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Ebtax in oracle EBS r12

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E-Business Tax

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Ebtax in oracle EBS r12

  1. 1. In Oracle R12 a new module called E-business Taxhas been introduced for maintenance ofall tax related requirements ofdifferentgeographical locations.Contraryto 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 repositoryfor all tax setups and is integrated with all other modules. This documentcovers two specific scenarios where we used the E-business taxmodules to setup tax and use the tax rules in the module to calculate tax based on differentrequirements. BASIC TAX SETUPS IN E-BUSINESS TAX These are the basic mandatorytax setups to be performed in the E-Business TaxModule in R12 to enter Tax lines manuallyor 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 setofdefault information, regulations,fiscal classifications and registrations to one or more taxes with same tax requirement. 2. TAXES: Tax is classification ofa charge imposed bya Governmentthrough 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 productor 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 taxuses the tax setups along with the tax rules to decide which taxes apply to a transaction and how to calculate the tax amountfor each tax that applies to a transaction. Case Study – 1 Business Requirement: Calculation ofUSE TAX in AP Invoices based on Ship To Location Zip code and Balancing Segmentof Chartof Accounts. The requirementofclientwas as follows: Use tax was calculated in an AP Invoice based on the combination ofthe balancing segmentin the chart of accounts and the zip code of a ship to location. In 11i differentsales tax codes were setup for each combination ofbalancing segmentand ship to location.An offset tax code was attached to each of the sales tax code. For an invoice where use tax was applicable the user would enter the sales tax code (which has been attached to an offset tax code) and validate the invoice. This would generate two tax lines one each for sales taxand offsettax. After the upgrade to Oracle R12; Use tax can be applied on an invoice in two ways: 1. Similar to 11i make sales taxand offsettax 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.Conceptof Self Assessed tax is explained later in the document. In this case study we have used option 2 as the base. Detailed setups performed 1. Define Tax Regime Responsibility& Navigation: Tax Managers – Tax Configuration – Tax Regime – Create
  2. 2. Define one tax regime for country United States as shown below: 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
  3. 3. 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 4. Define Tax Jurisdictions Define one tax jurisdiction for the tax regime and tax setup in the previous steps. Responsibility& Navigation: Tax Managers – Tax Configuration – Tax Jurisdictions – Create
  4. 4. 5. Define Tax Rates Define multiple rates for the combination ofCorp and Ship to location zip codes.A tax rate is made for the combination ofTax 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 liabilityaccountdetails
  5. 5. Enter the Tax Expense Account. If this is left blank the expense accountfor ITEM line will be used. The Tax Recoverable/Liabilityis the Use tax LiabilityAccount to be used. 6. Define Tax Rules Oracle provides a seeded setof Tax Rules which can be used by the user for tax calculation.For any transaction made the tax determination process uses these taxrules to decide the taxes which will apply and the amountof ta x 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
  6. 6. Step2: Create Geography Hierarchy: The various zipcodes which will be used in the tax rules have to be setup in the geographyhierarchy in the trading communityarchitecture. Responsibility& Navigation: Trading CommunityManager à Administration à GeographyHierarchy Query for country United States in the below screenshot Click on View Details tab Chose the State required and click on View Details
  7. 7. Enter the various County details or enter a default county for the state as shown below.Click on View Details 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 anychanges Step3: Create Tax Determining Factor Sets
  8. 8. Responsibility& Navigation: Tax Managers – Advanced Setup Options – Tax Determining Factor Sets – Create The determining factor will work in the following manner: Since use tax had to be calculated on invoices based on the balancing segmentand ship to location we chose the following values in a determining factor set: 1. Flexfield segment1 ofthe Line accountis the balancing segment 2. The ship to location postal code of the invoice 3. Since use tax will apply only to certain invoices we chose a transaction inputfactor and the value is called as tax classification code. Step4: Create Tax Condition Sets Responsibility& Navigation: Tax Managers – Advanced Setup Options – Tax Condition Sets – Create The tax condition setis made from the tax determining factor set.In the above screenshotwe have made a tax condition setfor balancing segmentCIP and postal code 62201 using the determining factor setmade in the above set. TAX RULE SETUP Responsibility& Navigation: Tax Managers – Tax Configuration – Tax Rules
  9. 9. The following tax rules will be setup for use tax calculation: 1. Determine Tax Applicability: Since the tax US_USE applies onlyfor use tax we make this tax applicable onlyif the tax classification code in the invoice for an ITEM line is “USE TAX APPLICABLE”
  10. 10. 2. Determine Tax Rate – This rule will derive the use tax rate for the invoices using the determining factor setand condition set.While making the tax rule we enter the determining factor setand the condition setmade in the previous steps as shown in below screenshot.
  11. 11. For each condition setthere will be a different tax rate which will be applied. Example: As shown in above screenshotthere are 4 condition sets: 1. COND_CIP_62201 – This means thatthe balancing segmentis 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 thatthe balancing segmentis 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 defaultvalues have been used. 7. Concept of Self Assessed Tax A self-assessed taxis a tax calculated and remitted for a transaction,where tax was not levied by the supplier butis 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-assessmentis also known as reverse charge or use tax in certain tax regimes. When self-assessmentapplies 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-assessmentoption: • At the tax profile level to defaultto the tax registrations thatyou create for this party. • At the tax registration level. • On an individual tax line. E-Business Taxapplies self-assessmentto Payables invoices received by the first party according to the tax registration setting ofthe Set for Self Assessment/Reverse Charge option.The specific tax registration record that E- Business Taxuses is derived either from Determine Tax Registration rules or from the defaulttax registration. We have setup the selfassessed taxfeature at the Tax Registration level. Navigation:Tax Managers – Home – External Dependencies – Create FirstParty : 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 selfassessed taxfeature only for use tax invoices we setup this option for the tax US_USE only. Other taxes will not have this flag checked.
  12. 12. 8. Invoice Creation and Use Tax calculation 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 selfassessed taxfeature 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 theywill be stored in zx_lines table with the trx_id which will be the invoice_id of the invoice.
  13. 13. Tax lines form indicating the use tax details. Case Study – 2 Business Requirement: Calculation ofSALES TAX in AP for Invoices made from source ERS based on Supplier site pin code The requirementofclientwas as follows: There were many invoices created in AP using the ERS source i.e create the PO and Receiptin 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 Importprogram will then importthese 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.
  14. 14. Since the ERS invoice which is inserted into the interface table consists ofonly ITEM line we needed to insertone more TAX line with the correct amount.Additionally the total invoice amountalso has to be corrected to include the tax amount. Detailed setups performed for the same. 1. Define Tax Regime Responsibility& Navigation: Tax Managers – Tax Configuration – Tax Regime – Create Define one tax regime for country United States as shown below: 2. Define Taxes Define one tax called US SALES TAX under the tax regime created for United States Responsibility& Navigation: Tax Managers – Tax Configuration – Taxes – Create
  15. 15. 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 à Tax Configuration à Tax Statuses à Create
  16. 16. 4. Define Tax Jurisdictions 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 5. Define Tax Rates Define tax rates for each supplier site zip code. A tax rate is made for the combination ofTax 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
  17. 17. Click on Tax Accounts to enter the Expense and liability accountdetails Enter the Tax Expense Account. If this is left blank the expense accountfor ITEM line will be used. The Tax Recoverable/Liabilityis the Use tax LiabilityAccount to be used.Since this is a sales tax rate we enter the defaultaccount of 000 for the same. 6. Define Tax Rules Oracle provides a seeded setof Tax Rules which can be used by the user for tax calculation.For any transaction made the tax determination process uses these taxrules to decide the taxes which will apply and the amountof tax which has to be applied for a transaction.
  18. 18. 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 Step2: Create Geography Hierarchy: The various zipcodes which will be used in the tax rules have to be setup in the geographyhierarchy in the trading communityarchitecture.Set up the zip codes to be used for the supplier sites where sales tax needs to be calculated based on the step 2 in Point 6 in Case study1. Step3: Create Tax Determining Factor Sets Responsibility& Navigation: Tax Managers – Advanced Setup Options – Tax Determining Factor Sets – Create The determining factor will work in the following manner: Since sales tax had to be calculated on invoices based on the supplier site for ERS invoices the determining factors would be: 1. Geography – Ship From postal code 2. Transaction InputFactor – Tax classification code which will be used for ERS invoices. Step4: Create Tax Condition Sets Responsibility& Navigation: Tax Managers – Advanced Setup Options – Tax Condition Sets – Create
  19. 19. The tax condition setis made from the tax determining factor set.In the above screenshotwe have made a tax condition setfor postal code 61548 and tax classification code SALES TAX APPLICABLE 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: 3. Determine Tax Applicability: Since the tax US_SALES applies onlyfor ERS Sales Tax we make this tax applicable onlyif the tax classification code in the invoice for an ITEM line is “SALES TAX APPLICABLE”
  20. 20. 4. Determine Tax Rate – This rule will derive the sales taxrate for the invoices using the determining factor setand condition set.While making the tax rule we enter the determining factor setand the condition setmade in the previous steps as shown in below screenshot.
  21. 21. For each condition setthere will be a different tax rate which will be applied. Example: As shown in above screenshotthere are 4 condition sets: 1. COND_SALES_63119 – This means thatif 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 thatif 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 defaultvalues 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 Payon Receiptprogram. 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 amountflag and add tax to invoice amountis setto Y so that the Payables Open Interface Import program would trigger tax rules and calculate the tax amountand also add the tax amountto the invoice amount. Hence the invoice will be imported with the tax line and correct invoice amount. Following is the update scriptfor 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’)
  22. 22. Snapshots ofERS invoices in the interface table. Invoice header in the interface table before it was processed. Invoice line in the interface table Supplier site pincode – 62223 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
  23. 23. Case Study – 3 f

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