1. Taxability
Conceptually, the taxability (including determining the tax applicability, the place of supply, the
tax rate, etc.) of a given transaction depends on one or more of the following:
• The type of transaction (Process- e.g., whether it is a sale, purchase, rental billing, etc.)
• What is being transacted (Product- i.e., what kind of good or service is being transacted)
• What places are involved (Places- e.g., what is the ship to, ship from, bill to, etc.)
• What the purpose of the transaction is (Purpose- e.g., purchase for consumption or purchase for
resale, etc.)
• And who are involved (Parties- i.e., who is the Legal Entity, the bill to party, the ship to party,
etc.)
For each of the "5 P's", we have one or more tax determination factors that can be used in (user-
configurable) tax rules.
The determination factors for each of the 5P's are:
• Process - Transaction Business Category
• Product - Product Type, Product Category and one or more (Inventory-category based) Product
Fiscal Classifications, Product Exceptions
• Places- The geography (like State, County, Province, etc.)
• Purpose- Intended Use (either defined in eBTax or Inventory-category based)
• Parties- Party Fiscal Classifications (defined in eBTax and associated with the Parties), Tax
Registrations associated with Parties, Party Sites.
It is highly recommended to use the "5P's-based" factors and use the required combination (and
only the required combination) of those factors in rules. EBTax provides you the granularity of
defining defaults and rules for each of the tax determination processes, like tax applicability,
place of supply, rate determination, etc. For each of these processes (like place of supply
determination) it is recommended to use those factors (and only those factors) that drive the
result. (Please see example below.)
2. In the diagram above (for the UK VAT tax), the Place of Supply is the “Ship To” location for a
Purchase transaction when the Supplier is registered in another EC country and the Ship From is
from another EC country Ship To is the UK.
This translates into a “Place of Supply Rule” as shown below:
3. Defining rules in this manner ensures that the rules are only created where necessary (i.e., where
it is different from the default or standard); and the rules are highly maintainable. Overall, it also
reduces the chance for user error when the rules use attributes that are implicit in the transaction.
This is the recommended approach, rather than creating a list of UDFC classifications for each
combination of the underlying "5P" factors to address all tax determination processes.
For AR-destination transactions from OLFM, we supported "User Defined Fiscal
Classifications" (UDFC) only for backward compatibility/ upgrade reasons. For AP-destination
transactions we do not support UDFC as a tax determining factor as this is not the recommended
approach to defining rules.
