E-BUSINESS TAX

(SETUP AND CONFIGURATION)

Author Faizan Khalid

Email faizankhalid45@gmail.com
Blog https://fkmahs.wordpress.com/
Creation Date 09th August 2016
Last Updated 01 January 2017 (v2)
 TABLE OF CONTENTS
1. OVERVIEW ......................................................................................................................................... 1
2. TAX REGIME ....................................................................................................................................... 2
3. TAXES ..............................................................................................................................................11
4. TAX STATUSES ....................................................................................................................................16
5. TAX JURISDICTION ...............................................................................................................................19
6. TAX RECOVERY RATES ..........................................................................................................................22
7. TAX RATES ........................................................................................................................................24
8. TAX DETERMINING FACTOR SETS (TDFS) ..................................................................................................31
9. TAX CONDITION SETS ...........................................................................................................................33
10. TAX RULES ........................................................................................................................................35
11. MAKE TAX AVAILABLE FOR TRANSACTIONS ...............................................................................................40
12. GROUPING OF TAXES ...........................................................................................................................42
12.1 SETUP OF TAX RATES .............................................................................................................................. 42
12.2 SETUP OF A DUMMY RATE ....................................................................................................................... 44
12.3 LINKING OF DUMMY RATE WITH THE RATES THAT WILL BE APPLIED ................................................................. 45
13. COMPOUNDING OF TAX RATES ...............................................................................................................50
13.1 SET UP NEW TAX, STATUS, JURISDICTION, RATE & CONDITION SET ................................................................ 50
13.2 SET UP COMPOUNDING FORMULA ............................................................................................................. 51
13.3 SET UP COMPOUNDING TAX RULES FOR THE TAX SET UP IN SECTION 13.1 ....................................................... 53
13.4 GROUP SALES TAX AND COMPOUNDING TAX RATES ..................................................................................... 53
14. RESTRICTION OF TAX RATES...................................................................................................................58
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1. OVERVIEW
This document will cover the setup and configuration of Non-Inclusive Tax Rates in Oracle EB Tax. The
general flow of the setup is as follows:

Tax Regime

Taxes

Tax Statuses Tax Jurisdictions Tax Recovery Rates

Tax Rates

Tax Determining Tax Condition Sets

Factor Sets

Tax Rules

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2. TAX REGIME
The first step in starting your E.B. Tax Setup is setting up the Tax Regime. Tax Regime is the level at
which similar taxes governed by common tax rules or laws are grouped together.
The Navigation to create a Tax Regime is as follows:

Tax Manager  Tax Configuration  Tax Regime

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The following screen will open:

Click on the ‘Create’ button. The following screen will appear:

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Enter the following Details:

1) Tax Regime Code
This will be a unique value.

2) Tax Regime Name

This will be a unique value.

3) Regime Level
Tax regime level defines a tax that applies to a country or tax zone. This will be set to Country.

4) Country Name

5) Effective from and Effective to dates.

Click on the ‘Show Controls & Defaults’ link:

The following block will appear:

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Controls and Defaults:

Under the Controls heading, enter as follows:
1) Check the Allow tax recovery checkbox
Checking this box will let you set up tax recovery for the taxes in this tax regime.

2) Check the Allow Tax exemptions checkbox

Checking this box will let you set up customer tax exemptions for this tax. A tax exemption is a full
or partial exclusion from taxes within a given time period.

3) Check the Allow Override and entry of Inclusive Tax Lines Box
Checking this box will let you change the setting for tax inclusive handling at the tax level.

4) You may also check the Allow Tax Exceptions box.

Checking this box will let you designate special tax rates for specific products as determined by
the tax authorities. A tax exception is a condition or combination of conditions that result in a
change from the standard values for a particular product.

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Under the Defaults heading, enter as follows:

1) Enter the Rounding Rule as ‘Up’
2) Enter the ‘Allow Tax Inclusion’ as ‘Standard Non-Inclusive Handling’.
3) Enter the ‘Default Recovery Settlement’ as ‘Immediate’.

You may also use other fields under this tab if they are relevant to your setup. The explanation of these
fields is as follows:

1) Tax Currency
The tax currency is the currency required by the tax authority. You use the tax currency to pay the
tax authority and to report on all tax transactions. The tax currency may differ from the ledger
currency and transaction currency. The ledger currency is the accounting currency of your ledger.
The transaction currency is the currency or currencies used on your transactions.

2) Rounding Rule
Enter the tax rounding parameters to use for all taxes in this regime:

 Minimum accountable unit is the smallest unit a tax amount can have.
 Rounding rule is the method to use to round off taxes to the minimum accountable unit.
 Tax precision is a one-digit number that indicates the number of decimal places to which to
calculate tax. Enter a precision of 0 to round to a whole currency unit.

For example, to round off a calculated tax amount of 1.466 to 1.47, define a tax precision of 2, a
rounding rule of Up or Nearest, and a minimum accountable unit of .01. If you want to apply
different tax rounding parameters to an individual tax, then set the Allow Tax Rounding Override
option.

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3) Allow tax inclusion

Use the Allow Tax Inclusion field to define the nature of tax inclusive handling. Tax inclusive
handling defines the relationship, as designated by the tax authority, between the line amount
and the tax amount:

 Standard Inclusive Handling - The price on the transaction line is inclusive of tax.
 Standard Non-Inclusive Handling - The price on the transaction line is exclusive of tax. The tax
amount is added to the price.
 Special Inclusive Handling - Use this option for special tax handling, such as a taxable base
amount based upon the line amount rather than the adjusted line amount, or based on the line
amount plus another tax amount.

Note: If you do not set standard inclusive handling for the taxes in this tax regime, you can still
set this option for individual parties involved in transactions.

4) Default recovery Settlement

If you set the Allow Tax Recovery option, select the default recovery settlement:

 Immediate - Tax recovery is available at invoicing.

 Deferred - Tax recovery is available only after the invoice is paid.

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After the entry of the Controls & Defaults, click the ‘Continue’ Button.

The following window will appear:

You will now set up the configuration options of the Regime. You must setup configuration options to
associate tax regimes with the parties (Legal Entities, Operating Units) in your company that have a tax
requirement under these tax regimes.

To set up a configuration option:

1) Navigate to the Configuration Options page.

2) Select all the Legal Entities and Operating Units of your Company/Group in the Party Name field,
for whom you are setting up the tax.

3) Select the configuration option for taxes and rules as ‘Common Configuration’

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4) Enter the effective date range for this configuration option.

Click ‘Finish’ to complete your regime setup.

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Note: (Additional Info)

The following implications apply when choosing the configuration option at this level of the regime
setup:

1) Common Configuration
The party uses the tax and rule setup of the global configuration owner without modification
2) Common Configuration with Party Overrides
The party uses the tax and rule setup of the global configuration owner, with the ability to create
overriding tax and rule setup specific to its own tax requirements;
3) Party-Specific Configuration
The party sets up its own taxes and rules, and will not share its setup with any other party.

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3. TAXES
After the creation of the Tax Regime, the user will now create TAXES under the regime. The user will
navigate to the ‘Taxes’ screen as follows:

Click on the ‘Create’ button as highlighted. The following window will open:

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Enter the following details:

1. Tax Regime Code.

2. Configuration Owner
Enter the configuration owner as ‘Global Configuration Owner’. The configuration owner
determines the ownership and use of this tax and its associated setup. Since we used ‘Common
Configuration’ in our tax regime setup, you will setup all your taxes with Global Configuration
Owner.

3. Select the tax source as ‘Create a new tax’.

4. In the Tax field, enter a code for this tax. This will be a unique value within this Regime.

5. Enter a tax name. You can create a unique tax name or use the code that you entered in the Tax
field.

6. Enter a tax type to classify this tax for reporting purposes.

7. Enter an effective date range.

Note: If you enter an Effective To date, you cannot update this date after you save the record.

8. Enter the Geography Type as ‘COUNTRY’.

9. Enter the Parent Geography Type as ‘COUNTRY’.

10. Enter the Country name in Parent Geography Name.

11. Enter the currency for this tax.

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12. Enter a compounding precedence to define the order in which this tax is calculated in the
compounding process within this regime. Taxes are calculated in ascending order of
compounding precedence.

13. In the Applied Amount Handling field, select the method to use to calculate taxes when a
prepayment is applied to an invoice:
o Recalculated - E-Business Tax uses the invoice tax rate for both the prepayment and the
invoice line amount.
o Prorated - E-Business Tax uses the prepayment tax rate for the prepayment amount and
the invoice tax rate for the invoice line amount.

After entering the Tax details as mentioned above, click ‘Show Controls and Defaults’.

The following window will appear:

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Enter the following Details:

1. Check the Allow Override and Entry of Inclusive Tax Lines checkbox.

2. Check the Allow Override for Calculated Tax Lines checkbox. This lets users override the
automatic tax calculation on invoice tax lines.

3. Check the Allow Entry of Manual Tax Lines Checkbox. This lets users create manual tax lines on
invoices.

4. Check the Allow Duplicate Tax Registration Numbers checkbox to allow multiple parties to use
the same tax registration number for this tax.

5. Check the Allow Tax Exemptions checkbox to create tax exemptions for your customers for this
tax.
If you enabled tax exemptions for this tax, select the tax exemptions creation method:
o Create Tax Exemptions - Create tax exemptions for your customers for this tax.
o Use Tax Exemptions from an existing tax - Use tax exemptions already created for
customers for this tax.

6. Check the Allow Tax Recovery checkbox. This ensures that you may setup recoverable tax rates
under this Tax.

7. Set the Primary Recovery Type as STANDARD.

8. Click ‘Apply’ to create the tax.

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The following will appear:

The tax has been created.

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4. 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. The setup and naming convention of the Tax Statuses depends on the client requirement.

Navigate to the Tax Statuses window as follows and click on the Create button:

The following window will appear:

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Enter the following Details:

1. Enter the Tax Regime Code

2. Enter the Configuration Owner as Global Configuration Owner.

3. Enter the relevant Tax, under which this status is being created.

4. Enter a Tax Status Code and Name for this tax status.
Use a coding convention that is in keeping with the tax regime and tax. The tax status code must
be unique within the tax, configuration owner, and effective date range.

5. Enter the effective dates for this tax status.

You must enter a date range that is within the date range of the tax.

6. Indicate if this is the default tax status for this tax. At least one default Tax Status should exist
under a single Tax. So you should ensure to set at least one Tax Status as Default.

7. If this is the default tax status for this tax, enter the effective dates that this tax status is the
default tax status.
You must enter a default status effective date range that is within both the effective date range
of the tax and of the tax status.

8. Check the Allow Tax Exemptions box to create tax exemptions for your customers for this tax
status.

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The Tax Status has been created.

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5. TAX JURISDICTION
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.
Navigate to the Tax Statuses window as follows and click on the Create button:

The following window will appear:

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Enter the details as follows:

1. Enter a Tax Jurisdiction Code and Name to identify this tax jurisdiction. Use a coding convention
that is in keeping with the tax regime, tax, and geographic region.

2. Enter the Tax Regime Code and Tax that this tax jurisdiction belongs to.

3. Enter the Geography Type for this tax jurisdiction as ‘COUNTRY’.

4. Enter a numeric precedence level for this jurisdiction. The precedence level indicates which
jurisdiction has the higher overriding precedence, when one or more jurisdictions override
another jurisdiction within the same geographic hierarchy.

5. Enter the effective period for this tax jurisdiction.

6. Enter the Geography Name of the Tax Jurisdiction as the relevant Country Name.

7. Set this jurisdiction as the default tax jurisdiction for this tax, and enter a default effective date
range that is within the jurisdiction date range. At least one default Tax Jurisdiction should exist
under a single tax so you should ensure that you setup at least one Tax Jurisdiction as Default
under the relevant Tax.

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Click Apply to Create the Jurisdiction. The following window will appear:

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6. TAX RECOVERY RATES

In order to setup Recoverable Tax Rates, ‘Recovery Rates’ have to be defined in the system. These
recovery rates are attached to the Tax Rates, in order to classify them as Recoverable or Non-
Recoverable. In order to Setup recovery rates, navigate as follows and click on the create button:

The following window will appear:

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Enter the following Details:

1. Enter the Tax Regime Code, Configuration Owner (Global Configuration Owner) and Tax.

2. Enter the Tax Recovery Rate Code to identify this recovery rate. Use a coding convention that is
in keeping with the tax regime, tax, and tax status.

3. Enter the percentage Recovery Rate and effective date range. As shown in the screenshot above,
a percentage recovery rate of 100 has been added, in order to create a recovery rate of 100%.
Enter an effective date range that is within the date range of the tax and tax regime.

4. Set the Recovery Rate as the Default Recovery Rate and set a Default effective date. At least one
default recovery rate should exist within one Tax so ensure that a single default recovery rate
exists within the relevant tax.

Click Apply to successfully create the Tax recovery Rate.

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7. TAX RATES
Set up tax rates for your tax statuses and tax jurisdictions. These Tax Rates are available at Transactional
level as ‘Tax Classification Codes’ for application.

Click on the Create button. The following window will appear:

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Enter the following Details:

1. Enter the Tax Regime Code.

2. Enter the Configuration Owner (Global Configuration Owner), Tax, and Tax Status Code.

3. Enter the Tax Jurisdiction Code.

4. Enter a Tax Rate Code to identify this tax rate. Use a coding convention that is in keeping with the
tax regime, tax, and tax status.

5. Select the Rate Type as Percentage.

6. Enter the rate:

o If the rate type is Percentage, enter the percentage rate.
o If the rate type is Quantity, enter the unit of measure (UOM) and the quantity rate. The
quantity rate is the value of tax per UOM in the tax currency that will be applied to the
transaction.

7. Enter the effective date range for this rate.

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Navigate to the Tax Rate Details page as follows:

The following window will open:

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Enter the details as follows:

1. In the Tax Rate Name field, enter a name or descriptive phrase to use for this tax rate and tax
rate period. This is the description that appears at form level against the Tax Rate Code.

2. Check the Internet Expenses Enabled box to use this tax rate for this period on expense reports.
Note: If you want to update this tax rate code for expense reporting at a later time, create a
lookup code for this tax rate. You must use the tax rate code and name as the lookup code and
name.

3. Enter a Default Recovery Rate code to use for this tax rate. Associating the Recovery Rate Code
with this Tax rates determines the Tax Recoverability of this Tax.

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As shown in the screenshot above, the Recovery Rate Code of ‘ADMISSIBLE’ has been attached to
the Tax rate. As shown in section 6, the setup of this tax recovery rate is 100% recoverable. In
order to set up a Non-recoverable tax rate, you need to setup a new Recovery rate of 0% and
attach it to the Tax.

4. If applicable, set this tax rate as the default tax rate for the tax status belonging to this rate
period, and enter the effective dates that this tax rate is the default tax rate. At least one default
tax code has to be setup in a single Tax.

5. Set the Allow Tax Inclusion option as Standard Non-Inclusive handling.

6. Check the Allow Override and Entry of Inclusive Tax Lines checkbox if it is not already checked.

Click ‘Apply’ and navigate to the Tax Accounts Page:

(Note: This step is only required if your Tax rate has a Tax Recovery Rate attached to it which indicates a
Tax Recovery % greater than 0%.

If the Tax Recovery Rate attached to your Tax Rate indicates a 0% Tax Recoverable Rate, then the Tax will
be expensed out at transactional level to the GL account on which the Tax is being applied. There is no
need to define a recoverable tax account as shown in the following screenshots.)

The following window will appear:

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Enter the Ledger Name and click on ‘Create’. The following window will appear:

Enter the following Details on this page:

1. Enter the Operating Unit.

2. Enter the Tax Recoverable/Liability Account. This Account will be charged at transactional level if
you have set up your Tax rate to be a Recoverable Tax.

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After completion of the aforementioned fields, click on Apply. Create Accounts for all the operating units
where you want to use this Tax Rate.

Click on ‘Apply’ and the finally click ‘Apply’ on the main tax rate screen to complete the setup of this Tax
Rate.

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8. TAX DETERMINING FACTOR SETS (TDFS)

A tax determining factor set contributes to the outcome of a tax rate determination process at
transactional level. We will select the Tax determination factor as ‘Tax Classification Code’. This TDFS will
be attached to the Tax Condition Set and Tax Rules later on in the setup in order to determine the Tax
Rate on transactional level on the basis of the setup (Tax Classification Code).

A single TDFS is enough for a single Tax determination factor. You do not need to create it again and
again for every tax rate.

Click on ‘Create’ and the following window will appear:

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To set up a determining factor set for tax rules:

1. Enter a Code and Name for the tax determining factor set.

2. Enter the Determining Factor Class as Transaction Input Factor.

3. Enter the Determining Factor Class as Transaction Factor Name.

Click ‘Apply’ and the TDFS will be created. Setting up a single TDFS is enough to regulate all the Tax Rates.

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9. TAX CONDITION SETS

The tax condition set is the logic that determines the factors (set in the TDFS) to consider, and the
resulting value that must exist for each factor, in order for the result of the tax rule to be true.
Basically, at transactional level, a Tax Classification code is entered by the user, and a tax rate is applied
to the transaction amount as a result.
When creating a Tax Condition Set, you specify the Tax rate that you will enter at the transactional level.
The tax rate that will be applied as a result will be specified in the next part of the setup (Tax Rules). A
new Tax Condition Set will be created for all the Tax Rates.
Navigate as follows and click on ‘Create’.

The following window will appear:

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Enter the Tax Condition Set, Name and Determining Factor Set and click on Continue. The following
screen will appear:

As highlighted above, enter the Tax Rate that will be entered at transactional level. The Tax rate that will
be applied will be specified in the next step of the setup (Tax Rules).

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10. TAX RULES

You will need to set up tax rules to define the factors that can apply to the calculation of a tax on a
transaction.
Navigate as follows:

Enter the Configuration Owner, Tax Regime Code & Tax and click GO. The following window will appear:

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Click on the Expert Rule Entry of the Direct Tax Determination rule type as highlighted below:

The following window will appear:

Enter the Rule Code, Name, Effective from date and Determining Factor Set and click Next. The
following window will appear:

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Enter the Condition Set Code as highlighted above.

Enter the Tax Status in the Rate Result field. Then enter the Tax Rate in the Rate Result field. THIS is the
Tax Rate that will be applied at Transactional level, when the Tax Rate specified in the Tax Condition set is
entered at Transactional Level.

After the aforementioned entry, click on Next. The following window will appear:

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Tick the ‘Enable’ checkbox and provide a Rule Order. Click on Finish to successfully create the Direct Tax
Rate Determination Rule.

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There is no need to create a rule for any of the other rule types below. You will just have to set default
values of all the other Rule Types as follows:

As shown above, the default values for the rule types will be set as follows:
Rule Type Default Value
Determine Place of Supply Ship to, use bill to if ship to is not found
Determine Tax Applicability Not Applicable
Determine Tax Registration Ship to, use bill to if ship to is not available
Determine Tax Status Default Tax Status of the setup
Determine Tax Rate Default Tax Rate of the setup
Determine Taxable Basis STANDARD_TB
Calculate Tax Amounts STANDARD_TC

The explanations of these rule types are as follows:

1. Determine Place of Supply - Determines the location where a transaction is considered to have
taken place for a specific tax.
2. Determine Tax Applicability - Determines the taxes that apply to a given transaction. Setting the
default value as Applicable ensures that the default tax rate applies to the transaction when no
Tax Classification code is provided at transactional level. We have set it as Not Applicable in our
setup.
3. Determine Tax Registration - Determines the party whose tax registration status is considered
for an applicable tax on the transaction.
4. Determine Tax Status - Determines the tax status of each applicable tax on the transaction.
5. Determine Tax Rate - Determines the tax rate for each applicable tax on the transaction.
6. Determine Taxable Basis - Determines the amount upon which to apply the tax rate.
7. Calculate Tax Amounts - Calculates the tax amount for each applicable tax on the transaction.

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11. MAKE TAX AVAILABLE FOR TRANSACTIONS

After following all the aforementioned steps, navigate to the Tax and Enable it for transactions:

Click on the Update button as highlighted above. The following window will appear:

Check the ‘Make Tax Available for Transactions’ checkbox.

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Scroll down to the Tax Recovery Controls section. Set the Default Primary Recovery Rate Code as with
your default recovery rate for the Tax.

Click on the Apply button to update the Tax and make it available for transactions. A demonstration of
the use of this Tax is as follows:

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12. GROUPING OF TAXES

This section shows how to group multiple tax rates (within one tax or multiple) to apply on a single
amount in a transaction. When two or more tax rates are grouped, these tax rates are applied at
Transactional level simultaneously to the transaction line amount & two separate tax lines are populated.
A simple demonstration of a grouping effect is as follows:

Transaction Amount 20,000

Sales Tax Amount 16% 3,200
Extra Sales Tax 2% 400

Total 23,600

In order to achieve this, we need to setup the follows:

1) The two (or more) Tax rates that will be applied to the Transaction. (section 12.1)
2) A dummy rate that will be entered at the Transaction level. (section 12.2)
3) Setup the rates so that the when the dummy rate is entered at the transaction, the two (or more)
tax rates are applied on the transaction. (section 12.3)

12.1 Setup of Tax Rates

The following two tax rates have been set up in the system and will be setup to be applied at
transactional level when the dummy rate setup in section 12.2 is entered at transactional level. The Tax
Rates are as follows: (he setup is the same as mentioned in section 7)

Tax Rate: 0001

Tax: SALES TAX
Tax Regime: PAK_REGIME

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Tax Rate: 0003

Tax: EXTRA SALES TAX
Tax Regime: PAK_REGIME

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12.2 Setup of a Dummy Rate

Now a Dummy rate will be set up at 0%, so that it can be entered at transactional level, and the rates
mentioned under section 12.1 will be applied at transactional level.

The setup of the Dummy rate will be the same as follows:

As you can see above, the Percentage rate will be set as Zero. This percentage rate does not matter as
this rate will only be applied at transactional level. The remaining setup of the Tax will be the same as
mentioned in section 7.

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After the setup of the Tax Rate, the Tax Condition Set will be set up for the dummy tax rate as follows
(same process as defined in section 9):

12.3 Linking of Dummy Rate with the Rates that will be applied
This section will link the dummy rate with the rates that are to be applied at transactional level, when the
dummy rate is entered.

Navigate to the Tax Rules of the First Tax that has to be applied at transactional level (i.e. Tax Rate: 0001):

The following window will appear. Click on the ‘Next’ Button:

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The following window will appear. Click on the highlighted icon to add a new line to add the new
condition set to this rule:

Add the newly created condition set (in section 12.2) in this field.

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After the addition of the condition set, add the Tax Status and Tax Rate against the condition set. As
explained in section 10, the condition set added here will be entered at transactional level and the Tax
rate added here will be applied at Transactional level. Click on ‘Next’ & complete the updation of the
Rule.

Now, one rate has been set up to apply at transactional level when the Tax Rate specified in the
Condition Set is entered at transactional level. The same process has to be repeated with all the other tax
rates that you want to apply simultaneously when the relevant Condition Set is entered at transactional
level.

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As mentioned above, find the Rules of the second tax rate (and the other rates onwards) and click on
update:

Add the relevant Condition Set, Tax Status & Tax Rate. Click on Next and then finish the updation of the
Tax Rule.

Now, whenever the Tax rate set in the relevant Condition set is entered at transactional level, E.B. Tax
will find two tax rates set up to be applied. These rates will be applied accordingly.

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The following demonstration shows the use of the above setup on Transactional level:

As seen in the screenshot of an AP invoice above, the Dummy Tax rate of 0001+0003 has been entered
and the Tax Rates of 0001 & 0003 have been applied at transactional level.

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13. COMPOUNDING OF TAX RATES

This section will cover the setup of Compounding Tax Rates. Compounding comprises of setting up a
compounding tax rate, and grouping it with another Tax Rate. This results in the compounding tax rate
being applied to the gross amount (Transaction Amount + Tax Amount).
A simple demonstration of a compounding effect is as follows:
Transaction Amount 10,000
Sales Tax Amount 16% 1,600
Compounding Tax 2% (on Gross) 232

Total 11,832

The steps to setup a compounding Tax Rate comprises of the following steps:
1) Setting Up a New Tax, Status, Jurisdiction, Rate & Condition Set (as per the flow covered in this
document)
2) Set up a Compounding Formula
3) Set up Compounding Tax Rules for the Tax Created in point 1
4) Group the Sales Tax Rate and Compounding Tax Rate together with the same procedure flow
defined in section 12.

13.1 Set up New Tax, Status, Jurisdiction, Rate & Condition Set
The process flow for setting the New Tax, Status, Jurisdiction and Condition Set is the same as covered in
this document from section 3 to 9.

The purpose for setting up a new Tax is that the compounding formula is attached to a Tax at Tax Rules
level, hence if you need to set up a new Tax Rate for compounding, you should create a new Tax for
compounding purposes.

The setup of a Tax Compounding formula is covered in the next section and its association with a tax is
covered in the section after.

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13.2 Set up compounding formula

In order to set up a compounding formula, navigate as follows:

Click on the ‘Create’ button, the following window will appear:

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Enter the Following Details:

1. Configuration Owner as Global Configuration Owner.

2. Enter the Tax Formula Code and Name to identify this tax formula.

3. Enter the Regime Code to associate with this tax formula.

4. Enter the Tax to associate with this tax formula. This is the Tax under which the compounding tax
rates are being set up.

5. Enter the Effective Date range for this tax formula

6. Select the Formula type as Taxable Basis

7. Select the Taxable Type basis as ‘Line Amount’.

Under the Update Tax Formula Compounding Details, enter as follows:

1. Enter the Compounding Tax Regime & Compounding Tax.

This is the Tax on which the compounding Tax Rates may be applied at Transactional level.

2. Set the Compounding Rule as ‘Add’ and Enforce Compounding as ‘No’.

3. Click on Apply to complete the creation of the Tax Compounding Rule.

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13.3 Set up Compounding Tax Rules for the Tax set up in section 13.1
Navigate as follows:

As highlighted in the screen shot above, the Compounding Formula set up in section 13.3 has been
defaulted in the Determine Taxable Basis. Now any Tax Rate set up under this tax will be applied on to
the gross amount of the transaction line (i.e. Transaction Amount + Tax Amount).

13.4 Group Sales Tax and Compounding Tax Rates

The final step is to Group the Sales Tax Rate and the Compounding Tax Rate to apply together at
transactional level when a dummy Tax rate is entered. The setup of this section will be the same as
defined in section 12.

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A brief look at the grouping is as follows:

Navigate to the Tax Rules of the Sales Tax.

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Add the Condition Set of the Dummy Tax Rate that will be entered at transactional level and the Tax
Status and Tax Rate that will be applied at transactional level:

Click Next and Complete the updation of the rule.

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Navigate to the Tax Rules of the Compounding Tax.

Add the Condition Set of the Dummy Tax Rate that will be entered at transactional level and the Tax
Status and Tax Rate that will be applied at transactional level:

Click Next and Complete the updation of the rule.

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After grouping the Sales Tax Rate and Compounding Tax Rates together, apply the Tax at transactional
Level and test the result as follows:

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14. RESTRICTION OF TAX RATES

This section will cover the method to restrict Tax Rates across Procure to Pay & Order to Cash Modules.

In order to restrict Tax rates across Procure to Pay modules, navigate as follows:

Query the Code ‘ZX_INPUT_CLASSIFICATIONS’. Click on ‘Update’. The following window will appear:

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The Enabled checkbox validates whether the tax rate should show at Procure to Pay transactional level or
not. Untick it to disable the Tax rate from showing in any Procure to pay module.

The same process flow is to be followed to restrict tax rates across Order to Cash modules. The Tax
Lookup Code to be queried in this scenario is ‘ZX_OUTPUT_CLASSIFICATIONS’.

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