Specialized. Recognized. Preferred. The right partner makes all the difference. Enable Tax to Calculate on Invoices Originating in Oracle R12 Projects By: Jeanne Cooper Senior Oracle Financials Consultant AST Corporation April 8, 2014 Applications Software Technology Corporation 1755 Park Street, Suite 100 Naperville, Illinois 60563 1.888.278.0002 www.astcorporation.com
Contents INTRODUCTION... 1 PROBLEM DEFINITION... 1 E-BUSINESS TAX BUSINESS SCENARIO... 1 HIGH LEVEL SOLUTION... 1 SETUP REQUIREMENTS... 2 SOLUTION DETAILS... 2 FINAL NOTE:... 19 BUSINESS BENEFITS... 19 SUMMARY... 20 Page ii
Introduction E-Business Tax is a new mandatory module in Oracle s Release 12 E- Business Suite. Oracle s new tax engine, for Order-to-Cash and Procureto-Pay business processes, encapsulates fiscal and tax rules in a single point solution for tax events. E-Business Tax is called upon whenever Sales or VAT tax needs to be calculated. Besides the basic E-Business Tax configuration, tax rules based on party, place, product and transactions can be used to calculate taxes. The client can use a minimal configuration of E-Business Tax and use a 3 rd party vendor to calculate Sales Tax and Use Tax or the client take full advantage of its features. Regardless, the E-Business Tax module cannot be ignored if the client decides to use Oracle R12. Problem Definition Project Accounting has not yet been upgraded to Oracle s R12 Architecture. Tax does not automatically calculate on Receivables invoices when they are generated in Project Accounting. Enabling E- Business Tax will automatically calculate the tax on Receivables invoices originating in Project Accounting. E-BUSINESS TAX BUSINESS SCENARIO The client, Company XYZ is located in 65 countries. As a part of the global Oracle Release 12 Upgrade Project, Company XYZ plans to use E-Business Tax to calculate taxes within their Oracle Payables, Receivables and Projects modules. Several custom tax rules in E- Business Tax need to be built in order to meet specific business requirements. Tax rules affect all countries. Therefore, the tax rules must be configured for all 65 countries. Consequently, it was decided that the Expert (Tax) Rule Entry method was the most logical manner by which to build the custom tax rules. High Level Solution This white paper details how to configure Oracle E-Business Tax so taxes can be calculated on receivables invoices generated in Project Accounting before they are interfaced to Oracle Receivables. Custom tax rule must be created and additional configuration must be performed in E-Business Tax to allow tax to automatically calculate. Page 1
SETUP REQUIREMENTS Step 1. Configure Configuration Owner Tax Option for Application Receivables Event Class: o o o Invoice Debit Memo Credit Memo Step 2. Create Tax Determining Factor Set for use when constructing the custom tax rule for all 65 countries Step 3. Create Tax Condition Set for use when constructing the custom tax rule for all 65 countries Step 4. Build Custom Tax Rule using Expert Rule Entry Solution Details This section details the associated configuration steps required in Oracle E-Business Tax and how to build the custom tax rule needed to enable taxes to automatically calculate on invoices generated in Project Accounting before they are interfaced to Oracle Receivables. ASSUMPTIONS: 1. Tax Regimes, Taxes, Tax Statuses, Tax Recovery Rates, Tax Rates and standard Tax Rules have already been successfully configure. 2. The Tax has been made available for transactions. Step 1. Configure Configuration Owner Tax Options Owner Tax Options needs to be configured so taxes will automatically be calculated on Accounts Receivables invoices, debit memos and credit memos. Responsibility: Tax Manager Navigation: Tax Manager > Defaults and Controls > Configuration Owner Tax Option Page 2
1. The Configuration Owner Tax Options page is displayed. 2. [Click] the Create button. 3. The Create Configuration Owner Tax Options page is displayed. Page 3
4. The Configuration Owner Tax Options page was configured three times for each Operating Unit. Three combinations of Application / Event Class needed to be configured: Receivables / Invoice, Receivables / Debit Memo, Receivables / Credit Memo. Field Description Description Description Configuration Owner OU Name OU Name OU Name Application Name Receivables Receivables Receivables Event Class Invoice Debit Memo Credit Memo Entity Name Transactions Transactions Transactions Effective From Date DD-MMM-YYYY DD-MMM-YYYY DD-MMM-YYYY Effective To Date Rounding Precedence 1 Rounding Precedence 2 Rounding Precedence 3 Rounding Precedence 4 Default Rounding Level Header Header Header Allow Exemptions Yes Yes Yes *Regime Determination Set Perform Additional Applicability for Imported Documents Enforce Tax from Reference Document Determine Applicable Regime Determine Applicable Regime Determine Applicable Regime Enforce Tax From Account Yes Yes Yes Allow Offset Tax Calculation Offset Tax Basis Allow Tax Applicability Yes Yes Yes Allow Entry of Manual Tax Lines Allow Override for Calculated Tax Lines Tax Line Override Impacts Other Tax Lines Allow Override and Entry of Inclusive Tax Lines Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Page 4
5. Make sure to [click] on the Apply button when done to save the changes. 6. Oracle will display a Confirmation that the Content Owner Tax Options have been successfully created. Step 2. Create Tax Determining Factor Set A tax determining factor is an attribute that may be used by the E- Business Tax (EBTax) engine to find and calculate taxes for a specific transaction. The EBTax rule engine allows implementers to create any number of custom tax rules that reference the tax determining factors: Party, Product, Place, Process and that satisfy the unique needs of a specific business operating within a tax jurisdiction. Page 5
Background: Tax Determining Factor Set needs to be created, so it can be used when building the custom tax rule, in E- Business Tax, via the Expert Rule Entry method. NOTE: The Determining Factor Set only needs to be defined once, unless it is Tax Regime specific (i.e. for specific country). When creating the Tax Determining Factor for a rule, which can be used for many countries, it is good practice to create a generic name and omit the Ledger or Tax Regime Code. This will save a lot of configuration time when building the custom tax rule. Responsibility: Tax Manager Navigation: Advanced Setup Options > Tax Determining Factor Sets 1. The Tax Determining Factor Sets page will be displayed. 2. [Click] on the Create button. Page 6
3. The Create Tax Determining Factor Set page will be displayed. 4. The Create Tax Determining Factor Set page needs to be configured with following information: Field Tax Determining Factor Set Tax Determining Factor Set Name Set Usage **Ledger **Regime Code Determining Factor Class Class Qualifier Determining Factor Name Required Description (Create short descriptive meaningful name) (Create short descriptive meaningful name) Tax Rules Registration Bill To Party Registration Status No WARNING: Never enter the Ledger and/or Regime Code unless you want the Tax Determining Factor Set to be applicable for only a specific Ledger and/or Tax Regime Code. If, for example you are creating this tax rule for multiple countries, a generically named Tax Determining Factor Set (where Ledger and/or Regime Code is not specified) will be able to be used for each country for which the rule needs to be built. 5. When the Tax Determining Factor Class was configured, Registration was selected. Page 7
What is a Tax Registration Status Determining Factor? In Release 12, the E-Business Tax module allows you to configure a tax rule that uses the Tax Registration Status as the determining factor for deriving the proper tax to apply. A Tax Registration Status is frequently used for tax reporting as well as to levy the proper tax in certain countries. E-Business Tax provides these seeded registration statuses: Agent The party acts as a withholding agent for the tax authority for the applicable tax. Registered The party is registered for the applicable tax. Not Registered The party is not registered for the applicable tax. Creating new Tax Registration Status Determining Factors Although the Registration Statuses listed above come seeded, new values can be added using the following responsibility and navigation to the Application Object Library Lookups window. Responsibility: Application Developer Navigation: Application > Lookups > Application Object Library > Type = ZX_REGISTRATIONS_STATUS Step 3. Create Tax Condition Set The tax condition set is the logic of the tax rule. It 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 (and therefore the tax to calculate). Page 8
Tax condition sets group together the tax conditions that constitute a tax rule. You can set up tax condition set in advance and apply them to a tax rule (using Expert Rule Entry), or you can set up a tax condition set during tax rule creation (using Guided Rule Entry). Each tax condition in a tax condition set consists of a tax determining factor (determining factor class/class qualifier/determining factor name), an operator, and a value. Background: Tax Condition Set needs to be configured so it can be used when building the custom tax rule, in EBusiness Tax, using the Expert Rule Entry method. NOTE: The Tax Condition Set, for this tax rule will be built without the country name. Omitting the country name will enable the same Tax Condition Set to be used for each tax rule for every tax. Responsibility: Tax Manager Navigation: Advanced Setup Options > Tax Condition Sets 1. The Tax Condition Sets page will be displayed. 2. [Click] on the Create button. 3. The Create Tax Condition Set page will be displayed. Page 9
4. Enter the following information on the Create Tax Condition Set page: Field Tax Condition Set Tax Condition Set Name Determining Factor Set Description (Create short descriptive meaningful name) (Create short descriptive meaningful name) (Name created in previous step) **Country Name Determining Factor Set Name (Name created in previous step) WARNING: Never enter the Country Name unless you want the Tax Condition Set to be applicable for only the Country specified. 5. After the information has been entered on the Create Tax Condition Set page, [click] on the Continue button. Page 10
6. The Create Tax Conditions page will be displayed and contain pre-populated values. 7. Enter / verify the following information on the Create Tax Conditions page Field Determining Factor Class Class Qualifier Determining Factor Name Operator Value / From Range To Range Ignore Condition Description Registration Bill To Party Registration Status Not Equal To Agent No (leave check box unchecked) 8. [Click] on the Finish button when done to save the changes. NOTE: Once you use a tax condition set to create a tax rule, you can no longer update the condition set. Step 4. Create tax Rule Tax rules are created for each combination of configuration owner, tax regime, and tax. Background: When a tax rule needs to be configured for multiple Tax Regimes, it is suggested to use the Expert Rule Entry approach. It will save a significant amount of time; especially since Data Loader cannot be used to upload information into HTML pages for Oracle Rel 12. Page 11
Responsibility: Tax Manager Navigation: Tax Configuration > Tax Rules 1. The Tax Rules search page will be displayed. 2. Enter the Configuration Owner, Tax Regime Code and Tax for which the tax rule needs to be created. To serve as an example, the following information and subsequent tax rule was entered for Austria (ISO code AU). 3. [Click] on the Go button. Page 12
4. Oracle will re-display the Tax Rules page, based on the search criteria entered, and list the Determination Tax Rule Types. The tax line determination process uses the information of the transaction header and transaction line to determine the tax lines. The rule types and related processes used for tax line determination and tax calculation are: Rule Type Determine Place of Supply Determine Tax Applicability Determine Tax Registration Determine Tax Status Determine Tax Rate Determine Taxable Basis Calculate Tax Amounts Determine Recovery Rate Direct Tax Rate Determination Description Determines the location where a transaction is considered to have taken place for a specific tax. Determines the taxes that apply to a given transaction. Determines the party whose tax registration status is considered for an applicable tax on the transaction. Determines the tax status of each applicable tax on the transaction. Determines the tax rate for each applicable tax on the transaction. Determines the amount upon which to apply the tax rate. Calculates the tax amount for each applicable tax on the transaction. Determines the recovery rate to apply to each recovery type for each applicable tax on the transaction. 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 for specific tax determination requirements. Page 13
The tax calculation is based on the place of supply. Therefore; the custom tax rule will be built based on the Determine Place of Supply. The tax rule will be created for the Default Tax Rate for each Tax Rule. 5. On the Determine Place of Supply tax rule type row, [click] on the new custom tax rule icon beneath Expert Rule Entry. 6. The first of three configuration tax rule pages will be displayed: A. Step 1 of 3 General Information B. Step 2 of 3 Rule Conditions C. Step 3 of 3 Rule Order Each is discussed in the following. Page 14
A. Step 1 of 3 General Information 7. The Create Tax Rule: General Information page will be displayed. 8. [Enter] the following information: Field Tax Law Reference Description Use the Tax Law Reference and Description as Tax Rule Code and Rule Name Event Class Category Application Event Class Set as Geography Specific Rule Rule Code Value / From Range Description Event Class Receivables Invoice (Create short descriptive meaningful name) (Create short descriptive meaningful name) Page 15
Field Effective From (Date) Effective To (Date) Determining Factor Set Code Description DD-MMM-YYYY (Select from the LOV, the Determining Factor Set Code specifically created for this tax rule) 9. After the information has been entered, [click] on the Next button. Page 16
B. Step 2 of 3 Rule Conditions 10. The Create Tax Rule: Rule Conditions page will be displayed. 11. [Enter] the following information: Field Condition Set Code Name Order Result Application Description (Condition Set Code created for this tax rule) (Condition Set Name created for this tax rule) (If multiple conditions exist for a tax rule, enter the order of each condition in which EBTax should follow to calculate the tax rule) 1 Bill To NOTE: Verify the correct Determining Factor Class is displayed on the bottom of the page. The Determining Factor Class will be displayed after the Condition Set Code is selected. Page 17
12. After the information has been entered, [click] on the Next button. C. Step 3 of 3 Rule Order 13. The Create Tax Rule: Rule Order page will be displayed. 14. [Enter] the following information: Page 18
Field Description Select Rule Code Rule Order 60 NOTE: Rule Order was numbered 60 so to not interfere with any other existing rules. 15. After the information has been entered, [click] on the Finish button. 16. Oracle will display a Confirmation that the tax rule was successfully created. FINAL NOTE: In addition to configuring the above, Default Tax Rate Names for each of the 64 countries were provided to the Technical Team. The Technical Team included the Default Tax Rate Names in their custom program for the Project Accounting module. Business Benefits This associated configuration and custom tax rule will enable tax to automatically calculate on Receivables invoices when they originate in Project Accounting. Page 19
Using the Expert Entry Method to build custom tax rules, expedites the configuration process when there are a multitude of Tax Regimes for which tax rules need to be created. Summary This document provided an overview of Oracle Release 12 E-Business Tax (EBTax). It highlighted the configuration required before constructing custom tax rules in EBTax using the Expert Rule Entry. Additionally, this paper detailed how the Expert Rule Entry can be utilized to configure custom tax rules for multiple Tax Regimes. Page 20
April 8, 2014r AST Corporation 1755 Park Street, Suite 100 Naperville, Illinois 60563 Phone: 888-278-0002 Fax: 630-778-1179 www.astcorporation.com Copyright 2014 AST Corporation AST Corporation is a privately held company founded in 1995 to serve commercial and public sector organizations in utilizing the full potential of their investment in Oracle Applications and Technologies. We have built our practice by providing top quality full life cycle and turnkey consulting services for Oracle Applications implementation and upgrade projects, among other specific services. Our mission is to insure that you, as a valued client, receive the highest level of expertise and personalized service for your Enterprise Applications. We endeavor to help you realize the full benefit from your investment in software applications and integrate them seamlessly to your business processes.