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Oracle R12 E-Business Tax �Part I

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Agenda

  • Analyzing Tax Requirements
  • Issues in 11i
  • Key Features of EBTax
  • Value Proposition
  • Key Concepts with a Business Scenario
  • Tax Determination Steps
  • Demonstration
  • Upcoming sessions

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Analyzing your Tax Requirements

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Analyzing Your Tax Requirements�

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To ascertain which taxes are applicable to a business, we need to address the following questions :-

        • Who am I ?
          • Corporation, Government Organization, NGO etc
        • Where do I operate ? (Places)
          • Countries / States in which Company, Branches & Subsidiaries conduct business.
        • What is the type of business I conduct ? (Transactions)
          • Business of Manufacturing, Reselling, Export etc.
        • What products do I buy or sell ? (Products)
          • Steel, Plastic, Services etc.
        • Who are my customers and suppliers ? (Parties)
          • Large / Small scale , Exporter, Importer etc.

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Issues in 11i

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Issues in 11i

    • Excessive Dependency on Accounting Clerk
        • Accounting clerk was entrusted with the responsibility of identifying the applicable tax rate(s) for a transaction.
        • He could not be expected to have relevant expertise to determine tax rate which were sometimes based on complex rules and could possibly lead to wrong tax calculations.
    • Isolated Tax Solution
        • Oracle had Module / Country specific solutions for diverse tax related requirements. This was not scalable in long run.
        • Tax codes created for one module could not be reused by other modules.
        • Duplication of work and redundancy.

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Issues in 11i

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    • Lack of Automation
        • Reduction in operational efficiency during invoice processing

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    • Limited Rules
        • Complex rules could not be configured in the tax engine

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Key Features

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Oracle E-Business Tax�Key Features

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    • Complete Global Tax Solution for E-Business Suite
      • Country specific and product specific requirements around tax were gathered and a central solution was designed that caters to all(or most) of those requirements.
    • Tax Rules
      • Enables users to create and maintain a variety of tax rules, which can handle very simple to very complex tax requirements.
      • In an environment where tax laws and rule changes often, it enables the user to update tax set up easily and effectively.
      • Can configure rules based on Product, Party & Transaction Classifications.

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Oracle E-Business Tax�Key Features

    • Tax Repository
      • Captures all relevant tax and transaction information in a centralized Tax Repository.
      • Provides a single source of truth for Tax information.

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    • Tax Simulator
      • Provides infrastructure to simulate tax setup, transactions lines and respective tax calculation results.
      • Tax Simulator is useful for testing your complex tax setup before going to production with new setup.

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    • Tax Reporting
      • Offers powerful and flexible tax reporting solution.
      • Users can use and/or modify the pre-defined tax reporting templates.
      • Generates XML based reports.

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Oracle E-Business Tax�Key Features

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    • Common Configuration
      • Enables sharing of Tax Setup across Operating Units.

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    • Upgrade Process
      • A fully automated upgrade that ensures
        • Customer’s current investment in tax setup is not lost.
        • Uptake of new features can be made in a way/pace that is suitable for implementing customer.

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E-Business Tax Value Proposition

“How will my business get benefited?”

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Overall Value Proposition :- User Benefits

Automation

E- Business Tax

Manage Tax Changes

Local Compliance

Integration

  • Less or No Manual Intervention
  • Improve Operational Efficiency
  • Avoid Error due to Human Decisions

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  • Support Strict Reporting Requirements
  • Mitigate Audit Risks
  • React Quickly to Tax Law Changes
  • Avoid Manual Intensive Regular Software Updates
  • Reduce Cost of Ongoing Maintenance
  • Visibility Across E-Business Suite
  • Reduce Cost of Integration

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Key Set up Concepts

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Business Scenario

    • ABC Inc. is in the business of buying and selling ‘Computers’ in the states of California and Texas . The applicable Sales Tax is at a standard rate is10 % and 12% respectively.

Legal Entity

Parties

Place

Product

Tax

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Key Concepts �Tax Regime

  • Tax Regime is the level at which similar taxes governed by common tax rules or laws are grouped together.

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  • In our Business Scenario, Regime will be United States Taxation Regime.

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  • Other Examples for different Regimes can be :-
    • Excise Tax Regime in India.
    • VAT Regime in UK.

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Key Concepts �Taxes

  • A classification of a charge imposed by a government through a fiscal or tax authority.
  • EBTax supports only Indirect (Transaction) taxes.
  • There can be multiple taxes under one regime.

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  • In our Business Scenario, applicable Tax will be US Sales & Use Tax.

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  • Other Examples for different Taxes can be :-
    • Excise Tax in India.
    • Value Added Tax (VAT) in UK.

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Key Concepts� Tax Status

  • Tax Status is the taxable nature of a product or service. It is a way of grouping different tax rates under one single tax.
  • Provide additional granularity for reporting.
  • There can be multiple tax status under a tax but at least one has to be specified as a default status.

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  • In our Business Scenario, applicable Status will be Standard Status

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  • Other Examples for different Status can be :-
    • Reduced Rated
    • Zero Rated

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Key Concepts �Tax Jurisdiction

  • A geographic area for which tax is levied by a specific tax authority.
  • There can be multiple jurisdictions for a tax but at least one has to be specified as a default jurisdiction.

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  • In our Business Scenario, applicable Tax Jurisdiction will be :-
    • State of California,
    • State of Texas.

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  • Other Examples for Tax Jurisdictions can be :-

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    • Tax applicable uniformly in UK, will have a Tax Jurisdiction directly at Country level.
    • Tax Jurisdiction for Goods and Services Tax in Singapore will be the Country of Singapore.

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Key Concepts� Tax Rate

  • The rate specified for a tax status for a period of time.
  • Tax rate is generally expressed in terms of percentage. In EBTax we can also express in terms of quantity.
  • There can be multiple tax rates under a tax status but at least one has to be specified as a default rate.

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  • In our Business Scenario, applicable Tax Rate will be :-
    • California – 10%
    • Texas – 12%

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  • Other Examples for different Tax Rates can be :-
    • UK Standard VAT Rate 17.5%.
    • Sweden Standard Rate VAT is 25%.

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Regime to Rates flow

Tax

Tax Regime

Tax Status

Tax

Jurisdiction

Sales & Use Tax

United States Tax Regime

Standard

California

Tax Rate

Texas

10 %

12 %

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Key Concepts� Place of Supply

  • Decides which location to be considered for tax calculation.

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  • The different options available are :-
    • Ship To
    • Bill To
    • Ship From
    • Bill From
    • Ship To, Use Bill To if Ship To not found

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  • For Example :-
    • Goods Sold from California to Texas then

- If we want California Tax to be applicable then we will define Bill / Ship From as the place of supply,

- If we want Texas Tax to be applicable then we will define Bill / Ship To as the place of supply.

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Key Concepts� Taxable Basis & Tax Amounts

  • Taxable Basis
    • Determines the amount on which the tax rate should be applied.
    • The options are
      • Line Amount
      • Tax Formula (Prior Tax, Compounding, Assessable Value)

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  • Tax Amounts Calculation
    • Determines how tax will be calculated for each applicable tax on the transaction.
    • The options are
      • Standard_TC :- Line Amount (x) Tax Rate
      • Compounding of tax Rate

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Tax Determination Steps

Tax

Status

  • Determine Tax Status for each applicable Tax

Tax Rate

  • Determine Tax Rate
  • Evaluate Exemptions and Exceptions
  • Determine Taxable Basis (normally line amount)

Taxable Basis

Tax

Calculation

  • Calculate Tax (normally = line amount x rate)

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Regime Applicability

  • Determine where the transaction is deemed to take place
  • Determine Applicable Tax Regimes

Tax

Applicability

  • Determine Candidate Taxes
  • Determine Place of Supply And Tax Registration
  • Determine Applicable Taxes & Jurisdictions

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External Dependencies �for Tax Set Up

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  • Pre Requisite Mandatory Set Ups
    • User with “Tax Manager” responsibility
    • Geography structure defined in TCA
    • Locations in HRMS
    • Legal Entity
    • Operating Unit
    • Ledger
    • Customers & Suppliers

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  • Optional Set Ups
    • Tax Reporting and collecting Authority
    • Inventory Org, Items, Items categories and Category Codes etc
    • Party Classification defined in TCA

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Information Source

  • EBTax User Guide
  • EBTax Implementation Guide

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