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In Oracle R12 a new module called E-business Tax has been introduced for maintenance of all
tax related requirements of different geographical locations. Contrary to Oracle 11i where
there each module had different setups for tax code and tax calculations; in Oracle R12 E-
business tax module acts as a central repository for all tax setups and is integrated with all
other modules.
This document covers two specific scenarios where we used the E-business tax modules to
set up tax and use the tax rules in the module to calculate tax based on different
requirements.
These are the basic mandatory tax setups to be performed in the E-Business Tax Module in
R12 to enter Tax lines manually or calculate taxes for any transaction.
1. TAX REGIME: Tax Regime is setup for the taxes in each country and a geographic region
where you do business and where a separate tax applies. A tax regime associates a common
set of default information, regulations, fiscal classifications and registrations to one or more
taxes with same tax requirement.
2. TAXES: Tax is classification of a charge imposed by a Government through a fiscal or a tax
authority. Each separate tax in a tax regime includes records for statuses, tax rates and rules
used to calculate and report tax requirements
3. TAX STATUS: Tax Status is the taxable nature of a product or service in the context of a
transaction for a tax.
4. TAX JURISDICTION: A geographic area where a tax is levied by a specific tax authority.
5. 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
6. TAX RULES: E-business tax uses the tax setups along with the tax rules to decide which
taxes apply to a transaction and how to calculate the tax amount for each tax that applies to
a transaction.
Case Study – 1
Business Requirement: Calculation of USE TAX in AP Invoices based on Ship To Location Zip
code and Balancing Segment of Chart of Accounts.
After the upgrade to Oracle R12; Use tax can be applied on an invoice in two ways:
1. Similar to 11i make sales tax and offset tax codes to generate the use tax lines in the AP
invoice.
1. Use feature of Self Assessed tax (newly introduced in R12) for accounting of use tax lines.
Concept of Self Assessed tax is explained later in the document.
2. Define Taxes
Define one tax called US USE TAX under the tax regime created for United States
Responsibility & Navigation:
Tax Managers – Tax Configuration – Taxes – Create
Click on Apply to save the changes
3. Define Tax Statuses
Define one tax status for the tax regime and tax setup in the previous steps.
Responsibility & Navigation:
Tax Managers – Tax Configuration – Tax Statuses – Create
Define multiple rates for the combination of Corp and Ship to location zip codes. A tax rate is
made for the combination of Tax Regime, Tax and Tax Status.
For instance:
Balancing Segments BAL_A and BAL_B
Ship to Location zipcode 100 and 101
The different rates which can be setup are
USE_BAL_1_100 – 5%
USE_BAL_B_101 – 10%
USE_BAL_A_101 – 2%
USE_BAL_B_100 – 1%
Responsibility & Navigation:
Tax Managers – Tax Configuration – Tax Rates – Create
Click on Tax Accounts to enter the Expense and liability account details
Enter the Tax Expense Account. If this is left blank the expense account for ITEM line will be
used.
The Tax Recoverable/Liability is the Use tax Liability Account to be used.
6. Define Tax Rules
Oracle provides a seeded set of Tax Rules which can be used by the user for tax calculation.
For any transaction made the tax determination process uses these tax rules to decide the
taxes which will apply and the amount of tax which has to be applied for a transaction.
Prerequisites for setting up the Tax Rules:
Step1:
To decide whether use tax applied on any transaction within Payables module a tax
classification code called USE TAX APPLICABLE will be made. A tax classification code is similar
to a tax rate code with a tax rate of 0%.
Responsibility & Navigation:
Tax Managers – Tax Configuration – Tax Rates – Create
Step2:
Create Geography Hierarchy:
The various zipcodes which will be used in the tax rules have to be setup in the geography
hierarchy in the trading community architecture.
Responsibility & Navigation:
Trading Community Manager à Administration à Geography Hierarchy
Query for country United States in the below screenshot
Enter the different cities for the county and click on View Details to enter the zip code for
each city.
Enter the zip codes which will be used for tax calculation with the code type as “Tax
Geography Code”. Click on Apply after creating/updating any changes
The tax condition set is made from the tax determining factor set. In the above screenshot
we have made a tax condition set for balancing segment CIP and postal code 62201 using the
determining factor set made in the above set.
TAX RULE SETUP
Responsibility & Navigation:
Tax Managers – Tax Configuration – Tax Rules
The following tax rules will be setup for use tax calculation:
1. Determine Tax Applicability: Since the tax US_USE applies only for use tax we make this
tax applicable only if the tax classification code in the invoice for an ITEM line is “USE TAX
APPLICABLE”
2. Determine Tax Rate – This rule will derive the use tax rate for the invoices using the
determining factor set and condition set. While making the tax rule we enter the
determining factor set and the condition set made in the previous steps as shown in
below screenshot.
For each condition set there will be a different tax rate which will be applied.
Example:
As shown in above screenshot there are 4 condition sets:
1. COND_CIP_62201 – This means that the balancing segment is CIP and ship to postal code
is 62201. If the invoice satisfies these two conditions and the tax classification code is USE
TAX APPLICABLE the tax rate used will be USE_CIP_62201.
1. COND_AMC_63103 – This means that the balancing segment is AMC and ship to postal
code is 63103. If the invoice satisfies these two conditions and the tax classification code
is USE TAX APPLICABLE the tax rate used will be USE_AMC_63103.
For all the other rules the default values have been used.
7. Concept of Self Assessed Tax
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 known as reverse charge or use tax in certain tax regimes.
When self-assessment applies to a tax line, E-Business Tax creates the recoverable and/or
non-recoverable distributions, and Payables creates an additional accounting distribution to
record the liability for the self-assessment.
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.
The specific tax registration record that E-Business Tax uses is derived either from Determine
Tax Registration rules or from the default tax registration.
We have setup the self assessed tax feature at the Tax Registration level.
Navigation: Tax Managers – Home – External Dependencies – Create First Party : Legal Entity
and Establishments
Query the Legal Entity -View Details – Establishments Tab – Query Establishment (which is
the OU here) – Registrations – Create Tax Registration
Since we are using the self-assessed tax feature only for use tax invoices we set up this option
for the tax US_USE only. Other taxes will not have this flag checked.
Invoice can be created in base table or interface table with the tax classification code as USE
TAX APPLICABLE. Use the correct ship to location and balancing segments in the invoice.
The tax rules will be triggered on validation of the invoice in base tables and the use tax line
will be generated.
Since we are using the self assessed tax feature there will not be any tax displayed on the
invoice line, the tax details will be visible in the Tax Details form. They will also not be stored
in ap_invoice_lines_all table; instead they will be stored in zx_lines table with the trx_id
which will be the invoice_id of the invoice.
Business Requirement: Calculation of SALES TAX in AP for Invoices made from source ERS
based on Supplier site pin code
The requirement of client was as follows:
There were many invoices created in AP using the ERS source i.e create the PO and Receipt in
Purchasing module and then run the “Pay on Receipt” program to generate the invoice in
interface tables with source as ERS.
The standard Payables Open Interface Import program will then import these invoices into
base oracle.
Sales tax applies on some of these ERS transactions based on the zip code of supplier site.
For instance: An ERS invoice with a supplier site A having zip code 63301 has a tax rate of
10% to be applied where as supplier site B having zip code 62284 has a tax rate of 6% to be
applied.
Since the ERS invoice which is inserted into the interface table consists of only ITEM line we
needed to insert one more TAX line with the correct amount. Additionally the total invoice
amount also has to be corrected to include the tax amount.
Detailed setups performed for the same.
1. Define Tax Regime
Define one tax called US SALES TAX under the tax regime created for United States
Responsibility & Navigation:
Tax Managers – Tax Configuration – Taxes – Create
Define one tax status for the tax regime and tax setup in the previous steps.
Responsibility & Navigation:
Tax Managers à Tax Configuration à Tax Statuses à Create
Define one default tax jurisdiction for the tax regime and tax setup in the previous steps.
Responsibility & Navigation:
Tax Managers – Tax Configuration – Tax Jurisdictions – Create
Define tax rates for each supplier site zip code. A tax rate is made for the combination of Tax
Regime, Tax and Tax Status.
For instance:
Supplier site zip codes are 63119 and 61548.
The different rates which will be setup are
SALES_63119 – 7.575%
SALES_61548 – 7.25%
Responsibility & Navigation:
Tax Managers – Tax Configuration – Tax Rates – Create
Click on Tax Accounts to enter the Expense and liability account details
Enter the Tax Expense Account. If this is left blank the expense account for ITEM line will be
used.
The Tax Recoverable/Liability is the Use tax Liability Account to be used. Since this is a sales
tax rate we enter the default account of 000 for the same.
6. Define Tax Rules
Oracle provides a seeded set of Tax Rules which can be used by the user for tax calculation.
For any transaction made the tax determination process uses these tax rules to decide the
taxes which will apply and the amount of tax which has to be applied for a transaction.
Prerequisites for setting up the Tax Rules:
Step1:
To decide whether use tax applied on any transaction within Payables module a tax
classification code called SALES TAX APPLICABLE will be made. A tax classification code is
similar to a tax rate code with a tax rate of 0%.
Responsibility & Navigation:
Tax Managers – Tax Configuration – Tax Rates – Create
The following tax rules will be setup for use tax calculation:
3. Determine Tax Applicability: Since the tax US_SALES applies only for ERS Sales Tax we
make this tax applicable only if the tax classification code in the invoice for an ITEM line is
“SALES TAX APPLICABLE”
4. Determine Tax Rate – This rule will derive the sales tax rate for the invoices using the
determining factor set and condition set. While making the tax rule we enter the determining
factor set and the condition set made in the previous steps as shown in below screenshot.
For each condition set there will be a different tax rate which will be applied.
Example:
As shown in above screenshot there are 4 condition sets:
1. COND_SALES_63119 – This means that if the ship from postal code is 63119 and the tax
classification code in the invoice is SALES TAX APPLICABLE then the tax rate used will be
SALES_63119.
1. COND_SALES_61548 – This means that if the ship from postal code is 61548 and the tax
classification code in the invoice is SALES TAX APPLICABLE then the tax rate used will be
SALES_61548.
For all the other rules the default values have been used.
7. Invoice Creation and Sales Tax calculation for ERS invoice.
Generate the ERS invoice in the invoice interface tables using the program Pay on Receipt
program.
Update the following values for the ERS invoice in the interface table:
TAX CLASSIFICATION CODE – SALES TAX APPLICABLE
CALCULATE TAX AMOUNT DURING IMPORT – Set the flag to Y
ADD TAX TO INVOICE AMOUNT – Set the flag to Y
The calculate tax amount flag and add tax to invoice amount is set to Y so that the Payables
Open Interface Import program would trigger tax rules and calculate the tax amount and also
add the tax amount to the invoice amount. Hence the invoice will be imported with the tax
line and correct invoice amount.
Following is the update script for the same:
UPDATE apps.ap_invoices_interface
SET add_tax_to_inv_amt_flag = ‘Y’
AND calc_tax_during_import_flag = ‘Y’
WHERE source = ‘ERS’
UPDATE apps.ap_invoice_lines_interface
SET tax_classification_code = ‘SALES TAX APPLICABLE’
WHERE invoice_id IN (SELECT invoice_id
FROM apps.ap_invoices_interface
WHERE SOURCE = ‘ERS’)
Snapshots of ERS invoices in the interface table.
Invoice header in the interface table before it was processed.
After importing this invoice; the tax line has got generated based on the tax rule for Supplier
site. The invoice amount has also changed from 1000 to 1073.50