Using Direct Tax Rate Determination (Oracle E-Business Tax )

Using Direct Tax Rate Determination

Use the Direct Tax Rate Determination rule type for situations where you do not need to create separate rules for tax applicability, tax status, and tax rate. You set up Direct Tax Rate Determination rules using either the guided rule entry or expert rule entry.

If a Direct Tax Rate Determination rule is evaluated successfully, then the tax is applicable and the tax status and tax rate defined for the rule are used in tax determination. If a Direct Tax Rate Determination rule is not evaluated successfully, then the tax is not applicable and the tax determination process ends. With Direct Tax Rate Determination, if the rule is not evaluated successfully, the tax is not considered applicable even if the place of supply identifies a valid jurisdiction.

This table describes the differences in tax determination processing Using Direct Tax Rate Determination. See: Process Checklist for Tax Determination and Tax Calculation to compare the two processes.

Order	Process Name	Activities
1	Determine Applicable Tax Regimes and Candidate Taxes	Same as the standard execution.
2	Determine Tax Applicability Determine Tax Status Determine Tax Rate	If the Direct Tax Rate Determination rule is not evaluated successfully, then the tax is not considered applicable. If the rule is evaluated successfully, the tax is applicable and E-Business Tax retrieves the tax status and, if specified, the tax rate from the rule.
3	Determine Place of Supply and Tax Jurisdiction	E-Business Tax identifies the location type and the tax jurisdiction: If a jurisdiction is found, go to step 4. If a jurisdiction is not found and it is not a migrated tax, then the tax is eliminated and the process ends. If a jurisdiction is not found and it is a migrated tax without multiple jurisdictions, go to step 4.
4	Determine Tax Registration	Same as the standard execution.
5	Determine Tax Status	N/A - Already completed in step 2.
6	Determine Tax Rate	If a tax rate was not specified in step 2, then use the standard execution. If a tax rate was specified in step 2, then identify the tax rate percentage to apply to the transaction and continue with the standard execution.
7	Determine Taxable Basis	Same as the standard execution.
8	Calculate Taxes	Same as the standard execution.

If you are using migrated tax data and tax classification codes, the direct tax rate determination process differs at certain steps in the process. See: Tax Processing Using Standard Tax Classification Codes for more information.

Prerequisites

Before you can set up a tax rule for direct tax rate determination, you may need to complete one or more of these tasks:

Set up tax regimes. (mandatory)
Set up taxes. (mandatory)
Set up tax jurisdictions (optional)
Set up tax statuses. (mandatory)
Set up tax rates and enable the Allow Tax Rate Rules option. (mandatory)
Set up fiscal classifications. (optional)
Set up and assign tax classification codes. (mandatory for migrated data)
Set up application tax options. (mandatory for migrated data)
Set up determining factor sets. (conditionally mandatory - you can set up during expert or guided tax rule entry)
Set up tax condition sets. (conditionally mandatory - you can set up during guided tax rule entry only)

To set up a Direct Tax Rate Determination tax rule:

Navigate to the Tax Rules page.
Enter the configuration owner, tax regime code, and tax.
Navigate to the Create Tax Rule: General Information page by selecting the guided rule entry.
Complete the General Information page.
Navigate to the Create Tax Rule: Rule Conditions page.
Enter the tax condition set for this rule.
If necessary, select a tax condition set and update the tax conditions.

See: Setting Up Tax Condition Sets for information about creating a tax condition set.
Enter the tax rule applicability result, status result, and rate result for the tax condition set.
Enter the order in which to consider each tax condition set to satisfy the rule.
Navigate to the Create Tax Rule: Rule Order page.
Enter a number to indicate the order in which to consider this tax rule for tax evaluation.
Enable the tax rule to use it in tax determination.

Using Tax Classification Codes in Tax Rules

In Release 11i, the tax code provided the tax calculation services on the transaction line. Tax codes were associated with one or more levels in the tax code defaulting hierarchy. The tax code defaulted to the transaction line from the first available level in the hierarchy, and the tax engine used the tax code to retrieve the rate and apply it to the line amount. If multiple taxes applied to a transaction line, a set of tax codes, called a tax group, was added to the defaulting hierarchy and defaulted to the transaction in the same way as a tax code, The tax engine created a tax line for each of the tax codes that belonged to the tax group.

In Release 12 E-Business Tax migrates each tax code, including the tax codes within a tax group, as a tax classification code. Payables and Purchasing tax codes migrate as input tax classification codes; Receivables and Projects tax codes migrate as output tax classification codes, under two separate lookup types in E-Business Tax. You can use these lookups to define additional tax classification codes according to your requirements. See: Setting Up Lookup Codes for more information.

E-Business Tax provides the Standard Tax Classification Code (STCC) approach to tax determination. The STCC approach makes use of the migrated tax classification code and defaulting hierarchy to determine the tax rate on transactions in a manner similar to the approach used in Release 11i.

In order to let you use the STCC approach with new tax data, E-Business Tax:

Creates a matching tax classification code for every new tax rate that you create in this way:
- If the configuration owner is an operating unit, E-Business Tax creates a tax classification code when you create a tax rate code.
- If the configuration owner is a legal entity, E-Business Tax creates the tax classification code when you define a rule condition using the tax rate code.
Creates a Direct Tax Rate Determination rule for every tax code that is part of a tax group, with the tax classification code equal to the tax group. This lets you continue to use the concept of tax groups in tax determination.

If a Release 11i Receivables tax code or tax group used a condition set or group constraint, E-Business Tax evaluates these conditions and constraints during direct tax rate determination and the completes the action associated with the successful or unsuccessful evaluation of the condition and/or constraint.

Note: E-Business Tax does not support the creation of new conditions and constraints. Use instead the tax configuration and tax rules features to set up the tax determination processes that you need.

The Release 11i tax code assignments to products, parties, and application system options are replaced by tax classification code assignments. Third party suppliers and supplier sites migrate to Trading Community Architecture (TCA) as TCA parties and party sites. For these parties E-Business Tax includes the tax classification code field as part of the supplier or supplier site party tax profile. See: Setting Up a Third Party Tax Profile for more information.

You can use the Release 11i defaulting hierarchy model to default a tax classification code to the transaction line. You can also update the tax classification code on the transaction line. During tax determination, the tax classification code on the transaction line is compared with the tax condition value of the tax rule. See: Using Application Tax Options for information about using the defaulting hierarchy for tax classification codes.

You can use the tax classification code as the only determining factor in a determining factor set, or in combination with other determining factors. You can also use the tax classification code to create rules of any rule type.

Tax Processing Using Standard Tax Classification Codes (STCC)

The first two steps of the Direct Tax Rate Determination process differ if you are using the Standard Tax Classification Code approach. This table describes these differences:

Order	Process Name	Activities
1	Determine Applicable Tax Regimes and Candidate Taxes	Set up configuration owner tax options for the combination of configuration owners and application event classes that you need, and assign them the STCC regime determination set. The STCC regime determination set uses the single determining factor Tax Classification Code, instead of location types. At transaction time, E-Business Tax does not look at the location types, but uses the tax classification code on the transaction line to look up the Direct Tax Rate Determination rules defined for the configuration owner that has conditions matching the tax classification code. E-Business Tax also looks for a tax with a tax rate code that matches the tax classification code. If one exists, then this tax is added to the list of candidate taxes.
2	Determine Tax Applicability Determine Tax Status Determine Tax Rate	E-Business Tax retrieves the tax status and tax rate of each applicable tax.
3-8		Same as Direct Tax Rate Determination.

Note: If you want to move from STCC processing to standard regime determination processing, apply an end date to the applicable configuration owner tax options and create new configuration owner tax options using a location-based regime determination set. In this way you can gradually transition operating units to the E-Business Tax tax processing model according to your requirements.

Products that Require Tax Classification Codes

The tax classification code is a determining factor name belonging to the Transaction Input Factor determining factor class. Certain E-Business Suite products use the tax classification code as the only determining factor in tax determination. For these products, you must assign tax classification codes and make use of the Direct Tax Rate Determination tax rule to calculate taxes on transactions. These products are:

Oracle iStore
Oracle Order Capture
Oracle Order Management
Oracle Project Accounting
Oracle Service Contracts
Oracle Trade Management

Other Sources

Oracle E-Business Tax, Oracle Financials and Oracle Procurement Functional Upgrade Guide: Release 11i to Release 12