Tax Configuration Guide

Applies to:
Oracle E-Business Tax - Version: 12.0 to 12.2
Information in this document applies to any platform.
Abstract
R12 Oracle E-Business Tax Configuration Guide
Document History

Author : Mariluci Pereira

Create Date 29-Aug-2007

Update Date 29-Aug-2007

R12 Oracle E-Business Tax Configuration

1. Tax Basic Tax Configuration

Tax Definition: comprises the tax data that you set up for each tax regime and tax that your company
or institution is subject to. The Tax Authority designates the regulations and rates that apply to the tax
regime.

Required Task List

a) External Dependencies

Create First Party: Legal Entity and Establishments

Create Reporting and Collecting Tax Authorities

b) Tax Configuration

Create Tax Authorities Party Tax Profiles

Create Tax Regimes
Create First Party Legal Entity Party Tax Profile
Create Tax
Create Tax Status
Create Tax Jurisdictions
Tax Rate

Responsibility: Tax Manager

Path: Tax Managers -> Tax Managers -> Home

Complete the following setup tasks:

-Legal Entities and Establishments

-Reporting and Collecting Tax Authorities
-Lookup Codes (not required at the beginning)
-Party Class Categories and Codes (not required at the beginning)
Responsibility: System Administrator
Path: Profile -> System

Setup the following profile options:

eBTax: Allow Ad Hoc Tax Changes

eBTax: Allow Manual Tax Lines
eBTax: Allow Override of Customer Exemptions
eBTax: Allow Override of Tax Classification Code
eBTax: Allow Override of Tax Recovery Rate
eBTax: Inventory Item for Freight
eBTax: Invoice Freight as Revenue
eBTax: Read / Write Access to GCO Data
eBTax Taxware: Service Indicator
eBTax Taxware: Tax Selection
eBTax Taxware: Use Nexpro
eBTax Vertex: Case Sensitive

Responsibility: Legal Entity Manager

Path: Legal Entity Manager -> Legal Entities -> Create Legal Entity

Use the Legal Entity Configurator to setup the following entities:

-First Party Legal Entity (that represents your company)

-First Party Legal Establishment (for each office, service center, warehouse and any other location
within the company that requires a registration with a tax authority for one or more taxes). Setup
associations between each legal establishment and a business entity.
-Legal Authority (for each tax authority that administers taxes in a tax regime where you do business)

Responsibility: System Administration

Path: System Administration -> System Administration -> Lookup Types

Tax lookup types include:

ZX_INPUT_CLASSIFICATIONS (AP and PO migrated tax codes and tax groups)

ZX_OUTPUT_CLASSIFICATION (AR migrated tax codes and tax groups)
ZX_WEB_EXP_TAX_CLASSIFICATIONS
ZX_EXEMPTION_REASON_CODE
ZX_JEBE_VAT_TRANS_TYPE
ZX_REGISTRATIONS_REASON
ZX_REGISTRATIONS_TYPE (Seeded:
CNPJ, CPF and OTHERS: Tax registration number validation for Brazil
CUIL, CUIT, DNI, NIT and VAT: Tax reporting purposes only.)
ZX_REGISTRATIONS_STATUS (Seeded: Agent Registered and Not Registered)
ZX_TAX_TYPE_CATEGORY (Seeded: Sales VAT, Excise, Customs Duty and Environmental)

Regime-To-Rate Flow for US Sales Tax

Tax Regime: CA Sales Tax

Tax: State Sales Tax

Tax Jurisdiction: California State Sales Tax
Tax Status: Standard
Tax Rate: 7.25%
Operating Unit Tax Account: 01.005.004.033

Tax: County Sales Tax

Tax Jurisdiction: San Mateo County Sales Tax
Tax Status: Standard
Tax Rate: 1.0%
Operating Unit Tax Account: 01.005.004.033

Tax: City Sales Tax

Tax Jurisdiction: Belmont City Sales Tax
Tax Status: Standard
Tax Rate: 0.00%
Operating Unit Tax Account: 01.005.004.033

a) Tax Regimes

Responsibility: Tax Manager

Path: Tax Managers -> Tax Configuration -> Tax Regime -> Create

Set up tax regimes for the taxes in each country and geographic region where you do business and
where a separate tax applies.

Prerequisites:
-Set up Legal Entities and Operating Units
-Enable currencies
-Design TCA Geography Hierarchy Structures (if required by the country)
-Set up Party Tax Profiles
-Optional: Set up tax zones, exchange rate types and tax authorities

b) Taxes

Responsibility: Tax Manager

Path: Tax Managers -> Tax Configuration -> Taxes -> Create

Set up details of the taxes within a tax regime. A tax includes:

-Configurator owner
-Default values from the tax regime
-Values specific to the tax
-Settings for tax accounts, tax exemptions, tax exceptions
-Settings for tax recovery, where applicable

Prerequisites:
-Set up a tax regime
-Optional set up ledgers and accounts, tax reporting codes and tax types (lookups).

c) Tax Statuses
Responsibility: Tax Manager
Path: Tax Managers -> Tax Configuration -> Tax Statuses -> Create

Create a tax status for a combination of tax regime, tax and configurator owner.
Define all applicable tax rates and their effective periods under the tax status.
The tax status controls the defaulting of values to its tax rates.

Prerequisites:
-Set up taxes
-Optional, set up tax reporting types

d) Tax Rates

Responsibility: Tax Manager

Path: Tax Managers -> Tax Configuration -> Tax Rates -> Create

Create tax rate records for tax statuses and tax jurisdictions.
For tax statuses, set up a tax rate record for each applicable tax rate that a tax status identifies.
For tax jurisdictions, set up tax rate records to identify the tax rate variations for a specific tax within
different tax jurisdictions. For example, a city sales tax for a state or province may contain separate
city tax jurisdictions, each with a specific rate for the same tax. You can also define tax recovery rates
to claim full or partial recovery of taxes paid.

Prerequisites:
-Set up tax status
-Set up units of measure (for quantity rate types)
-Optional, set up tax transaction type lookup codes, an offset tax, tax jurisdictions, tax reporting
types, tax recovery rates, primary and secondary tax recovery types and tax recovery rules.

e) Tax Jurisdictions

Responsibility: Tax Manager

Path: Tax Managers -> Tax Configuration -> Tax Jurisdictions -> Create

Create tax jurisdictions for geographic region and tax zone where a specific tax authority levies a tax.
At transaction eBTax derives the jurisdiction or jurisdictions that apply to a transaction line based on
the place of supply. Also, it either uses a default place of supply or derives a place of supply based on
tax rules.

Prerequisites:
-Set up taxes
-Set up tax statuses (for jurisdiction-based rates)
-Verify or set up the TCA master geography
-Optional, set up tax zones.

Additional set up is optional or mandatory depending on the details of your configuration and the tax
regulations of your tax regimes.

Tax Zones

Responsibility: Tax Manager

Path: Tax Managers -> Advanced Setup Options -> Tax Zone Types -> Create
Define tax zones. Tax zones group existing geographical regions that share the same tax requirement.
The tax zone setup makes use of the Trading Community Architecture (TCA) master reference
geography hierarchy (identifies which levels are mandatory for the tax zone).
A tax zone type references a specific part of a master reference geography hierarchy.

Tax zone hierarchical structure in the United States: Country, State, County, City,
and Postal Code.

Prerequisites:
-Verify that the TCA master geography contains the geographic information that you need.

Responsibility: Trading Community Architecture

Path: Trading Community -> Administration -> Geography Hierarchy

Setup and maintain the TCA Geography Hierarchy in these cases:

-Taxes that are levied at a level lower than the country level
-Tax characteristics vary at a lower level than the country level

Tax Accounts

Responsibility: Tax Manager

Path: Tax Managers -> Tax Configuration -> Taxes -> Tax Accounts
Path: Tax Managers -> Tax Configuration -> Tax Rates -> Tax Accounts
Path: Tax Managers -> Tax Configuration -> Tax Jurisdiction -> Tax Accounts

Set up tax accounts under a primary ledger and operating unit.

The system posts calculated tax amounts to the specified operating unit accounts at transaction time.
The actual account information that the system uses depends upon sub ledger accounting rules.

Prerequisites:
-Set up primary ledgers and sub ledgers
-Set up operating units and assign them to primary ledgers
-Set up taxes
-Optional, set up tax rates, tax recovery rates and tax jurisdictions

Tax Reporting Types

Responsibility: Tax Manager

Path: Tax Managers -> Defaults and Controls -> Tax Reporting Types -> Create

Define tax-reporting types to capture additional tax information on transactions.

You can also create a group of tax reporting codes for a tax reporting type.

Prerequisites:
-Set up tax regimes
-Set up taxes

You must associate a tax regime with tax reporting types except for tax reporting types associated with
fiscal classifications, tax registrations, and party tax profiles.
Mass Creation of Tax Jurisdictions

Responsibility: Tax Manager

Path: Tax Managers -> Tax Configuration -> Tax Jurisdiction -> Mass Create
Create a tax jurisdiction for each record within a parent geography or tax zone type.

Prerequisites:
-Set up taxes
-Set the Allow Mass Creation of Jurisdiction option for the tax
-Set up tax statuses and tax rates (for jurisdiction-based rates)
-Enable multiple jurisdictions for the tax
-Set up TCA master geography for the applicable parent geography and child records
-Optional, set up tax zones.

Tax Recovery Rates

Responsibility: Tax Manager

Path: Tax Managers -> Tax Configuration -> Tax Recovery Rates -> Create

You must set up tax recovery rates for all of your recoverable taxes.

A recoverable tax is a tax that allows full or partial recovery of taxes paid on purchases, either as a
recoverable payment or as an offset against taxes owed.
For example, most VAT-type taxes allow for full recovery or taxes paid on goods and services that
relate to taxable business supplies. In cases where an organization purchases both taxable and exempt
supplies, the tax authority can designate a partial recovery rate to reflect the combination of taxable
and exempt statuses.

2. Managing Party Tax Profiles

The configuration tier identifies the factors that participate in determining the tax on an individual
transaction. These "taxability" factors are: party, product, place and process.

a) Party Tax Profile

A party tax profile is the body of information that relates to a party's transaction tax activities. A tax
profile can include tax registrations, tax exemptions, configuration options, and main and default
information, party fiscal classifications, tax reporting codes, and account tax details (for migrated
data).
You must set up a tax profile for each first and third party involved in your tax transactions.

Party Tax Profile and Tax Registration components are supported in three flows:

-Legal entity/establishment flows

-Supplier/supplier site flows
-Customer and customer account sites flows

Configuration Options: identify the relationship between each first party legal entity and operating unit
in your company and the tax regimes that each first party and legal entity is subject to. You must set
up a configuration option for each combination of configuration owner (first party legal
entity/operation unit) and tax regimes, where the party or operating unit is subject to any tax
regulations belonging to a tax regime.

Tax Registrations: contains information related to a party's transaction tax obligation with a tax
authority for a tax jurisdiction where it conducts business. Set up tax registrations for your first party
legal establishments and your third party customers/customer sites and suppliers/supplier sites.

Customer Tax Exemptions: is a discount/surcharge or replacement percentage from the base tax rate
that reduces the applicable tax on a Receivables transaction. Set up tax exemptions for your third
party customers and customer sites to reflect the eligibility of customers for tax exemptions according
to the tax authority.

Party Fiscal Classifications: determines, for example, when taxes apply to a party, how much tax
applies, and what percentage of the tax is recoverable. Set up party fiscal classification for your first
parties, customers and customer sites, and suppliers/supplier sites.
There are two types of classifications:
-Party fiscal classifications: optionally assigned to a party and used as determining factors in tax rules.
-Legal classifications: assigned to legal entities. You assign these classifications using the Legal Entity
module.

Legal reporting codes: optionally assigned to a party capture tax information from party transactions
for both internal and tax authority reporting requirements.

Account Tax Details: maintain Release 11i migrated tax information for customer and supplier
accounts. The account details override the details at the third party and third party site level, if
applicable.

Responsibility: Tax Managers

Path: Parties -> Party Tax Profiles

Enter main information for all party types, according to your requirements. This information controls
certain default values and settings on invoices associated with the party.

Note: Tax registration settings override the values you set at the main information level. For third
party tax profiles, invoice controls defined at the tax registration level override invoice controls at the
account tax details level, if defined.

Party tax profile main information includes:

-Self-assessment option (self-access taxes)

-Tax classification code (determining factor in tax rules)
You only enter a tax classification code if you intend to use the Direct Tax Rate Determination tax rule.
-Rounding level/rounding rule
Note: If you updated the rounding precedence hierarchy for a specific configuration owner and event
class, then the related transactions look instead for rounding level information according to the
configuration owner and event class settings.
-Tax Inclusive option
-Use Subscriptions of the Legal Entity (Operating Unit)
Release 11i migrates to E-Business Tax as operating units containing their own tax content. Set this
option if you want the operating unit to use the tax content of the associated legal entity at
transaction time.
Note: this is an irreversible setting.
-Allow Tax Applicability (third party)
Automatically calculate taxes for this party whenever the party acts as a supplier.
Note: For third parties without a tax profile record, the default is to allow tax applicability.
-Allow Offset Taxes (third party)
Set this option to define whether the system considers offset taxes for transactions.

b) First Party Legal Entity Tax Profile

Responsibility: Tax Managers

Path: Parties -> Party Tax Profiles

It identifies your organization to the relevant legal authorities. When you create a legal entity, the
system automatically creates a legal entity establishment.

Once you select a first party legal entity on the Party Tax Profiles page, navigate to the Create Tax
Profile page to set up tax profiles for your first party legal entities and legal establishments.
You set up legal entities and establishments using the Oracle Legal Entity Manager.

c) First Party Legal Establishment Tax Profile

Responsibility: Tax Managers

Path: Parties -> Party Tax Profiles

It identifies each office, service center, warehouse and any other location within the organization that
has a tax requirement. You can create additional legal establishments.

Select a first party legal establishment as a party type on the Party Tax Profiles page to create and
update the tax profile.

Prerequisites:
Mandatory: Set up legal entities and legal establishments; set up tax regimes.
Optional: Set up legal entity secondary establishments, taxes, tax jurisdictions, lookup codes, party
fiscal classifications and reporting types.

d) Operating Unit Tax Profile

Responsibility: Tax Managers

Path: Parties -> Party Tax Profiles

Once you select an operating unit owing tax data on the Party Tax Profiles page, navigate to the
Update Party Tax Profile page to modify the tax profile for your operating unit. Release 11i tax data
migrates to E-Business Tax as operating units containing their own tax content. To help you manager
the tax content of operating units, you can use the operating unit tax profile.

e) Tax Authority Tax Profile

Responsibility: Legal Entity Manager

Path: Legal Entities -> Create Legal Entity

It 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.
Tax registration is not available for a tax authority, they utilize tax reporting codes.

After you create the tax authority, you can select a Tax Authority as a party type and update the tax
profile on the Party Tax Profiles page.

f) Third Party Tax Profile

Responsibility: Tax Managers

Path: Parties -> Party Tax Profiles

Once you select a third party or third party site on the Party Tax Profiles page, navigate to the Create
Tax Profile page to set up tax profiles for your customers, customer sites, suppliers, and supplier sites.

Prerequisites:
Mandatory: Set up parties
Optional: Set up tax regimes, taxes, tax jurisdictions, lookup codes, party fiscal classifications, tax
reporting types, customers and supplier accounts.

Self-Assessment Setup

A self-assessed tax is a tax calculated and remitted for a transaction, where tax was not levied by the
supplier but is deemed as due (and therefore needs to be paid by the purchaser). In such cases the
purchaser is responsible for calculating and remitting the tax. Self-assessment is also know as reverse
charge or use tax in certain tax regimes.
You can set the self-assessment option:

-At the tax profile level to default to the tax registrations that you create for this party
-At the tax registration level
-On an individual tax line

E-Business Tax applies self-assessment to Payables invoices received by the first party according to the
tax registration setting of the Set for Self Assessment/Reverse Charge option.
Depending on the level, the self-assessment will apply to:

-All taxes of the tax regime

-All tax jurisdictions of the tax
-A specific tax jurisdiction of the tax

Offset Taxes

An offset tax calculates and records third party Payables tax liabilities for reverse charges, self-
assessments, and Consumer's Use tax (US). An offset tax record is a matching, duplicate record with
negative amounts that reduces or completely offsets the tax liability recorded in the tax transactions.
Use offset taxes when the tax requirement includes creating offset general ledger postings.

Tax Recovery: You cannot update the recovery rate on an offset tax line. The recovery rate is always
100% in order to create credit entries that match the original tax amounts.

-Enable offset tax calculations for each applicable transaction event and party -Set up the offset tax,
tax status, and tax rate
-Set up the original tax and assign the offset tax rate code to the original tax rate.

Tax Exemptions

Responsibility: Tax Managers

Path: Parties -> Party Tax Profiles

Once you select a third party or third party site on the Party Tax Profiles page, navigate to the Create
Tax Exemptions page to set up tax exemptions for your third party customers and customer sites.
You can set up a tax exemption at regime, tax, status, or rate level, for a specific jurisdiction or for all
jurisdictions, for a specific product or for all products. Tax exemptions are defined as a
discount/surcharge or a new rate.

Use the third party tax exemption record to maintain information about a customer or customer site
tax exemptions. Also:

-Set up eBTax: Allow Override of Customer Exemptions profile option to control the display of the Tax
Handling field on the transaction line.
-Set up Allow Tax Exemptions option at the levels that correspond to the tax exemptions.
-Indicate whether you are creating tax exemptions for the tax, or using tax exemptions previous
created for an existing tax for each applicable tax.
-Verify that the applicable event class allows tax exemptions.

Prerequisites:
Mandatory: Set up customer third parties, tax regimes, taxes, tax statuses, tax rates, tax jurisdictions,
inventory organizations and inventory items.
Optional: Set up exempt reason lookup codes.

Tax Registrations

Responsibility: Tax Managers

Path: Parties -> Party Tax Profiles

Once you select a first party legal establishment, or a third party or third party site, on the Party Tax
Profiles page, navigate to the Create Tax Registration Details page to set up tax registrations.
E-Business Tax uses tax registrations in tax determination and tax reporting. For each tax that you
create, you must define either a default tax registration or a tax rule for the rule type Determine Tax
Registration. This rule determines which tax registration is stamped on a transaction.

You must set up a separate tax registration to represent each distinct registration requirement for a
first party.
If a party has more than one tax registration under the same tax regime, then E-Business Tax considers
the tax registrations in the order: jurisdiction; tax; tax regimes.
You optional set up tax registrations for your customers and suppliers.

Tax registrations are a record of the actual registration that the company files with the tax authority.
E-Business Tax is not actually filing real registrations, but recording information that gets stamped on
the transaction. You indicate the Source of the tax registration as either explicit or implicit:
Explicit: The party is registered with the local tax authority.
Implicit: The party is not formally registehe local tax authority, but the party is considered to meet
one or more requirements for reporting taxes.

3. Configuration Owners and Service Providers

a) Tax Configuration Ownership

You can apply the tax content that you create to the entire organization using the global configuration
owner, or you can let individual parties within the organization either create and maintain their own
tax content, or override parts of the shared tax content of the global configuration owner to fulfill
specific requirements. When a party overrides tax content, or creates and maintains tax content, it
becomes a configuration owner of this tax content.
Tax configuration ownership includes:

-Legal entities and operating units owning their tax content

-Legal entities and operating units using the shared tax content of the global configuration owner.

Release 11i data migrates to E-Business Tax as operating units containing their own tax content. To set
the operating unit to use the tax configuration of its associated legal entity, you enable the Use
Subscription of the Legal Entity option in the party tax profile of the operating unit. Note that this is an
irreversible setting.

b) Tax Configuration Options

Responsibility: Tax Managers

Path: Tax Configuration -> Tax Regimes
Path: Parties -> Party Tax Profile -> Create / Update Tax Profile -> Configuration Options

You should set up the configuration options when you create a tax regime and/or a party tax profile for
a fist party legal entity or operating unit (both set up flows display and maintain the same
party/regime definitions).
Configuration options only apply to tax regimes directly linked to taxes and not to tax regimes that are
used to group other tax regimes.

Prerequisites:
-Set the eBTax: Read/Write Access to GCO Data profile option (for Global Configuration Owner setup)
-Set up tax regimes
-Set up party tax profiles

Use configuration options to associate legal entities and operating units with their applicable tax
regimes.

c) Configuration for Taxes and Rules

The setup that the party uses for taxes, tax statuses, tax rates, tax recovery rates and tax rules. These
options are:

Common Configuration: The party uses the company tax setup for the applicable regimes. All parties
with a Common Configuration option share the same tax setup. When setting up taxes, tax details, and
configuration owner tax options, the global configuration owner represents any party with a Common
Configuration.
Common Configuration with Party Overrides: The party uses the company tax setups for the applicable
regimes, but with the ability to override portions of the company tax setup with tax setup specific to
the party's requirements.

Party-Specific Configuration: A legal entity or operating unit party does not share the company tax
setup, but instead creates and maintain its own tax setup for the applicable regimes.

For release 11i migrated data, the configuration owner of the tax setup converts to E-Business Tax in
this way:

-Tax codes ? Party-Specific configuration, with the operating unit owning its tax setup.
-Location-based tax codes ? Common Configuration, with the global configuration owner owning the
location-based tax setup.

d) Configuration for Product Exceptions

The setup that the party uses for product tax exceptions. It determines whether the product tax
exceptions defined for this tax regime are shared with other parties or remain specific to one party:

- If the configuration option for taxes and rules is Common Configuration or Party-Specific
Configuration, then E-Business Tax assigns the same setting to the configuration option for the product
exceptions.
- If the configuration option for taxes and rules is Common Configuration with Party Overrides, you can
set the configuration option for product exceptions to Common Configuration to let the party use the
product tax exceptions of the global configuration owner; or Party-Specific Configuration to let the
party set up its own product tax exceptions that are not shared with any other party.

e) Service Subscriptions

The external service providers that the party uses in place of Oracle E-Business Tax to provide tax
calculation services for US Sales and Use tax.

Responsibility: Tax Managers

Path: Parties ->-Party Tax Profile -> Create/Update Tax Profile -> Configuration Options -> Service
Subscriptions

Use the Subscription Options page to assign an external service provider to a configuration option.
When assigned, E-Business Tax uses the external service provider tax services to calculate US Sales and
Use tax on Receivables transactions and the external service provider tax data for reporting.
E-Business Tax provides transparent integration between the external service provider and Oracle
Receivables. Both, E-Business Tax and the external service provider execute and complete the tax
services without any interruption to the application business flow. You can use the tax services of these
external providers:

-Taxware, LP ? A First Data Company

-Vertex, Inc.

Prerequisites:
-Set up tax regimes
-Set up party tax profiles
-Set up configuration options
f) Legal Entity and Operating Unit Configuration Options

You can define relationships between parties and tax requirements that reflect the specific taxation
needs of your company and the way it is organized. Those options includes:

-One legal entity owns and maintains its tax configuration

- Multiple operating units of one legal entity share the legal entity tax configuration
- Multiple legal entities share the same tax configuration
- Multiple legal entities share the same tax configuration; with individual legal entities able to override
the shared tax configuration for requirements specific to the legal entity, including tax, tax status, tax
rate, and tax rules and formulas
- One or more operating units of one legal entity own and maintain a separate tax configuration
- A legal entity, or an operating unit that owns and maintains a separate tax configuration, uses third
party tax services for specific transaction events

g) Event Classes

Responsibility: Tax Managers

Path: Transactions -> Event Class Settings -> Event Class Mappings
Path: Transactions -> Event Class Settings -> Event Class Options

Payables: Standard invoices, prepaid invoices and expense reports

Receivables: Invoices, credit memos and debit memos
Purchasing: Requisitions, purchase orders and agreements, and releases
Trade Management: Tax event for claims interfacing to AP and tax event for claims interfacing to AR

Use the Event Class Mapping page to review the mappings between event types and tax event types.
Use the Event Class Options page to review the default tax settings for each application event class.
Event class settings provide a means of standardizing the interaction between E-Business Tax and other
applications. E-Business Tax responds to specific applications transaction events, such as Payables
invoice, according to the predefined settings of each application event class. In this way, E-Business
Tax can determine and calculate taxes without requiring access to each product. By default, the event
class option settings of an event class apply to all configuration owners.

You can update event class options belonging to an application event class for a selected configuration
owner in this way:
- If the event class option is enabled, you can deselect the option to exclude it from tax calculation;
- -If an event class option is not enabled for a particular application event class, you cannot enable this
option.

h) Configuration Owner Tax Options

Responsibility: Tax Managers

Path: Tax Managers -> Defaults and Controls -> Configuration Owner Tax Options -> Create

Use the Create Configuration Owner Tax Options page to set up configuration owner tax options for a
combination of configuration owner and application event class.

Configuration owner tax options let a configuration owner update default tax options on transactions
that belong to a specific application event class. At transaction time, E-Business Tax uses the tax
option settings of the configuration owner and application event class instead of the default settings.

Note: If you are using Direct Tax Determination with tax classification codes and migrated tax data,
then you must set up configuration owner tax options using the STCC regime determination set for the
applicable configuration owner and event class.

4. Fiscal Classifications

Fiscal classifications provide tax determination values for situations where the party, product, or
transactions are factors in tax determination. You set up a fiscal classification type to identify a
category of fiscal classification that has a potential tax implication; you assign fiscal classification
types to tax regimes and taxation countries. You set up fiscal classification codes under a fiscal
classification type to provide additional granularity to a particular fiscal classification category. When
creating tax rules, you use fiscal classification types as determining factors and fiscal classification
codes as condition set values.
The use of fiscal classifications is optional.
You set up fiscal classifications under these general categories:

a) Party Fiscal Classifications

Responsibility: Tax Managers

Path: Parties -> Party Classification -> Create

Create party fiscal classification types and codes.

Classify your first parties (the various parts of your organization) and your third parties (your customers
and suppliers and their locations) for use in tax determination.
A party fiscal classification determines, for example, when taxes apply to a party, how much tax
applies, and what percentage of the tax is recoverable.

Set up party fiscal classification for: First parties, customers and customer sites, suppliers and supplier
sites.
Once you set up your party fiscal classification types and codes, you can associate a party fiscal
classification with a party tax profile for each party that requires a party fiscal classification for tax
determination and/or tax reporting purposes.

Prerequisites:
-Set up TCA class categories and class codes
-Set up tax regimes
-Set up tax reporting types (optional)

Legal Party Fiscal Classifications

Responsibility: Tax Managers

Path: Parties -> Legal Classification Tax Usage

Some countries use a set of codes to identify legal classifications that have a tax requirement. E-
Business Tax provides seeded fiscal classification type codes for each set of country-specific legal
activity codes. You can assign these legal activity codes to the tax regimes within the applicable
country.
b) Product Fiscal Classifications

Responsibility: Tax Managers

Path: Products -> Product Classifications -> Create
Path: Products -> Intended Use Classifications

Classify the products and services that you buy and sell for use in defining rules for tax determination.
You use product fiscal classifications as tax determining factors in tax rules.
You can set up product fiscal classifications for:
- Inventory-based products and services (Inventory items)
- Non-Inventory based products and services (non-Inventory based items)
- Product intended use fiscal classification (Inventory-based or non-Inventory based products and
services)

You associate the product fiscal classification type codes that you create with the corresponding tax
regimes that require product fiscal classifications.

Prerequisites:
-Set up Inventory items and categories for product fiscal classifications
-Set up tax regimes
- Set up tax reporting types (optional)

Product Tax Exceptions

Responsibility: Tax Managers

Path: Products -> Tax Exceptions -> Create

Set up tax exceptions to apply special tax rates to products. To set up tax exceptions, you must enable
the Allow Tax Exceptions option at all applicable levels in the regime-to-rate flow, including tax
regime, tax, tax status, and tax rate.
Only one product tax exception can apply to a transaction line for a specific tax.
You can set up these product tax exceptions:

Discount: A reduction of the base tax rate.

Surcharge: An increase of the base tax rate.
Special Rate: A rate that replaces the base tax rate.

You must assign a product tax exception to a combination of tax regime, configuration owner, and tax.
You can also optionally assign product tax exceptions to a tax status or tax rate belonging to the tax or
to a tax jurisdiction.
You can, for example, use product tax exceptions to determine the tax rate for a particular product,
instead of using tax rules.

Prerequisites:
- Set up taxes, tax jurisdictions, Inventory organizations, Inventory items, product fiscal classification
types, product fiscal classification codes, exception reason lookup codes (optional), tax status
(optional) and tax rates (optional).

c) Transactions Fiscal Classifications

Responsibility: Tax Managers

Path: Transactions -> Transaction Business Categories
Path: Transactions -> Transaction Fiscal Classifications -> Create
Path: Transactions -> Document Classifications
Path: Transactions -> User Defined Transaction Classifications

Classify the nature of a transaction itself, and the details that must accompany a transaction,
according to its tax requirements.

E-Business Tax uses transaction fiscal classifications as tax determining factors in tax rules. You use
transaction fiscal classifications when the tax authority requires you to classify the nature of the
transaction itself for tax purposes in order to determine the tax rate.
You can set up these types of transaction fiscal classification:

- Transaction business categories

- Transaction fiscal classification codes
- Document fiscal classifications
- User defined fiscal classifications

5. Setting Up Tax Rules

You create tax rules by translating the tax regulations of a tax authority into determining factors and
tax conditions that the E-Business Tax tax rules engine uses to evaluate the applicability of a tax on
each transaction line. Tax rules determine: the applicability of a tax; the place of supply and tax
jurisdiction of the transaction; the tax registration; the tax status and tax rate; the recovery rate (if
applicable); and the taxable basis and tax formula to use in calculation.

The E-Business Tax tax rules engine uses the Tax Determination process to identify the taxes that apply
to a transaction and to calculate the tax. It is organized into rule types. Each rule type identifies a
particular step in the determination and calculation of taxes on transactions. You must either set up
tax rules or provide a default value for each rule type in order for the tax rules engine to determine
and calculate taxes.

1 ? Determine Applicable Tax Regimes and Candidate Taxes

Identifies the first party of the transaction and the countries associated with the transaction. For each
country identified, the process selects the tax regimes that are associated with the first party and
defined for the country as candidate tax regimes / candidate taxes.

2 ? Determine Place of Supply and Tax Jurisdiction (Determine Place of Supply rule type)

Determines the location where a transaction is considered to have taken place for a specific tax, and
the associated tax jurisdiction for each candidate tax.
The place of supply, or sites in the United States, is the location type where the supply of goods or
services is deemed to have taken place for a specific tax. If E-Business Tax cannot find a tax
jurisdiction for the location that corresponds to the place of supply location type, then the tax does
not apply and it is removed as a candidate tax for the transaction.

3 ? Determine Tax Applicability (Determine Tax Applicability rule type)

Determines the tax applicability of each candidate tax derived from the Determine Place of Supply and
Tax Jurisdiction process, and eliminates taxes that are found to be not applicable.
The process first attempts to derive the applicability based on the rule. If no rule applies, the process
uses the default value of Applicable or Not Applicable that was assigned to the rule type for the tax. If
the tax does not apply, it is removed from the list of candidate taxes.

4 ? Determine Tax Registration (Determine Tax Registration rule type)

Determines the party whose tax registration is used for each tax on the transaction, and, if applicable,
derives the tax registration number.
During the registration process, E-Business Tax also considers these details of the derived tax
registration for each tax: Tax inclusive handling, self-assessment/reverse charge setting and rounding
rule.

5 ? Determine Tax Status (Determine Tax Status rule type)

Determines the tax status of each applicable tax on the transaction.

E-Business Tax attempts to derive the tax status using either tax rules or the default value assigned to
this rule type.

6 - Determine Tax Rate (Determine Tax Rate rule type)

Determines the tax rate for each tax and tax status. If applicable, the tax rate is modified by any
exception rate and/or tax exemption that applies. The result of this process is a tax rate for each
applicable tax.

Defaulting Logic: If defined, E-Business Tax uses the tax rate assigned to the tax jurisdiction for the
applicable tax and tax status; otherwise, it uses the default tax rate.

7 ? Determine Taxable Basis (Determine Taxable Basis rule type)

Determines the taxable base amount or quantity upon which to apply the tax rate for each applicable
tax. The taxable basis is typically the transaction line amount.
Taxable basis formula: taxable basis = line amount.
You can set up special taxable basis formulas.

If the process cannot find a taxable basis formula for an applicable tax, then E-Business Tax raises an
error.

It considers the Tax Inclusive settings of the applicable taxes.

Tax Rule: Determine taxable basis, or the default value for the tax.

8 ? Calculate Taxes (Calculate Tax Amounts rule type)

Calculates the tax amount for each applicable tax on the transaction.
The tax is typically determined by applying the tax rate to the line amount.
Default tax calculation formula: tax amount = taxable basis * tax rate.
You can set up special tax calculation formulas.
If the process cannot find a tax calculation formula for an applicable tax, then E-Business Tax raises an
error.

Tax Recovery Rate (Determine Recovery Rate rule type)

Determines the recovery rate on Procure to Pay transactions to apply to each recovery type for each
applicable tax on the transaction.
Tax recovery is a separate process with its own set of steps, for taxes that allow for full or partial
recovery of the tax amount.
A recoverable tax is a tax that allows full or partial recovery of taxes paid on purchases, either as a
recoverable payment or as an offset against taxes owed.

Direct Tax Rate Determination

This is a special tax rule type that lets you specify the results of tax applicability, tax status, and tax
rate for a given tax. You use this rule type with migrated tax data and the Release 11i tax model in E-
Business Tax.

a) Tax Rule Defaults

Responsibility: Tax Manager

Path: Tax Managers -> Tax Configuration -> Tax Rules

You can set a default value for each rule type. E-Business Tax uses the default value if no rule
belonging to the rule type provides a value that applies to the transaction. For certain tax regimes, you
may be able to use default values exclusively, without the need to set up tax rules.
You only need to define a tax rule for a result that is different from the default value.

b) Default values for Rule Types

Determine Place of Supply

-Bill From
-Bill To
-Point of Acceptance (Receivables only)
-Point of Origin (Receivable only)
-Point of Payment
-Ship From
-Ship To

Use Bill To as Ship To, if Ship To is not found.

In Europe, the default for place of supply of goods is usually Ship From.
In the United States, the default for place of supply of goods is usually Ship to.

Determine Tax Applicability

-Applicable
-Not Applicable

Determine Tax Registration

-Bill From Party
-Bill To Party
-Ship From Party
-Ship To Party
-Use Bill To, if Ship To is not available.

The default is usually Bill From Party, but there are cases, such as reverse charge and self-assessment,
where the default is Bill To Party for specific transactions.
Determine Tax Status
You specify the default value when you set up the tax status (it can be overridden).

Determine Tax Rate

You specify the default value when you set up the tax rate (it can be overridden).

Determine Taxable Basis

The seeded formula STANDARD_TB (Taxable Basis = Line Amount)

Calculate Tax Amounts

The seeded formula STANDARD_TC (Tax Amount = (Taxable Basis) * (Tax Rate)).

c) Tax Rules Entry

Responsibility: Tax Manager

Path: Tax Managers -> Tax Configuration -> Tax Rules -> Guided Rule Entry

E-Business Tax provides two entry flows for setting up your tax rules:

Guided Tax Rule Entry: Five-step flow that lets you build determining factors and tax conditions as you
create the tax rule.
Page flow:
-Tax Rules
-Create Tax Rule: General Information
-Create Tax Rule: Determining Factors and Conditions
-Create Tax Rule: Condition Results
-Create Tax Rule: Rule Order
-Create Tax Rule: Rule Templates

A tax rule is defined by:

-Ownership information
Identifies the tax rule configuration owner. If the configuration owner is a legal entity or operating
unit, then the rule only applies to the transactions of this legal entity or operating unit. If the
configuration owner is the Global Configuration Owner, then the rule applies to the transactions of all
legal entities and operating units with a configuration option setting for the tax regime of either
Common Configuration or Common Configuration with Party Overrides.

-Context information
Identifies the tax regime, tax, and rule type for which a rule is defined.

-Rule order
Identifies the order in which a rule is evaluated.

-Additional context information

Applies further restrictions to a rule

-Determining factor set

Identifies the factors to consider when evaluating a tax rule
-Tax condition set
Identifies the conditions to satisfy in order evaluate a tax condition set successfully.

-Result
The value that results when the tax conditions are satisfied.

Prerequisites:
-Set up tax regimes
-Set up taxes
-Set up tax statuses
-Set up tax rates and enable the Allow Tax Rate Rules option
-Set up TCA geography hierarchy structures
-Set up tax zones
-Set up fiscal classifications
-Set up determining factor sets
-Set up tax condition sets
-Set up taxable basis tax formulas
-Set up tax calculation tax formulas
-Set up tax recovery rates

Expert Tax Rule Entry: three-step entry flow that makes use of determining factor sets and tax
condition sets that you have previously defined.

d) Make Tax Available on Transactions

Prereqither tax rule defaults or tax rules for the rule types
-Define a primary tax recovery rate, if you set the allow recovery option for the tax
-Define at least one tax jurisdiction for the tax
-Define an exchange rate type, if the tax is used in cross-border transactions

Responsibility: Tax Manager

Path: Tax Managers -> Tax Configuration -> Taxes -> Update

Use the Update Tax page to make each tax available on transactions. You must enable the Make Tax
Available for Transactions option before E-Business Tax can use this tax setup to calculate taxes on
transactions. When you enable this option, E-Business Tax runs a series of checks to ensure that all of
the definitions related to the tax have been defined. E-Business Tax displays an error message if you
have not set up the definitions properly.

e) Oracle Tax Simulator

Responsibility: Tax Simulator

Path: Tax Simulator

Use the Oracle Tax Simulator to enter simulated transactions (enter transactions to simulate the tax
determination process without creating live data), view your tax rules in action, simulate workbench
characteristics, view tax lines and override tax lines.

6. Setting Up Tax Rules ? Determining Factors

Determining factors are the key building blocks of your tax rules. They are the variables that are
passed at transaction time or derived from information on the transaction. Determining factors fall into
four groups, namely: Party, Product, Place and Process.
A determining factor is an attribute that contributes to the outcome of a tax determination process,
such as a geographical location (place) or tax registration status (party). Determining factors can be
used in tax rules, taxable basis formula, and tax regime determination.

Determining Factor Classes

Tax determining factors are categorized into logical groupings called determining factor classes, such
as Geography.

Class Qualifiers

You use a class qualifier with a determining factor class when it is possible to associate a determining
factor class with more than one value on the transaction. For example, for the determining factor class
Geography and the determining factor Country, you need to specify which party location to use by
means of a class qualifier such as ship from party or ship to party location.

a) Determining Factor ? Party

The Party determining factor includes the following determining factor classes and their class
qualifiers:

Legal party fiscal classification: Fiscal party

Registration: Bill From Party, Bill To Party, Ship From Party and Ship To Party
Party Fiscal Classification: Bill From Party, Bill To Party, Point of Acceptance (AR transactions), Point
of Origin Party (AR transactions), Ship From Party and Ship To Party
Transaction input factor: Not applicable (groups together additional factors entered on the transaction
line that can influence tax determination)

b) Determining Factor - Product

The Product determining factor includes the following determining factor classes and their class
qualifiers:

Product - Inventory linked: Not applicable

Product ? Non-Inventory linked: Product Fiscal Classification level (Levels 1-5)
Transaction input factor (intended use, product override): Not applicable

c) Determining Factor - Place

The Place determining factor includes the following determining factor classes and their class
qualifiers:

Geography: Bill From, Bill To, Point of Acceptance (AR transactions), Point of Origin (AR transactions),
Ship From and Ship To.

Tax Zones: Bill From, Bill To, Point of Acceptance, Point of Origin, Ship From and Ship To.

d) Determining Factor ? Process

The Process determining factor includes the following determining factor classes and their qualifiers:

Document: Document fiscal classification level (Levels 1-5)

Transaction fiscal classification: Not applicable
Transaction generic classification: Classification level (Levels 1-5) ? it references fiscal classification
codes belonging to the designated level in the corresponding fiscal classification type
Accounting event: Accounting segments of the selected ledger
Transaction input factor: Not applicable

e) Tax Determining Factor Set

Responsibility: Tax Managers

Path: Advanced Setup Options -> Tax Determining Factor Sets -> Create

Create determining factor sets for use in tax rules determination and tax regime determination.

Tax Rules

Associate a tax determining factor set with a rule type to use in the creation of tax rules for the rule
type.
You associate one determining factor set with each tax rule to create the tax condition sets for the tax
rule. You can maintain and reuse a tax determining factor set that you create for one rule with another
rule for a different tax or a different rule type, where requirements are identical. You can also reuse a
tax determining factor set within the same rule type for a different condition set. You can set up
determining factor sets in advance to use with tax rules, or set up a determining factor set during the
creation of a tax rule.

Regime Determination

Associate a regime determination set with a combination of configuration owner and application event
class to identify tax regimes and candidate taxes on transactions. Tax regime determination is the first
step in the tax determination process. A regime determination set differs from tax rule determining
factor sets in that the determining factors are location types only. E-Business Tax compares the
location types in the active regime determination set to the locations specified on the transaction to
identify the countries associated with each location and the tax regimes associated with each country.

Note: By default, E-Business Tax provides a seeded regime determination set for all Payables and
Receivables transactions for all configuration owners. This regime determination set considers all
location types (except Paying Location) to look for applicable tax regimes on a transaction.

Tax Determination Set Setup for Tax Rules

Prerequisites:
- Set up tax regimes, if you intend to create a determining factor set for use with a specific tax regime,
or if you intend to use a fiscal classification determining factor class that requires a tax regime
assignment
- Set up ledgers, if you intend to use the Accounting determining factor class. The ledger accounting
segments become available for use as tax condition values.

- Set up TCA geography hierarchy structures, if you intend to use the Geography determining factor
class.
- Set up TCA party classifications, if you intend to use the Party Fiscal Classification or Legal Party
Fiscal Classification determining factor class.
- Set up party tax profiles, if you intend to use the Registration determining factor class.
- Set up fiscal determinations, if you intend to use a determining factor class related to fiscal
classifications.
- Set up tax classification codes, if you intend to use the Transaction Input Factor determining factor
class for tax classification codes.
- Set up tax zones types and tax zones, if you intend to use the User Defined Geography determining
factor class.

Regime Determination Set Setup

Prerequisites:
- Set up tax regimes
- Optionally, set up tax zone types and tax zones, if you want regime determination to take place at
the tax zone level for a location type.

f) Tax Formulas

Responsibility: Tax Managers

Path: Advanced Setup Options -> Tax Formulas -> Create

Set up tax formulas for use in the tax rules Determine Taxable Basis and Calculate Tax Amounts.

Determine Taxable Basis

The Determine Taxable Basis tax rule derives the amount or quantity on the transaction line that E-
Business Tax uses to apply the tax rate. The standard taxable basis formulas are:

Taxable Basis = Line Amount

Taxable Basis = Quantity

If the tax requires the calculation of a taxable basis other than the line amount or line quantity, then
create a taxable basis tax formula and either associate it with a Determine Taxable Basis tax rule for
the applicable tax regime and tax or set it as the default taxable basis for a tax.

Calculate Tax Amounts

The Calculate Tax Amounts tax rule determines the formula that E-Business Tax uses to calculate the
tax amount on the transaction line. The standard tax calculation formula is Tax Amount = (Taxable
Basis) * (Tax Rate). If the tax amount is to be altered by adding or subtracting the tax amount of
another tax, then create a tax calculation tax formula and either associate it with a Calculate Tax
Amounts tax rule for the applicable tax regime and tax or set it as the default tax calculation formula
for a tax.

If you do not assign a tax calculation tax formula to a specific tax regime, then it becomes available to
all tax regimes.

Prerequisites:
- Set up tax regimes
- Set up taxes
- Enable the applicable cross-regime compounding and compounding precedence for the tax regimes
and taxes that will use tax formulas with compounding details.

g) Tax Condition Sets

Responsibility: Tax Managers

Path: Advanced Setup Options -> Tax Condition Sets -> Create

The tax conditions belonging to an individual tax condition set constitute the conditions to consider in
order to determine if the result of the condition is true for the applicable transaction. The tax
condition set or sets belonging to an individual tax rule constitute the logic of the tax rule ? if any tax
condition set belonging to a tax rule arrives at a true result, then the tax rule applies to the
transaction.
You can set up tax condition sets in advance and apply them to a tax rule, or you can set up tax
condition sets during tax rule creation.
The tax condition set specifies the factors to consider, and the resulting value that must exist for each
factor, in order for the result of the tax rule to be true. Each tax condition in a tax condition set
consists of a tax determining factor, an operator, and a value.

Prerequisites:
- Set up determining factor sets
- Set up values for the applicable determining factor classes.

Summary

Required Task List

a) External Dependencies

Create First Party: Legal Entity and Establishments

Create Reporting and Collecting Tax Authorities

b) Tax Configuration

Create Tax Authorities Party Tax Profiles

Create Tax Regimes
Create First Party Legal Entity Party Tax Profile
Create Tax
Create Tax Status
Create Tax Jurisdictions
Tax Rate