Tax Set Up Pakistan

7/27/2019 Tax Set Up Pakistan

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R12 Oracle E-Business Tax Configuration

1. Tax Basic Tax Configuration

Tax Definition: comprises the tax data that you set up for each tax regime and tax that your company or institution

is subject to. The Tax Authority designates the regulations and rates that apply to the tax regime.

Required Task List

a) External Dependencies

Create First Party: Legal Entity and Establishments

Create Reporting and Collecting Tax Authorities

b) Tax Configuration

Create Tax Authorities Party Tax Profiles

Create Tax Regimes

Create First Party Legal Entity Party Tax Profile

Create Tax

Create Tax Status

Create Tax Jurisdictions

Tax Rate

Responsibility: Tax Manager

Path: Tax Managers -> Tax Managers -> Home

Complete the following setup tasks:

-Legal Entities and Establishments

-Reporting and Collecting Tax Authorities

-Lookup Codes (not required at the beginning)-Party Class Categories and Codes (not required at the beginning)

Responsibility: System Administrator

Path: Profile -> System

Setup the following profile options:

eBTax: Allow Ad Hoc Tax Changes

eBTax: Allow Manual Tax Lines

eBTax: Allow Override of Customer Exemptions

eBTax: Allow Override of Tax Classification Code

eBTax: Allow Override of Tax Recovery Rate

eBTax: Inventory Item for Freight

eBTax: Invoice Freight as Revenue

eBTax: Read / Write Access to GCO Data

eBTax Taxware: Service Indicator

eBTax Taxware: Tax Selection

eBTax Taxware: Use Nexpro

eBTax Vertex: Case Sensitive

Responsibility: Legal Entity Manager


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Path: Legal Entity Manager -> Legal Entities -> Create Legal Entity

Use the Legal Entity Configurator to setup the following entities:

-First Party Legal Entity (that represents your company)

-First Party Legal Establishment (for each office, service center, warehouse and any other location within the

company that requires a registration with a tax authority for one or more taxes). Setup associations between eachlegal establishment and a business entity.

-Legal Authority (for each tax authority that administers taxes in a tax regime where you do business)

Responsibility: System Administration

Path: System Administration -> System Administration -> Lookup Types

Tax lookup types include:

ZX_INPUT_CLASSIFICATIONS (AP and PO migrated tax codes and tax groups)

ZX_OUTPUT_CLASSIFICATION (AR migrated tax codes and tax groups)

ZX_WEB_EXP_TAX_CLASSIFICATIONS

ZX_EXEMPTION_REASON_CODE

ZX_JEBE_VAT_TRANS_TYPE

ZX_REGISTRATIONS_REASON

ZX_REGISTRATIONS_TYPE (Seeded:

CNPJ, CPF and OTHERS: Tax registration number validation for Brazil

CUIL, CUIT, DNI, NIT and VAT: Tax reporting purposes only.)

ZX_REGISTRATIONS_STATUS (Seeded: Agent Registered and Not Registered)

ZX_TAX_TYPE_CATEGORY (Seeded: Sales VAT, Excise, Customs Duty and Environmental)

Regime-To-Rate Flow for US Sales Tax

Tax Regime: CA Sales Tax

Tax: State Sales TaxTax Jurisdiction: California State Sales Tax

Tax Status: Standard

Tax Rate: 7.25%

Operating Unit Tax Account: 01.005.004.033

Tax: County Sales Tax

Tax Jurisdiction: San Mateo County Sales Tax


Tax Rate: 1.0%


Tax: City Sales Tax

Tax Jurisdiction: Belmont City Sales Tax


Tax Rate: 0.00%


a) Tax Regimes


Path: Tax Managers -> Tax Configuration -> Tax Regime -> Create


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Set up tax regimes for the taxes in each country and geographic region where you do business and where a

separate tax applies.

Prerequisites:

-Set up Legal Entities and Operating Units

-Enable currencies-Design TCA Geography Hierarchy Structures (if required by the country)

-Set up Party Tax Profiles

-Optional: Set up tax zones, exchange rate types and tax authorities

b) Taxes


Path: Tax Managers -> Tax Configuration -> Taxes -> Create

Set up details of the taxes within a tax regime. A tax includes:

-Configurator owner

-Default values from the tax regime

-Values specific to the tax

-Settings for tax accounts, tax exemptions, tax exceptions

-Settings for tax recovery, where applicable

Prerequisites:

-Set up a tax regime

-Optional set up ledgers and accounts, tax reporting codes and tax types (lookups).

c) Tax Statuses


Path: Tax Managers -> Tax Configuration -> Tax Statuses -> Create

Create a tax status for a combination of tax regime, tax and configurator owner.

Define all applicable tax rates and their effective periods under the tax status.

The tax status controls the defaulting of values to its tax rates.

Prerequisites:

-Set up taxes

-Optional, set up tax reporting types

d) Tax Rates


Path: Tax Managers -> Tax Configuration -> Tax Rates -> Create

Create tax rate records for tax statuses and tax jurisdictions.

For tax statuses, set up a tax rate record for each applicable tax rate that a tax status identifies.

For tax jurisdictions, set up tax rate records to identify the tax rate variations for a specific tax within different tax

urisdictions. For example, a city sales tax for a state or province may contain separate city tax jurisdictions, each

with a specific rate for the same tax. You can also define tax recovery rates to claim full or partial recovery of taxes

paid.


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Prerequisites:

-Set up tax status

-Set up units of measure (for quantity rate types)

-Optional, set up tax transaction type lookup codes, an offset tax, tax jurisdictions, tax reporting types, tax

recovery rates, primary and secondary tax recovery types and tax recovery rules.

e) Tax Jurisdictions


Path: Tax Managers -> Tax Configuration -> Tax Jurisdictions -> Create

Create tax jurisdictions for geographic region and tax zone where a specific tax authority levies a tax.

At transaction eBTax derives the jurisdiction or jurisdictions that apply to a transaction line based on the place of

supply. Also, it either uses a default place of supply or derives a place of supply based on tax rules.

Prerequisites:

-Set up taxes

-Set up tax statuses (for jurisdiction-based rates)

-Verify or set up the TCA master geography

-Optional, set up tax zones.

Additional set up is optional or mandatory depending on the details of your configuration and the tax regulations

of your tax regimes.

Tax Zones


Path: Tax Managers -> Advanced Setup Options -> Tax Zone Types -> Create

Define tax zones. Tax zones group existing geographical regions that share the same tax requirement. The tax zone

setup makes use of the Trading Community Architecture (TCA) master reference geography hierarchy (identifies

which levels are mandatory for the tax zone).

A tax zone type references a specific part of a master reference geography hierarchy.

Tax zone hierarchical structure in the United States: Country, State, County, City,

and Postal Code.

Prerequisites:

-Verify that the TCA master geography contains the geographic information that you need.

Responsibility: Trading Community Architecture

Path: Trading Community -> Administration -> Geography Hierarchy

Setup and maintain the TCA Geography Hierarchy in these cases:

-Taxes that are levied at a level lower than the country level

-Tax characteristics vary at a lower level than the country level

Tax Accounts


Path: Tax Managers -> Tax Configuration -> Taxes -> Tax Accounts

Path: Tax Managers -> Tax Configuration -> Tax Rates -> Tax Accounts

Path: Tax Managers -> Tax Configuration -> Tax Jurisdiction -> Tax Accounts


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Set up tax accounts under a primary ledger and operating unit.

The system posts calculated tax amounts to the specified operating unit accounts at transaction time. The actual

account information that the system uses depends upon sub ledger accounting rules.

Prerequisites:

-Set up primary ledgers and sub ledgers-Set up operating units and assign them to primary ledgers

-Set up taxes

-Optional, set up tax rates, tax recovery rates and tax jurisdictions

Tax Reporting Types


Path: Tax Managers -> Defaults and Controls -> Tax Reporting Types -> Create

Define tax-reporting types to capture additional tax information on transactions.

You can also create a group of tax reporting codes for a tax reporting type.

Prerequisites:

-Set up tax regimes

-Set up taxes

You must associate a tax regime with tax reporting types except for tax reporting types associated with fiscal

classifications, tax registrations, and party tax profiles.

Mass Creation of Tax Jurisdictions


Path: Tax Managers -> Tax Configuration -> Tax Jurisdiction -> Mass Create

Create a tax jurisdiction for each record within a parent geography or tax zone type.

Prerequisites:

-Set up taxes

-Set the Allow Mass Creation of Jurisdiction option for the tax

-Set up tax statuses and tax rates (for jurisdiction-based rates)

-Enable multiple jurisdictions for the tax

-Set up TCA master geography for the applicable parent geography and child records

-Optional, set up tax zones.

Tax Recovery Rates


Path: Tax Managers -> Tax Configuration -> Tax Recovery Rates -> Create

You must set up tax recovery rates for all of your recoverable taxes.

A recoverable tax is a tax that allows full or partial recovery of taxes paid on purchases, either as a recoverable

payment or as an offset against taxes owed.

For example, most VAT-type taxes allow for full recovery or taxes paid on goods and services that relate to taxable

business supplies. In cases where an organization purchases both taxable and exempt supplies, the tax authority

can designate a partial recovery rate to reflect the combination of taxable and exempt statuses.


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2. Managing Party Tax Profiles

The configuration tier identifies the factors that participate in determining the tax on an individual transaction.

These "taxability" factors are: party, product, place and process.

a) Party Tax Profile

A party tax profile is the body of information that relates to a party's transaction tax activities. A tax profile can

include tax registrations, tax exemptions, configuration options, and main and default information, party fiscal

classifications, tax reporting codes, and account tax details (for migrated data).

You must set up a tax profile for each first and third party involved in your tax transactions.

Party Tax Profile and Tax Registration components are supported in three flows:

-Legal entity/establishment flows

-Supplier/supplier site flows

-Customer and customer account sites flows

Configuration Options: identify the relationship between each first party legal entity and operating unit in your

company and the tax regimes that each first party and legal entity is subject to. You must set up a configuration

option for each combination of configuration owner (first party legal entity/operation unit) and tax regimes, where

the party or operating unit is subject to any tax regulations belonging to a tax regime.

Tax Registrations: contains information related to a party's transaction tax obligation with a tax authority for a tax

urisdiction where it conducts business. Set up tax registrations for your first party legal establishments and your

third party customers/customer sites and suppliers/supplier sites.

Customer Tax Exemptions: is a discount/surcharge or replacement percentage from the base tax rate that reduces

the applicable tax on a Receivables transaction. Set up tax exemptions for your third party customers and

customer sites to reflect the eligibility of customers for tax exemptions according to the tax authority.

Party Fiscal Classifications: determines, for example, when taxes apply to a party, how much tax applies, and whatpercentage of the tax is recoverable. Set up party fiscal classification for your first parties, customers and customer

sites, and suppliers/supplier sites.

There are two types of classifications:

-Party fiscal classifications: optionally assigned to a party and used as determining factors in tax rules.

-Legal classifications: assigned to legal entities. You assign these classifications using the Legal Entity module.

Legal reporting codes: optionally assigned to a party capture tax information from party transactions for both

internal and tax authority reporting requirements.

Account Tax Details: maintain Release 11i migrated tax information for customer and supplier accounts. The

account details override the details at the third party and third party site level, if applicable.

Responsibility: Tax Managers

Path: Parties -> Party Tax Profiles

Enter main information for all party types, according to your requirements. This information controls certain

default values and settings on invoices associated with the party.

Note: Tax registration settings override the values you set at the main information level. For third party tax

profiles, invoice controls defined at the tax registration level override invoice controls at the account tax details

level, if defined.


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Party tax profile main information includes:

-Self-assessment option (self-access taxes)

-Tax classification code (determining factor in tax rules)

You only enter a tax classification code if you intend to use the Direct Tax Rate Determination tax rule.

-Rounding level/rounding ruleNote: If you updated the rounding precedence hierarchy for a specific configuration owner and event class, then

the related transactions look instead for rounding level information according to the configuration owner and

event class settings.

-Tax Inclusive option

-Use Subscriptions of the Legal Entity (Operating Unit)

Release 11i migrates to E-Business Tax as operating units containing their own tax content. Set this option if you

want the operating unit to use the tax content of the associated legal entity at transaction time.

Note: this is an irreversible setting.

-Allow Tax Applicability (third party)

Automatically calculate taxes for this party whenever the party acts as a supplier.

Note: For third parties without a tax profile record, the default is to allow tax applicability.

-Allow Offset Taxes (third party)

Set this option to define whether the system considers offset taxes for transactions.

b) First Party Legal Entity Tax Profile



It identifies your organization to the relevant legal authorities. When you create a legal entity, the system

automatically creates a legal entity establishment.

Once you select a first party legal entity on the Party Tax Profiles page, navigate to the Create Tax Profile page to

set up tax profiles for your first party legal entities and legal establishments.

You set up legal entities and establishments using the Oracle Legal Entity Manager.

c) First Party Legal Establishment Tax Profile



It identifies each office, service center, warehouse and any other location within the organization that has a tax

requirement. You can create additional legal establishments.

Select a first party legal establishment as a party type on the Party Tax Profiles page to create and update the tax

profile.

Prerequisites:

Mandatory: Set up legal entities and legal establishments; set up tax regimes.

Optional: Set up legal entity secondary establishments, taxes, tax jurisdictions, lookup codes, party fiscal

classifications and reporting types.

d) Operating Unit Tax Profile




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Once you select an operating unit owing tax data on the Party Tax Profiles page, navigate to the Update Party Tax

Profile page to modify the tax profile for your operating unit. Release 11i tax data migrates to E-Business Tax as

operating units containing their own tax content. To help you manager the tax content of operating units, you can

use the operating unit tax profile.

e) Tax Authority Tax Profile

Responsibility: Legal Entity Manager

Path: Legal Entities -> Create Legal Entity

It identifies a tax authority party as a collecting authority and/or a reporting authority. A collecting tax authority

manages the administration of tax remittances. A reporting tax authority receives and processes all company

transaction tax reports.

Tax registration is not available for a tax authority, they utilize tax reporting codes.

After you create the tax authority, you can select a Tax Authority as a party type and update the tax profile on the

Party Tax Profiles page.

f) Third Party Tax Profile



Once you select a third party or third party site on the Party Tax Profiles page, navigate to the Create Tax Profile

page to set up tax profiles for your customers, customer sites, suppliers, and supplier sites.

Prerequisites:

Mandatory: Set up parties

Optional: Set up tax regimes, taxes, tax jurisdictions, lookup codes, party fiscal classifications, tax reporting types,

customers and supplier accounts.

Self-Assessment Setup

A self-assessed tax is a tax calculated and remitted for a transaction, where tax was not levied by the supplier but

is 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-assessment is also know as reverse charge or use tax in certain tax regimes.

You can set the self-assessment option:

-At the tax profile level to default to the tax registrations that you create for this party

-At the tax registration level

-On an individual tax line

E-Business Tax applies self-assessment to Payables invoices received by the first party according to the tax

registration setting of the Set for Self Assessment/Reverse Charge option.

Depending on the level, the self-assessment will apply to:

-All taxes of the tax regime

-All tax jurisdictions of the tax

-A specific tax jurisdiction of the tax

Offset Taxes


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An offset tax calculates and records third party Payables tax liabilities for reverse charges, self-assessments, and

Consumer's Use tax (US). An offset tax record is a matching, duplicate record with negative amounts that reduces

or completely offsets the tax liability recorded in the tax transactions.

Use offset taxes when the tax requirement includes creating offset general ledger postings.

Tax Recovery: You cannot update the recovery rate on an offset tax line. The recovery rate is always 100% in order

to create credit entries that match the original tax amounts.

-Enable offset tax calculations for each applicable transaction event and party -Set up the offset tax, tax status, and

tax rate

-Set up the original tax and assign the offset tax rate code to the original tax rate.

Tax Exemptions



Once you select a third party or third party site on the Party Tax Profiles page, navigate to the Create Tax

Exemptions page to set up tax exemptions for your third party customers and customer sites.

You can set up a tax exemption at regime, tax, status, or rate level, for a specific jurisdiction or for all jurisdictions,

for a specific product or for all products. Tax exemptions are defined as a discount/surcharge or a new rate.

Use the third party tax exemption record to maintain information about a customer or customer site tax

exemptions. Also:

-Set up eBTax: Allow Override of Customer Exemptions profile option to control the display of the Tax Handling

field on the transaction line.

-Set up Allow Tax Exemptions option at the levels that correspond to the tax exemptions.

-Indicate whether you are creating tax exemptions for the tax, or using tax exemptions previous created for an

existing tax for each applicable tax.

-Verify that the applicable event class allows tax exemptions.

Prerequisites:

Mandatory: Set up customer third parties, tax regimes, taxes, tax statuses, tax rates, tax jurisdictions, inventory

organizations and inventory items.

Optional: Set up exempt reason lookup codes.

Tax Registrations



Once you select a first party legal establishment, or a third party or third party site, on the Party Tax Profiles page,

navigate to the Create Tax Registration Details page to set up tax registrations.

E-Business Tax uses tax registrations in tax determination and tax reporting. For each tax that you create, you must

define either a default tax registration or a tax rule for the rule type Determine Tax Registration. This rule

determines which tax registration is stamped on a transaction.

You must set up a separate tax registration to represent each distinct registration requirement for a first party.

If a party has more than one tax registration under the same tax regime, then E-Business Tax considers the tax

registrations in the order: jurisdiction; tax; tax regimes.

You optional set up tax registrations for your customers and suppliers.


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Tax registrations are a record of the actual registration that the company files with the tax authority. E-Business

Tax is not actually filing real registrations, but recording information that gets stamped on the transaction. You

indicate the Source of the tax registration as either explicit or implicit:

Explicit: The party is registered with the local tax authority.

Implicit: The party is not formally registehe local tax authority, but the party is considered to meet one or more

requirements for reporting taxes.

3. Configuration Owners and Service Providers

a) Tax Configuration Ownership

You can apply the tax content that you create to the entire organization using the global configuration owner, or

you can let individual parties within the organization either create and maintain their own tax conte nt, or override

parts of the shared tax content of the global configuration owner to fulfill specific requirements. When a party

overrides tax content, or creates and maintains tax content, it becomes a configuration owner of this tax content.

Tax configuration ownership includes:

-Legal entities and operating units owning their tax content

-Legal entities and operating units using the shared tax content of the global configuration owner.

Release 11i data migrates to E-Business Tax as operating units containing their own tax content. To set the

operating unit to use the tax configuration of its associated legal entity, you enable the Use Subscription of the

Legal Entity option in the party tax profile of the operating unit. Note that this is an irreversible setting.

b) Tax Configuration Options


Path: Tax Configuration -> Tax Regimes

Path: Parties -> Party Tax Profile -> Create / Update Tax Profile -> Configuration Options

You should set up the configuration options when you create a tax regime and/or a party tax profile for a fist party

legal entity or operating unit (both set up flows display and maintain the same party/regime definitions).Configuration options only apply to tax regimes directly linked to taxes and not to tax regimes that are used to

group other tax regimes.

Prerequisites:

-Set the eBTax: Read/Write Access to GCO Data profile option (for Global Configuration Owner setup)

-Set up tax regimes

-Set up party tax profiles

Use configuration options to associate legal entities and operating units with their applicable tax regimes.

c) Configuration for Taxes and Rules

The setup that the party uses for taxes, tax statuses, tax rates, tax recovery rates and tax rules. These options are:

Common Configuration: The party uses the company tax setup for the applicable regimes. All parties with a

Common Configuration option share the same tax setup. When setting up taxes, tax details, and configuration

owner tax options, the global configuration owner represents any party with a Common Configuration.

Common Configuration with Party Overrides: The party uses the company tax setups for the applicable regimes,

but with the ability to override portions of the company tax setup with tax setup specific to the party's

requirements.


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Party-Specific Configuration: A legal entity or operating unit party does not share the company tax setup, but

instead creates and maintain its own tax setup for the applicable regimes.

For release 11i migrated data, the configuration owner of the tax setup converts to E-Business Tax in this way:

-Tax codes ? Party-Specific configuration, with the operating unit owning its tax setup.-Location-based tax codes ? Common Configuration, with the global configuration owner owning the location-

based tax setup.

d) Configuration for Product Exceptions

The setup that the party uses for product tax exceptions. It determines whether the product tax exceptions

defined for this tax regime are shared with other parties or remain specific to one party:

- If the configuration option for taxes and rules is Common Configuration or Party-Specific Configuration, then E-

Business Tax assigns the same setting to the configuration option for the product exceptions.

- If the configuration option for taxes and rules is Common Configuration with Party Overrides, you can set the

configuration option for product exceptions to Common Configuration to let the party use the product tax

exceptions of the global configuration owner; or Party-Specific Configuration to let the party set up its own

product tax exceptions that are not shared with any other party.

e) Service Subscriptions

The external service providers that the party uses in place of Oracle E-Business Tax to provide tax calculation

services for US Sales and Use tax.


Path: Parties ->-Party Tax Profile -> Create/Update Tax Profile -> Configuration Options -> Service Subscriptions

Use the Subscription Options page to assign an external service provider to a configuration option. When assigned,

E-Business Tax uses the external service provider tax services to calculate US Sales and Use tax on Receivablestransactions and the external service provider tax data for reporting.

E-Business Tax provides transparent integration between the external service provider and Oracle Receivables.

Both, E-Business Tax and the external service provider execute and complete the tax services without any

interruption to the application business flow. You can use the tax services of these external providers:

-Taxware, LP ? A First Data Company

-Vertex, Inc.

Prerequisites:

-Set up tax regimes

-Set up party tax profiles

-Set up configuration options

f) Legal Entity and Operating Unit Configuration Options

You can define relationships between parties and tax requirements that reflect the specific taxation needs of your

company and the way it is organized. Those options includes:

-One legal entity owns and maintains its tax configuration

- Multiple operating units of one legal entity share the legal entity tax configuration

- Multiple legal entities share the same tax configuration


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- Multiple legal entities share the same tax configuration; with individual legal entities able to override the shared

tax configuration for requirements specific to the legal entity, including tax, tax status, tax rate, and tax rules and

formulas

- One or more operating units of one legal entity own and maintain a separate tax configuration

- A legal entity, or an operating unit that owns and maintains a separate tax configuration, uses third party tax

services for specific transaction events

g) Event Classes


Path: Transactions -> Event Class Settings -> Event Class Mappings

Path: Transactions -> Event Class Settings -> Event Class Options

Payables: Standard invoices, prepaid invoices and expense reports

Receivables: Invoices, credit memos and debit memos

Purchasing: Requisitions, purchase orders and agreements, and releases

Trade Management: Tax event for claims interfacing to AP and tax event for claims interfacing to AR

Use the Event Class Mapping page to review the mappings between event types and tax event types.

Use the Event Class Options page to review the default tax settings for each application event class.

Event class settings provide a means of standardizing the interaction between E-Business Tax and other

applications. E-Business Tax responds to specific applications transaction events, such as Payables invoice,

according to the predefined settings of each application event class. In this way, E -Business Tax can determine and

calculate taxes without requiring access to each product. By default, the event class option settings of an event

class apply to all configuration owners.

You can update event class options belonging to an application event class for a selected configuration owner in

this way:

- If the event class option is enabled, you can deselect the option to exclude it from tax calculation;

- -If an event class option is not enabled for a particular application event class, you cannot enable this option.

h) Configuration Owner Tax Options


Path: Tax Managers -> Defaults and Controls -> Configuration Owner Tax Options -> Create

Use the Create Configuration Owner Tax Options page to set up configuration owner tax options for a combination

of configuration owner and application event class.

Configuration owner tax options let a configuration owner update default tax options on transactions that belong

to a specific application event class. At transaction time, E-Business Tax uses the tax option settings of the

configuration owner and application event class instead of the default settings.

Note: If you are using Direct Tax Determination with tax classification codes and migrated tax data, then you must

set up configuration owner tax options using the STCC regime determination set for the applicable configuration

owner and event class.

4. Fiscal Classifications

Fiscal classifications provide tax determination values for situations where the party, product, or transactions are

factors in tax determination. You set up a fiscal classification type to identify a category of fiscal classification that

has a potential tax implication; you assign fiscal classification types to tax regimes and taxation countries. You set

up fiscal classification codes under a fiscal classification type to provide additional granularity to a particular fiscal


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classification category. When creating tax rules, you use fiscal classification types as determining factors and fiscal

classification codes as condition set values.

The use of fiscal classifications is optional.

You set up fiscal classifications under these general categories:

a) Party Fiscal Classifications


Path: Parties -> Party Classification -> Create

Create party fiscal classification types and codes.

Classify your first parties (the various parts of your organization) and your third parties (your customers and

suppliers and their locations) for use in tax determination.

A party fiscal classification determines, for example, when taxes apply to a party, how much tax applies, and what

percentage of the tax is recoverable.

Set up party fiscal classification for: First parties, customers and customer sites, suppliers and supplier sites.

Once you set up your party fiscal classification types and codes, you can associate a party fiscal classification with a

party tax profile for each party that requires a party fiscal classification for tax determination and/or tax reporting

purposes.

Prerequisites:

-Set up TCA class categories and class codes

-Set up tax regimes

-Set up tax reporting types (optional)

Legal Party Fiscal Classifications


Path: Parties -> Legal Classification Tax Usage

Some countries use a set of codes to identify legal classifications that have a tax requirement. E-Business Tax

provides seeded fiscal classification type codes for each set of country-specific legal activity codes. You can assign

these legal activity codes to the tax regimes within the applicable country.

b) Product Fiscal Classifications


Path: Products -> Product Classifications -> Create

Path: Products -> Intended Use Classifications

Classify the products and services that you buy and sell for use in defining rules for tax determination.

You use product fiscal classifications as tax determining factors in tax rules.

You can set up product fiscal classifications for:

- Inventory-based products and services (Inventory items)

- Non-Inventory based products and services (non-Inventory based items)

- Product intended use fiscal classification (Inventory-based or non-Inventory based products and services)

You associate the product fiscal classification type codes that you create with the corresponding tax regimes that

require product fiscal classifications.

Prerequisites:


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-Set up Inventory items and categories for product fiscal classifications

-Set up tax regimes

- Set up tax reporting types (optional)

Product Tax Exceptions

Responsibility: Tax ManagersPath: Products -> Tax Exceptions -> Create

Set up tax exceptions to apply special tax rates to products. To set up tax exceptions, you must enable the Allow

Tax Exceptions option at all applicable levels in the regime-to-rate flow, including tax regime, tax, tax status, and

tax rate.

Only one product tax exception can apply to a transaction line for a specific tax.

You can set up these product tax exceptions:

Discount: A reduction of the base tax rate.

Surcharge: An increase of the base tax rate.

Special Rate: A rate that replaces the base tax rate.

You must assign a product tax exception to a combination of tax regime, configuration owner, and tax. You can

also optionally assign product tax exceptions to a tax status or tax rate belonging to the tax or to a tax jurisdiction.

You can, for example, use product tax exceptions to determine the tax rate for a particular product, instead of

using tax rules.

Prerequisites:

- Set up taxes, tax jurisdictions, Inventory organizations, Inventory items, product fiscal classification types, product

fiscal classification codes, exception reason lookup codes (optional), tax status (optional) and tax rates (optional).

c) Transactions Fiscal Classifications


Path: Transactions -> Transaction Business CategoriesPath: Transactions -> Transaction Fiscal Classifications -> Create

Path: Transactions -> Document Classifications

Path: Transactions -> User Defined Transaction Classifications

Classify the nature of a transaction itself, and the details that must accompany a transaction, according to its tax

requirements.

E-Business Tax uses transaction fiscal classifications as tax determining factors in tax rules. You use transaction

fiscal classifications when the tax authority requires you to classify the nature of the transaction itself for tax

purposes in order to determine the tax rate.

You can set up these types of transaction fiscal classification:

- Transaction business categories

- Transaction fiscal classification codes

- Document fiscal classifications

- User defined fiscal classifications

5. Setting Up Tax Rules

You create tax rules by translating the tax regulations of a tax authority into determining factors and tax conditions

that the E-Business Tax tax rules engine uses to evaluate the applicability of a tax on each transaction line. Tax


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rules determine: the applicability of a tax; the place of supply and tax jurisdiction of the transaction; the tax

registration; the tax status and tax rate; the recovery rate (if applicable); and the taxable basis and tax formula to

use in calculation.

The E-Business Tax tax rules engine uses the Tax Determination process to identify the taxes that apply to a

transaction and to calculate the tax. It is organized into rule types. Each rule type identifies a particular step in the

determination and calculation of taxes on transactions. You must either set up tax rules or provide a default valuefor each rule type in order for the tax rules engine to determine and calculate taxes.

1 ? Determine Applicable Tax Regimes and Candidate Taxes

Identifies the first party of the transaction and the countries associated with the transaction. For each country

identified, the process selects the tax regimes that are associated with the first party and defined for the country

as candidate tax regimes / candidate taxes.

2 ? Determine Place of Supply and Tax Jurisdiction (Determine Place of Supply rule type)

Determines the location where a transaction is considered to have taken place for a specific tax, and the

associated tax jurisdiction for each candidate tax.

The place of supply, or sites in the United States, is the location type where the supply of goods or services is

deemed to have taken place for a specific tax. If E-Business Tax cannot find a tax jurisdiction for the location that

corresponds to the place of supply location type, then the tax does not apply and it is removed as a candidate tax

for the transaction.

3 ? Determine Tax Applicability (Determine Tax Applicability rule type)

Determines the tax applicability of each candidate tax derived from the Determine Place of Supply and Tax

Jurisdiction process, and eliminates taxes that are found to be not applicable.

The process first attempts to derive the applicability based on the rule. If no rule applies, the process uses the

default value of Applicable or Not Applicable that was assigned to the rule type for the tax. If the tax does not

apply, it is removed from the list of candidate taxes.

4 ? Determine Tax Registration (Determine Tax Registration rule type)

Determines the party whose tax registration is used for each tax on the transaction, and, if applicable, derives the

tax registration number.

During the registration process, E-Business Tax also considers these details of the derived tax registration for each

tax: Tax inclusive handling, self-assessment/reverse charge setting and rounding rule.

5 ? Determine Tax Status (Determine Tax Status rule type)

Determines the tax status of each applicable tax on the transaction.

E-Business Tax attempts to derive the tax status using either tax rules or the default value assigned to this rule

type.

6 - Determine Tax Rate (Determine Tax Rate rule type)

Determines the tax rate for each tax and tax status. If applicable, the tax rate is modified by any exception rate

and/or tax exemption that applies. The result of this process is a tax rate for each applicable tax.

Defaulting Logic: If defined, E-Business Tax uses the tax rate assigned to the tax jurisdiction for the applicable tax

and tax status; otherwise, it uses the default tax rate.


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7 ? Determine Taxable Basis (Determine Taxable Basis rule type)

Determines the taxable base amount or quantity upon which to apply the tax rate for each applicable tax. The

taxable basis is typically the transaction line amount.

Taxable basis formula: taxable basis = line amount.

You can set up special taxable basis formulas.

If the process cannot find a taxable basis formula for an applicable tax, then E-Business Tax raises an error.

It considers the Tax Inclusive settings of the applicable taxes.

Tax Rule: Determine taxable basis, or the default value for the tax.

8 ? Calculate Taxes (Calculate Tax Amounts rule type)

Calculates the tax amount for each applicable tax on the transaction.

The tax is typically determined by applying the tax rate to the line amount.

Default tax calculation formula: tax amount = taxable basis * tax rate.

You can set up special tax calculation formulas.

If the process cannot find a tax calculation formula for an applicable tax, then E-Business Tax raises an error.

Tax Recovery Rate (Determine Recovery Rate rule type)

Determines the recovery rate on Procure to Pay transactions to apply to each recovery type for each applicable tax

on the transaction.

Tax recovery is a separate process with its own set of steps, for taxes that allow for full or partial recovery of the

tax amount.

A recoverable tax is a tax that allows full or partial recovery of taxes paid on purchases, either as a recoverable

payment or as an offset against taxes owed.

Direct Tax Rate Determination

This is a special tax rule type that lets you specify the results of tax applicability, tax status, and tax rate for a giventax. You use this rule type with migrated tax data and the Release 11i tax model in E-Business Tax.

a) Tax Rule Defaults


Path: Tax Managers -> Tax Configuration -> Tax Rules

You can set a default value for each rule type. E-Business Tax uses the default value if no rule belonging to the rule

type provides a value that applies to the transaction. For certain tax regimes, you may be able to use default values

exclusively, without the need to set up tax rules.

You only need to define a tax rule for a result that is different from the default value.

b) Default values for Rule Types

Determine Place of Supply

-Bill From

-Bill To

-Point of Acceptance (Receivables only)

-Point of Origin (Receivable only)

-Point of Payment

-Ship From


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-Ship To

Use Bill To as Ship To, if Ship To is not found.

In Europe, the default for place of supply of goods is usually Ship From.

In the United States, the default for place of supply of goods is usually Ship to.

Determine Tax Applicability-Applicable

-Not Applicable

Determine Tax Registration

-Bill From Party

-Bill To Party

-Ship From Party

-Ship To Party

-Use Bill To, if Ship To is not available.

The default is usually Bill From Party, but there are cases, such as reverse charge and self-assessment, where the

default is Bill To Party for specific transactions.

Determine Tax Status

You specify the default value when you set up the tax status (it can be overridden).

Determine Tax Rate

You specify the default value when you set up the tax rate (it can be overridden).

Determine Taxable Basis

The seeded formula STANDARD_TB (Taxable Basis = Line Amount)

Calculate Tax Amounts

The seeded formula STANDARD_TC (Tax Amount = (Taxable Basis) * (Tax Rate)).

c) Tax Rules Entry


Path: Tax Managers -> Tax Configuration -> Tax Rules -> Guided Rule Entry

E-Business Tax provides two entry flows for setting up your tax rules:

Guided Tax Rule Entry: Five-step flow that lets you build determining factors and tax conditions as you create the

tax rule.

Page flow:

-Tax Rules

-Create Tax Rule: General Information

-Create Tax Rule: Determining Factors and Conditions

-Create Tax Rule: Condition Results

-Create Tax Rule: Rule Order

-Create Tax Rule: Rule Templates

A tax rule is defined by:

-Ownership information

Identifies the tax rule configuration owner. If the configuration owner is a legal entity or operating unit, then the


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have been defined. E-Business Tax displays an error message if you have not set up the definitions properly.

e) Oracle Tax Simulator

Responsibility: Tax Simulator

Path: Tax Simulator

Use the Oracle Tax Simulator to enter simulated transactions (enter transactions to simulate the tax determination

process without creating live data), view your tax rules in action, simulate workbench characteristics, view tax lines

and override tax lines.

6. Setting Up Tax Rules ? Determining Factors

Determining factors are the key building blocks of your tax rules. They are the variables that are passed at

transaction time or derived from information on the transaction. Determining factors fall into four groups, namely:

Party, Product, Place and Process.

A determining factor is an attribute that contributes to the outcome of a tax determination process, such as a

geographical location (place) or tax registration status (party). Determining factors can be used in tax rules, taxable

basis formula, and tax regime determination.

Determining Factor Classes

Tax determining factors are categorized into logical groupings called determining factor classes, such as

Geography.

Class Qualifiers

You use a class qualifier with a determining factor class when it is possible to associate a determining factor class

with more than one value on the transaction. For example, for the determining factor class Geography and the

determining factor Country, you need to specify which party location to use by means of a class qualifier such as

ship from party or ship to party location.

a) Determining Factor ? Party

The Party determining factor includes the following determining factor classes and their class qualifiers:

Legal party fiscal classification: Fiscal party

Registration: Bill From Party, Bill To Party, Ship From Party and Ship To Party

Party Fiscal Classification: Bill From Party, Bill To Party, Point of Acceptance (AR transactions), Point of Origin Party

(AR transactions), Ship From Party and Ship To Party

Transaction input factor: Not applicable (groups together additional factors entered on the transaction line that

can influence tax determination)

b) Determining Factor - Product

The Product determining factor includes the following determining factor classes and their class qualifiers:

Product - Inventory linked: Not applicable

Product ? Non-Inventory linked: Product Fiscal Classification level (Levels 1-5)

Transaction input factor (intended use, product override): Not applicable

c) Determining Factor - Place


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The Place determining factor includes the following determining factor classes and their class qualifiers:

Geography: Bill From, Bill To, Point of Acceptance (AR transactions), Point of Origin (AR transactions), Ship From

and Ship To.

Tax Zones: Bill From, Bill To, Point of Acceptance, Point of Origin, Ship From and Ship To.

d) Determining Factor ? Process

The Process determining factor includes the following determining factor classes and their qualifiers:

Document: Document fiscal classification level (Levels 1-5)

Transaction fiscal classification: Not applicable

Transaction generic classification: Classification level (Levels 1-5) ? it references fiscal classification codes belonging

to the designated level in the corresponding fiscal classification type

Accounting event: Accounting segments of the selected ledger

Transaction input factor: Not applicable

e) Tax Determining Factor Set


Path: Advanced Setup Options -> Tax Determining Factor Sets -> Create

Create determining factor sets for use in tax rules determination and tax regime determination.

Tax Rules

Associate a tax determining factor set with a rule type to use in the creation of tax rules for the rule type.

You associate one determining factor set with each tax rule to create the tax condition sets for the tax rule. You

can maintain and reuse a tax determining factor set that you create for one rule with another rule for a different

tax or a different rule type, where requirements are identical. You can also reuse a tax determining factor set

within the same rule type for a different condition set. You can set up determining factor sets in advance to usewith tax rules, or set up a determining factor set during the creation of a tax rule.

Regime Determination

Associate a regime determination set with a combination of configuration owner and application event class to

identify tax regimes and candidate taxes on transactions. Tax regime determination is the first step in the tax

determination process. A regime determination set differs from tax rule determining factor sets in that the

determining factors are location types only. E-Business Tax compares the location types in the active regime

determination set to the locations specified on the transaction to identify the countries associated with each

location and the tax regimes associated with each country.

Note: By default, E-Business Tax provides a seeded regime determination set for all Payables and Receivables

transactions for all configuration owners. This regime determination set considers all location types (except Paying

Location) to look for applicable tax regimes on a transaction.

Tax Determination Set Setup for Tax Rules

Prerequisites:

- Set up tax regimes, if you intend to create a determining factor set for use with a specific tax regime, or if you

intend to use a fiscal classification determining factor class that requires a tax regime assignment

- Set up ledgers, if you intend to use the Accounting determining factor class. The ledger accounting segments


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become available for use as tax condition values.

- Set up TCA geography hierarchy structures, if you intend to use the Geography determining factor class.

- Set up TCA party classifications, if you intend to use the Party Fiscal Classification or Legal Party Fiscal

Classification determining factor class.

- Set up party tax profiles, if you intend to use the Registration determining factor class.

- Set up fiscal determinations, if you intend to use a determining factor class related to fiscal classifications.- Set up tax classification codes, if you intend to use the Transaction Input Factor determining factor class for tax

classification codes.

- Set up tax zones types and tax zones, if you intend to use the User Defined Geography determining factor class.

Regime Determination Set Setup

Prerequisites:

- Set up tax regimes

- Optionally, set up tax zone types and tax zones, if you want regime determination to take place at the tax zone

level for a location type.

f) Tax Formulas


Path: Advanced Setup Options -> Tax Formulas -> Create

Set up tax formulas for use in the tax rules Determine Taxable Basis and Calculate Tax Amounts.

Determine Taxable Basis

The Determine Taxable Basis tax rule derives the amount or quantity on the transaction line that E-Business Tax

uses to apply the tax rate. The standard taxable basis formulas are:

Taxable Basis = Line Amount

Taxable Basis = Quantity

If the tax requires the calculation of a taxable basis other than the line amount or line quantity, then create a

taxable basis tax formula and either associate it with a Determine Taxable Basis tax rule for the applicable tax

regime and tax or set it as the default taxable basis for a tax.

Calculate Tax Amounts

The Calculate Tax Amounts tax rule determines the formula that E-Business Tax uses to calculate the tax amount

on the transaction line. The standard tax calculation formula is Tax Amount = (Taxable Basis) * (Tax Rate). I f the tax

amount is to be altered by adding or subtracting the tax amount of another tax, then create a tax calculation tax

formula and either associate it with a Calculate Tax Amounts tax rule for the applicable tax regime and tax or set it

as the default tax calculation formula for a tax.

If you do not assign a tax calculation tax formula to a specific tax regime, then it becomes available to all tax

regimes.

Prerequisites:

- Set up tax regimes

- Set up taxes

- Enable the applicable cross-regime compounding and compounding precedence for the tax regimes and taxes

that will use tax formulas with compounding details.


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g) Tax Condition Sets


Path: Advanced Setup Options -> Tax Condition Sets -> Create

The tax conditions belonging to an individual tax condition set constitute the conditions to consider in order todetermine if the result of the condition is true for the applicable transaction. The tax condition set or sets

belonging to an individual tax rule constitute the logic of the tax rule ? if any tax condition set belonging to a tax

rule arrives at a true result, then the tax rule applies to the transaction.

You can set up tax condition sets in advance and apply them to a tax rule, or you can set up tax condition sets

during tax rule creation.

The tax condition set 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. Each tax condition in a tax condition set consists of a tax determining

factor, an operator, and a value.

Prerequisites:

- Set up determining factor sets

- Set up values for the applicable determining factor classes.

Summary

Required Task List

a) External Dependencies

Create First Party: Legal Entity and Establishments

Create Reporting and Collecting Tax Authorities

b) Tax Configuration

Create Tax Authorities Party Tax Profiles

Create Tax Regimes

Create First Party Legal Entity Party Tax Profile

Create Tax

Create Tax Status

Create Tax Jurisdictions

Tax Rate

Tax Set Up Pakistan

Documents

Transcript of Tax Set Up Pakistan