *FROM zx_status_bWHERE tax = '&tax_name'AND tax_regime_code = '&tax_regime_code';SELECT *FROM zx_rates_b

WHERE tax = '&tax_name'AND tax_regime_code = '&tax_regime_code';SELECT *FROM zx_jurisdictions_bWHERE DECODE('&tax_name',null,'xxx',tax) = nvl('&tax_name','xxx')AND tax_regime_code = '&tax_regime_code';SELECT *FROM zx_rules_bWHERE tax = '&tax_name'AND tax_regime_code = '&tax_regime_code';

Following are the main ebusiness tax tables that will contain the transaction information that will have the tax details after tax is calculated.

a. ZX_LINES: This table will have the tax lines for associated with PO/Release schedules.TRX_ID: Transaction ID. This is linked to thePO_HEADERS_ALL.PO_HEADER_IDTRX_LINE_ID: Transaction Line ID. This is linked to thePO_LINE_LOCATIONS_ALL.LINE_LOCATION_ID

b. ZX_REC_NREC_DIST: This table will have the tax distributions for associated with PO/Release distributions.TRX_ID: Transaction ID. This is linked to thePO_HEADERS_ALL.PO_HEADER_IDTRX_LINE_ID: Transaction Line ID. This is linked to thePO_LINE_LOCATIONS_ALL.LINE_LOCATION_IDTRX_LINE_DIST_ID: Transaction Line Distribution ID. This is linked to thePO_DISTRIBUTIONS_ALL.PO_DISTRIBUTION_IDRECOVERABLE_FLAG: Recoverable Flag. If the distribution is recoverable thenthe flag will be set to Y and there will be values in theRECOVERY_TYPE_CODE and RECOVERY_RATE_CODE.

c. PO_REQ_DISTRIBUTIONS_ALL: This table will have the tax distributions for associated with Requisition distribution.RECOVERABLE_TAX: Recoverable tax amountNONRECOVERABLE_TAX: Non Recoverable tax amount

d. ZX_LINES_DET_FACTORS: This table holds all the information of the tax line transaction for both the requisitions as well as the purchase orders/releases.TRX_ID: Transaction ID. This is linked to thePO_REQUISITION_HEADERS_ALL.REQUISITION_HEADER_ID /PO_HEADERS_ALL.PO_HEADER_IDTRX_LINE_ID: Transaction Line ID. This is linked to thePO_REQUISITION_LINES_ALL.REQUISITION_LINE_ID /PO_LINE_LOCATIONS_ALL.LINE_LOCATION_ID

TROUBLESHOOTING

Tax Simulator

Simulator is a powerful user interface too that can be used to simulate Tax Calculation based on what-if scenarios. It gives flexibility to test new and/or changed tax rules. Tax Simulator helps on audit trail with respect to which Tax Rules were satisfied in calculating a particular tax. You can start using the Oracle

Tax Simulator by attaching this responsibility to your user. Navigate to the Oracle Tax Simulator and enter the Header and Line information as appropriate. Click on ‘Tax Lines’ to display the tax lines for your tax. For detailed steps please review the tax simulator viewlet attached to metalink Document ID (Note) for thiswhitepaper.

Useful Tips:1. Ship from Ship to and Bill From Bill to LOVs change depending upon the

application selected. Ship To/Bill To information is required for calculation of location-based tax.

2. First Party locations need to be associated with the legal establishment for the tax simulator to calculate tax.

Troubleshooting Tips

1. Determine the configuration owner subscription - Party tax profile of Operating Unit. Check whether the OU has subscribed to LE setups. Depending upon the set up above check whether the configuration owner has subscribed to the regime. Check the configuration option e.g. party specific configurations.

2. For the configuration owner (OU or LE) as determined above check the Configuration Owner Tax Option for the event class. Check the Regime Determination Set. For location-based taxes it should be Determine Applicable Regime. Check the Tax Applicability flag.

3. Check the Party Tax Profile of the Third Party (supplier) and third party site (supplier site). Check for the Tax Applicability flag at main tab and at registration tab

4. Regime to Rate Flow: Depending upon the regime subscription option e.g. party specific, common configuration or common with party override, check following tax set ups. Check that every set up entity is effective for the transaction date. Check that one status is default and every status has a default rate. In case of jurisdiction specific rates, check that every jurisdiction has a default rate.

5. Tax Rules: Check the default place of supply or the rule for the tax. There should be at least one valid jurisdiction for the place of supply determined. Check whether the tax is by default Applicable. If not then at least one rule must be satisfied.

Tax Log and File Versions

If there is an error while calculation please use the Note 417238.1 to obtain the tax debug log. Below are the information that will be sufficient for Oracle Support to progress the service request for any ebusiness tax calculation issues.

1. Set the following profile options on at user level for the user saving the purchase order.

FND: Debug Log Enabled = 'Y'FND: Debug Log Level = 'Statement'FND: Debug Log Module = %

2. Now change the responsibility to purchasing and open the Purchase Order/Requisition Form where this issue is happening and enter the details.

3. Obtain the AUDSID for your login. For obtaining this, perform the following from just before opening Purchase Order / Requisition form. Go to Help->About Oracle Applications, you will find the AUDSID field. (* Sometime AUDSID is not available for a few customers Please ignore this step in such a case)

4. Obtain the max log sequence using the following query.SQL> select max(log_sequence)from fnd_log_messages;

5. Just before saving the PO/Requisition, turn trace on by:Help > Diagnostics > Trace > Trace with Binds

6. Save the purchase order / requisition and then stop immediately afterwards by.

Help > Diagnostics > Trace > No Trace7. You will get a message showing the location of the trace file.8. Please retrieve trace with tkprof. Run the trace file through tkprof as

follows:tkprof <filename>.trc <filename>.out explain=<foundusername/password>example: tkprof file1234.trc file1234.out explain=<apps/apps>

9. Please get the debug log using the following query.SQL> select *from fnd_log_messageswhere log_sequence > <output from step1>and (module like 'ZX%' or module like 'zx%)and audsid = <audsid from step 3 above>order by log_sequence;* If the AUDSID is not available please use the following query to retrieve the taxlog.SQL> select *from fnd_log_messageswhere log_sequence > <output from step1>and (module like 'ZX%' or module like 'zx%)and user_id = (SELECT user_id FROM fnd_user where user_name =‘&Username’)order by log_sequence;

10.Provide the output of ‘Diagnostics: Appscheck’ concurrent program. Navigate to Purchasing/Purchasing Super User/System Administrator Responsibility.

Click on View > Request and Click on Submit a New RequestClick on OK for option Single RequestChoose the concurrent program Diagnostics: Apps CheckSelect the following parametersApplication1= Ebusiness TaxApplication2 = PurchasingSubmit the Request and upload the output of the program for validating the file version information.

APPENDIX

References

Oracle Internal References

Tax Determination Attributes

Requisitions=======Header----------Requisition TypeTransaction CurrencyTax Header (Navigation: Tools > Manage Tax)----------------

Taxation CountryDocument Sub-type

Line-------ItemUnit of MeasureQuantityUnit PriceAmountNeed-by DateTax ClassificationShip-to OrganizationShip-to LocationSupplierSupplier Site

Additional Tax Attributes (Navigation: Tools > Manage Tax > Additional Tax Information)---------------------------------Business CategoryIntended UseUser-defined Fiscal ClassificationProduct Fiscal ClassificationProduct CategoryAssessable Value

Distribution---------------QuantityAmountCharge AccountTax Recovery RateProjectTaskAwardExpenditure TypeExpenditure OrganizationExpenditure Date

Additional Tax Attributes (Navigation: Tools > Manage Tax > Additional Tax Information)--------------------------------Intended Use

POs/Releases=========

Header-----------PO Document Type

Transaction CurrencyRate TypeRate DateRateFOBSupplierSupplier SiteBill-to LocationProvisional Tax Determination Date (for Consumption Advice Orders)

Tax Header (Navigation: Tools > Manage Tax)----------------Taxation CountryDocument Sub-type

Line------ItemUnit of MeasureUnit Price

Shipment-------------QuantityAmountNeed-by DateTax ClassificationShip-to OrganizationShip-to LocationSource Document (for Scheduled Releases of Planned PO)Source Shipment (for Scheduled Releases of Planned PO)

Additional Tax Attributes (Navigation: Tools > Manage Tax > Additional Tax Information)--------------------------------Business CategoryIntended UseUser-defined Fiscal ClassificationProduct Fiscal ClassificationProduct CategoryAssessable Value

Distribution----------------QuantityAmountAccount CCIDTax Recovery RateProjectTaskAwardExpenditure Type

Expenditure OrganizationExpenditure DateSource Distribution (for Scheduled Releases of Planned PO)

Additional Tax Attributes (Navigation: Tools > Manage Tax > Additional Tax Information)--------------------------------Intended Use (defaults from shipment level)