E-Business Tax

E-business Tax is a new module introduced in R12. It is designed to store generic Tax setup across the functional disciplines in one place. The following document considers a very simple UK VAT model. It outlines each area that must be completed in order to derive tax against sub-ledgers like Receivables, Payables and Purchasing. We start by logging on to the Tax Manager Responsibility and going to the Tax Configuration User Interface (UI).

Tax Regimes
Tax Regimes can be stored at different levels, namely: Country (e.g. UK) Group of Countries (e.g. Scandinavia) Tax Zone (e.g. EU) The Tax Regime is the highest level of Tax Group that can be defined. In our simple model, we simply have one Tax Regime, United Kingdom. See the screen shot.

Taxes
Here we define all the different Taxes that can be applied to Transactional information across the different Sub-Ledgers. In our simple UK model, we are only considering one Tax, Value Added Tax (VAT) See screen shot below. If we were working with a Tax Zone such as the EU, then each of the individual Taxes for each member state must be set up here.

Drilling into the detail of this record we can see the setup behind the individual taxes:

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Tax Statuses
A Tax Status is the taxable nature of a product in the context of a transaction and a specific tax on the transaction. Every tax status in Oracle E-Business Tax is defined under a tax and contains one or more tax rates. In our simple example, we have set up a Status for each Tax Rate.

If we drill into the STD 17.5 rate we can see that this status has been set up as the system default:

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Tax Jurisdictions
A tax jurisdiction is a geographic region or tax zone where a specific tax authority levies a tax. A tax jurisdiction specifies the association between a tax and a geographic location. At transaction time E-Business Tax derives the jurisdiction or jurisdictions that apply to a transaction line based on the place of supply. The place of supply is the location where a transaction is determined to take place for a specific tax. E-Business Tax either uses a default place of supply or derives a place of supply based on tax rules. You also use tax jurisdictions to define jurisdiction-based tax rates. A tax jurisdiction tax rate is a rate that is distinct to a specific geographic region for a specific tax. For example, the tax defined as California city sales tax can have different rates for each city tax jurisdiction. You must set up at least one tax jurisdiction for a tax before you can make the tax available on transactions For Tax Regimes that contain many member states, (eg for Countries such as U.S.A. or for Tax Zones like the E.U.) there may be different taxes for each state. A Tax Jurisdiction covers each member state (e.g. in the U.S.A., California). Each Tax Jurisdiction has an individual tax. In our model, we only need one jurisdiction as VAT covers the whole of the UK.

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Tax Recovery Rates

In many parts of the world, some or all of the taxes on business transactions for registered companies are 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 of 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. Set up tax recovery rate codes for the recovery types identified on the taxes within a tax regime. A tax recovery rate code identifies the percentage of recovery designated by the tax authority for a specific transaction. In Canada, where more than one type of recovery is possible for a given tax, you must set up the applicable tax recovery rate codes for both the primary and secondary recovery types that can apply to a transaction.

Drilling into the FULL RECOVERY Tax Rate

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We drill into the Tax Accounts:

Then into the Tax Accounts to see the Recovery/Liability Tax account:

Tax Rate
A Tax Rate is the rate specified for a tax status. A tax status can have one or several tax rates. In addition, special tax rates may apply to a specific tax jurisdiction. In our example we have a Tax Rate set up for each of our Tax Statuses.

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Drilling into an individual rate, we see the Percentage Rate and Effective Dates

Tax Rules
In Oracle E-Business Tax, a tax rule is a set of conditions that is used to determine the tax for a specific transaction. The complete set determines how transactions in each Sub-Ledger are assigned Tax Lines. We first look at the Determine Place of Supply. This is generally used to determine what information or qualifier is to be used in each of the Sub-Ledgers to identify, which Tax is to be applied to the Tax Region.

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If we now drill into the AR INVOICES Rule we can see that it is defined to look in Receivables Application. It is using Country Factor in the Geography Class as the Qualifier, where the Bill From Country must be equal to United Kingdom.

We now look at the determine Tax Status. Here we see that the Default Status is set up to be the STD 17.5 Status. We define here exceptions to the default, where a qualifier can be inserted to ensure that the transaction in the Sub-Ledger is assigned a different Tax if it matches the conditions of the Qualifier.

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If we look at the Zero Rated Exception, we can see that if the Tax Classification Code on the Transaction is equal to ZERO RATED, then this Tax Status should be used.

We finally turn our attention to the last Tax Rule, which sets the Tax Rate. As in our simple example, there is a one to one relationship with Tax Status and Tax Rate, the Rules for Tax Rate are the same as the Rules for Tax Status.

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Tax Lines in the Sub-Ledgers

Tax lines are now stored in the Sub-Ledger the originating transaction is created in. If we look at the Diagnostics (See the R12 diagnostics Tool Zip File) for a particular AR Invoice to look at the tables populated by this Transaction, we see that the Tax Lines are now stored in the new tables ZX_LINES and ZX_LINES_DET_FACTORS. The definition of each of the Tables as described in the Online Technical Reference Manuals is as follows: ZX_LINES - This table stores detail tax lines for transactions of multiple event classes ZX_LINES_DET_FACTORS - This table stores transaction related attributes used for tax calculation and reporting. Each row stores a transaction line of an event class

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