The E-Business Tax tax determination process uses your tax configuration setup and the details on the transaction to determine:

• Which taxes apply to the transaction.

• How to calculate the tax amount for each tax that applies to the transaction.

E-Business Tax tax rules let you create a tax determination model to reflect the tax regulations of different tax regimes and the tax requirements of your business. You can create a simple tax model that makes use of default values without extensive processing, or a complex tax model that considers each tax requirement related to a transaction before making the final calculation.

During execution of the tax determination process, E-Business Tax evaluates, in order of priority, the tax rules that have defined against the tax configuration setup and the details on the transaction. If the first rule is successfully evaluated, the result associated with the rule is used. If not, the next rule is evaluated until either a successful evaluation or default value is found.

The E-Business Tax tax determination process is organized into rule types. Each rule type identifies a particular step in the determination and calculation of taxes on transactions.

The tax line determination process uses the information of the transaction header and transaction line to determine the tax lines.

The rule types and related processes used for tax line determination and tax calculation are:

1. Determine Place of Supply - Determines the location where a transaction is considered to have taken place for a specific tax.

2. Determine Tax Applicability - Determines the taxes that apply to a given transaction.

3. Determine Tax Registration - Determines the party whose tax registration status is considered for an applicable tax on the transaction.

4. Determine Tax Status - Determines the tax status of each applicable tax on the transaction.

5. Determine Tax Rate - Determines the tax rate for each applicable tax on the transaction.

6. Determine Taxable Basis - Determines the amount upon which to apply the tax rate.

7. Calculate Tax Amounts - Calculates the tax amount for each applicable tax on the transaction.

See: Tax Determination Processing for an explanation and description of the tax determination process.

The rule type used for tax recovery determination is:

• Determine Recovery Rate - Determines the recovery rate to apply to each recovery type for each applicable tax on the transaction.

See: Tax Recovery Processing for a description of each step in the tax recovery process.

The single rule type used for tax determination is:

• 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 given tax. You use this rule type for specific tax determination requirements.

See: Using Direct Tax Rate Determination for a description of the direct tax rate determination process.

Depending on the requirements of a given tax, you can either create a tax rule for each rule type or use a default value.

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

• Guided Tax Rule Entry - The guided tax rule entry provides a five-step flow that lets you build determining factors and tax conditions as you create the tax rule. See: Setting Up Tax Rules: Guided Rule Entry for more information.

• Expert Tax Rule Entry - The expert tax rule entry provides a concise, three-step entry flow that makes use of determining factor sets and tax condition sets that you have previously defined. See: Setting Up Tax Rules: Expert Rule Entry for more information.

Tax Authority Regulations and Tax Rules

First determine the nature of each tax that applies to your business and the processes involved in arriving at the tax amount. Examine the regulations that govern the determination of the tax amount for each tax, from identifying the situations in which a tax applies to the determination of the tax amount. Then organize the regulations around one or more of the rule types for each tax. Whenever the regulations indicate that more than one result is possible for a given rule type, then you need to define rules under that rule type.

The complexity of tax rule setup falls into three general categories:

• No tax rules required. The tax authority levies tax on all sales and purchase transactions at the same rate. Neither tax applicability nor the tax rates and recovery rates vary by: the parties to the transaction; the products or services included in the transaction; the business processes involved in the transaction.

  In such cases, E-Business Tax can use the default tax status, tax rate, and tax recovery rate defined for the tax.

• Simple tax rule regimes. The tax authority levies tax on your transactions at the same rate, with a simple set of identifiable exceptions. The exceptions either apply to one part of the transaction only--such as to certain parties--or to a combination of parties, products, and transaction processes that you can summarize in a simple way.

  In such cases, use a simple set of tax rules, for example, to identify place of supply and tax registration, and use default values for other processes.

• Complex tax regimes. Tax regimes in certain countries require a complex logic to determine the applicable taxes and rates on a transaction. Both tax applicability and tax rates can vary, for example, by place of origin and place of destination, party registration, status, service, or a combination of factors. In some cases, the taxable amount of one tax may depend upon the amount of another tax on the same transaction. And in rare cases, the tax amount itself may depend on the tax amount of another tax.

  For all of these and similar situations, you set up tax rules to define the logic necessary to identify each step of the tax determination process.

See: Setting Up Country-Specific Taxes for examples of tax rule setups in different tax regimes.

Tax Determination Processing

E-Business Tax integrates with the transactions of other E-Business Suite applications to manage all tax-related processes. The transactions pass information about the places, parties, products, and transaction processes to the E-Business Tax tax determination service. The tax determination service performs a series of process steps, according to your tax setup, to identify both the taxes that apply and, for each tax, the tax jurisdiction, tax status, tax rate, taxable amount and tax amount. The process checklist below describes the details of each process.

Process Checklist for Tax Determination and Tax Calculation

This section describes the sequence of tax determination processes that E-Business Tax uses to calculate taxes on transactions. Each step of the process requires the completion of a certain number of setup tasks. The number and complexity of your setups will depend upon the requirements of the tax authorities where you do business.

Use this checklist to review the details of each process and to identify the setups that you need to complete for each step in the tax determination and tax calculation process.

See: Using Direct Tax Rate Determination for a discussion of direct tax rate determination.

Determine Applicable Tax Regimes and Candidate Taxes

This process first identifies the first party of the transaction and the countries associated with the transaction. For each country identified, the process selects the tax regimes associated with the first party and defined for the country as candidate tax regimes. The process then selects the taxes defined for each candidate tax regime as candidate taxes.

The result of the process is a list of taxes that are eligible for consideration on the transaction.

1. Determine the first party of the transaction. The first party is either the legal entity or operating unit:

   • If the party tax profile option Use Subscription of the Legal Entity is enabled for the operating unit, then use the legal entity of the transaction as the first party.

     If the option is not enabled, then use the operating unit as the first party.

   E-Business Tax uses the first party legal entity or operating unit to:

   • Identify the tax regimes to consider for the transaction.

   • Identify other configuration options, if defined, to use in processing taxes for the transaction.

   See: Setting Up an Operating Unit Tax Profile for more information.

2. Determine the regime determination set:

   • If the first party has a configuration owner tax option setup for the event class to which the transaction belongs, use the regime determination set assigned to this setup.

   • If not, use the seeded regime determination set Determine Applicable Regimes (TAXREGIME) or, for migrated data, Standard Tax Classification Code (STCC).

     If the regime determination set is STCC, then E-Business Tax uses a different process to determine applicable taxes. See: Tax Processing Using Standard Tax Classification Codes for more information.

3. Determine the applicable tax regimes:

   • Identify the locations that correspond to each location type on the regime determination set.

   • Identify the country associated with each location.

   • Identify all of the tax regimes associated with the country or countries to which the first party is subject. The first party is subject to the tax regimes that you defined under configuration options.

     See: Setting Up Configuration Options for more information.

4. Derive the list of candidate taxes based on the tax regimes and the configuration option setting of the first party:

   • Common Configuration - Consider all taxes with the configuration owner of Global Configuration Owner.

   • Party-Specific Configuration - Consider all taxes with the first party as configuration owner.

   • Common Configuration with Party Overrides - Consider all taxes with the first party and the Global Configuration Owner as configuration owner. If a tax is defined by both the first party and the Global Configuration Owner, then E-Business Tax only uses the tax defined by the first party.

Determine Place of Supply and Tax Jurisdiction

This process identifies the applicable place of supply and associated tax jurisdiction for each candidate tax. The place of supply, or situs 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.

For example, the place of supply for UK VAT on goods is generally the ship from country. Thus, the place of supply of a sale or purchase within the UK is the UK itself. However, if a UK legal entity supplies goods from its French warehouse to a German customer, then the place of supply will not find a jurisdiction for UK VAT in France, and therefore UK VAT does not apply.

The result of the process is a list of applicable taxes per transaction line.

1. Consider the Determine Place of Supply tax rule of the first candidate tax.

2. Use the location type derived from the tax rule for the tax. The possible location types are:

   • Bill From

   • Bill To

   • Point of Acceptance (Receivables transactions only)

   • Point of Origin (Receivables transactions only)

   • Point of Payment

   • Ship From

   • Ship To

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

3. Identify the location on the transaction that corresponds to the location type derived from step 2.

   If no location applies, then use the rule default location type.

4. Identify the tax jurisdiction of the candidate tax to which the location identified in step 3 belongs. If the location does not belong to any tax jurisdiction of this tax, then the tax does not apply to the transaction.

   See: Setting Up Tax Jurisdictions for more information.

5. Repeat steps 1 to 4 for each candidate tax.

6. Create refined list of candidate taxes.

Determine Tax Applicability

This process 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. For example, a given tax may not apply to a domestic supply of goods to an exempt customer.

The process first attempts to derive the applicability of each candidate tax based on the rule conditions of the Determine Tax Applicability rules for the tax. 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.

The result of the process is the final tax or list of taxes that apply to the transaction.

1. Consider the Determine Tax Applicability tax rules of the first candidate tax in order of rule priority.

   If the default value is Applicable, then the candidate tax is considered applicable unless an applicability rule with a value of Not Applicable evaluates successfully. If the default value is Not Applicable, then the candidate tax is considered applicable only if an applicability rule with a value of Applicable evaluates successfully.

2. Either use the value derived from the tax rule, or the rule type default value.

3. Repeat steps 1 and 2 for each candidate tax.

4. Identify the final tax or list of taxes by eliminating the taxes that have an applicability value of Not Applicable.

Determine Tax Registration

This process determines the party whose tax registration is used for each tax on the transaction, and, if available, derives the tax registration number.

1. Consider the Determine Tax Registration tax rule of the first tax.

2. Either use the party registration derived from the tax rule, or the default party registration, if there is one. A rule identifies one of these parties from which to derive the tax registration:

   • Bill From Party

   • Bill To Party

   • Ship From Party

   • Ship To Party

   • Use Bill To, if Ship To is not available

3. Repeat steps 1 and 2 for each tax, if applicable.

4. Identify the tax registration or registrations and stamp the transaction with the tax registration numbers.

   E-Business Tax stamps the tax registration number of the first party legal establishment, and the tax registration number of the party or party site derived from the Determine Tax Registration tax rule.

   E-Business Tax also considers these details of the derived tax registration for each tax:

   • Tax inclusive handling.

   • Self-assessment/reverse charge setting.

   • Rounding rule.

   See: Setting Up a Tax Registration for more information.

Determine Tax Status

This process determines the tax status of each applicable tax on the transaction.

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

1. Consider the Determine Tax Status tax rule of the first tax.

2. Use the tax status derived from the first tax rule, if the rule conditions are satisfied.

   If the rule conditions are not satisfied, then consider each rule in turn until the rule conditions are satisfied.

3. If no rule applies, then use the default tax status of the tax.

   See: Setting Up Tax Statuses for more information.

4. Repeat steps 1 to 3 for each tax, if applicable.

5. Identify the tax status or statuses.

Determine Tax Rate

This process determines the tax rate for each tax and tax status derived from the previous process. If applicable, the tax rate is then modified by any exception rate and/or tax exemption that applies. The result of this process is a tax rate for each applicable tax. The rate or rates are applied to the taxable basis in the Calculate Taxes process.

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

1. Consider the Determine Tax Rate tax rule of the first tax status.

2. Use the tax rate derived from the first tax rule, if the rule conditions are satisfied.

   If the rule conditions are not satisfied, then consider each rule in turn until the rule conditions are satisfied.

3. If the rule conditions do not apply, then use the default tax rate of the tax status.

   See: Setting Up Tax Rates for more information.

4. Repeat steps 1 to 3 for each tax status, if applicable.

5. Identify the tax rate to use for each tax.

6. For each tax, identify the tax rate percentage to apply to the transaction:

   • Use the tax jurisdiction tax rate for the tax rate code derived from step 5, if one exists.

   • If there is no tax rate for the jurisdiction, use the tax rate of the tax with no jurisdiction specified.

     See: Setting Up Tax Jurisdictions for more information.

7. For each tax, if a product tax exception applies to the transaction:

   • Look for an exception rate specific to the inventory item or fiscal classification of the item.

   • If an exception rate is found, then the rate derived in step 6 is either replaced or modified, depending on the type of exception.

   See: Setting Up Tax Exceptions for more information.

8. For each tax, if a customer tax exemption applies to an Order-to-Cash transaction, then update the tax rate.

   See: Managing Tax Exemptions for information about the processing of customer tax exemptions.

9. Identify the tax rate percentage or percentages to use on the transaction.

Determine Taxable Basis

This process determines the taxable base amount or quantity for each tax. The tax is typically determined by applying the tax rate to the taxable base amount. In some cases, the taxable basis either can include another tax or is based on the tax amount of another tax. E-Business lets you define taxable basis formulas to manage these requirements. See: Setting Up Tax Formulas for more information.

The result of this process is the taxable basis on which the tax rate for each tax is applied.

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

1. Consider the Determine Taxable Basis tax rule.

2. Use the taxable basis formula derived from the first tax rule, if the rule conditions are satisfied.

   If the rule conditions are not satisfied, then consider each rule in turn until the rule conditions are satisfied.

3. If the rule conditions do not apply, then use the default taxable basis tax formula.

4. Determine the taxable basis type and compounding details based on the taxable basis tax formula.

5. Consider the tax inclusive settings of the applicable taxes to display the taxable basis amount and calculated tax amount for each tax.

   If specified, E-Business Tax uses the party tax profile of each tax registration party to determine the nature of tax inclusive handling.

   See: Setting Up a Tax Registration for more information.

Calculate Taxes

This process calculates the tax amount on the transaction. In most cases, the tax amount is computed by applying the derived tax rate to the derived taxable basis. In some exceptional cases, the tax amount is altered by adding or subtracting another tax. E-Business lets you define tax calculation formulas to manage these requirements. See: Setting Up Tax Formulas for more information.

The result of this process is the tax amount for each tax.

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

1. Consider the Calculate Taxes tax rule.

2. Use the tax calculation tax formula derived from the tax rule, if there is one.

3. If no rule is defined, or the rule conditions do not apply, then use the default tax calculation tax formula that is set for the tax.

   See: Setting Up Tax Formulas for more information.

4. Calculate the tax amount based on either the tax rate percentage or the per-unit tax, if quantity based, and the taxable base amount and tax calculation tax formula.

5. Perform rounding operations on the calculated tax amount according to the rounding rule. E-Business Tax retrieves the rounding rule to use on the calculated tax amount using the steps described below.

Rounding Rule Retrieval Process

E-Business Tax retrieves a rounding level and a rounding rule to perform rounding operations on the calculated tax amount.

The rounding level is:

• Header - Applies rounding to calculated tax amounts once for each tax rate per invoice.

• Line - Applies rounding to the calculated tax amount on each invoice line.

The rounding rule is the method to use to round off taxes to the minimum accountable unit.

If you have not defined configuration owner tax option settings for the combination of configuration owner and event class, E-Business Tax uses the default rounding level of the event class and the default rounding rule of the tax.

If you defined a rounding precedence hierarchy in the configuration owner tax option settings for the combination of configuration owner and event class, E-Business Tax looks for a rounding level and rounding rule in this way:

1. Look for rounding details in the party tax profiles of the parties and party sites involved in the transaction, according to the rounding precedence hierarchy.

2. If E-Business Tax finds an applicable tax profile, then use the rounding level and rounding rule of the tax profile.

3. If the rounding level is Header, then use these values to perform the rounding. The process ends.

   If the rounding level is Line, go to step 6.

4. If E-Business Tax does not find an applicable tax profile, then use the rounding level setting of the configuration owner tax option.

5. If the configuration owner tax option rounding level is Header, then use the rounding rule that is set at the tax level for each tax of the transaction to perform the rounding. The process ends.

   If the rounding level is Line, go to step 6.

6. If the rounding level is Line:

   1. For each tax line, use the rounding rule belonging to the tax registration of the party type derived from the Determine Tax Registration process.

   2. If a registration record does not exist for the registration party type, and if you have not defined configuration owner tax option settings for the combination of configuration owner and event class, then use the rounding rule that is set at the tax level to perform the rounding. The process ends.

   3. If a registration record does not exist for the registration party type, and if you defined a rounding precedence hierarchy in the configuration owner tax option settings for the combination of configuration owner and event class, E-Business Tax looks for a rounding rule in this way:

      1. Refer to the party or party site of the first party type defined in the rounding precedence hierarchy.

      2. Use the rounding rule of the party/party site tax registration, if defined.

      3. If not defined, use the rounding rule of the party/party site account site details, if defined.

      4. If not defined, use the rounding rule of the party/party site tax profile, if defined.

      5. If not defined, repeat steps 1 to 4 for each rounding party in the rounding precedence hierarchy.

      6. If a rounding rule is found, use this rounding rule to perform the rounding. The process ends.

      7. If a rounding rule is not found, then use the rounding rule that is set at the tax level to perform the rounding. The process ends.

See: Setting Up Configuration Owner Tax Options for more information.

Tax Recovery Processing

This process determines the recovery rate to use on Procure to Pay transactions, when the tax allows for full or partial recovery of the tax amount. In many cases, E-Business Tax uses either the recovery rate associated with the tax rate or the default recovery rate defined for the tax. However, if the tax recovery rate can vary according to determining factors, such as intended use, then use a Determine Recovery Rate tax rule to derive the recovery rate.

You can only set up a Determine Recovery Rate tax rule for taxes that have the Allow Primary Recovery Rate Determination Rules option and, if applicable, the Allow Secondary Recovery Rate Determination Rules option enabled. E-Business Tax creates one recoverable distribution for the primary recovery type and secondary recovery type for each tax line, for each of the item distributions into which the item or expense line is distributed. See: Setting Up Taxes for more information.

After E-Business Tax determines the recovery rate for each recovery type, it then determines the recoverable amounts against each recovery type for each tax line. The remaining tax amount becomes the non-recoverable tax amount for the tax line. E-Business Tax stores both the recoverable and non-recoverable amounts of reportable documents, such as Payables invoices, to include in your tax reporting.

1. Allocate tax amount per item distributions - While taxes are determined at the transaction line level, tax recovery is determined at the transaction line distribution, or item distribution, level. The first step, therefore, during recovery determination is to apportion the tax amount to each item distribution.

2. Determine recovery types - E-Business tax determines, for each tax and item distribution, whether the primary and, if defined, secondary recovery types apply. The result of this process is a tax distribution for each recovery type for each tax and item distribution.

   If recovery types are not defined, go to step 5.

3. Determine recovery rates - For each tax distribution, E-Business tax determines the recovery rate:

   1. For the first recoverable tax distribution, consider the Determine Recovery Rate tax rule.

   2. Use the tax recovery rate derived from the tax rule.

   3. If E-Business Tax cannot derive a tax rule based on the transaction values, then use the tax recovery rate associated with the tax rate for the tax line.

   4. If there is no tax recovery rate associated with the tax rate, use the default tax recovery rate defined for the tax.

      See: Setting Up Tax Recovery Rates for more information.

   5. Repeat steps 1 to 4 for each recoverable tax distribution, if applicable.

4. Determine the recoverable amounts - E-Business Tax applies the recovery rates to the apportioned tax amounts to determine the recoverable tax amounts. The result of this process is a recoverable tax amount for each recoverable tax distribution.

5. Determine the non-recoverable amount - E-Business Tax calculates the difference between the apportioned tax amount of every tax line per item distribution and the sum of the recoverable tax distribution to arrive at the non-recoverable tax amount, and then creates a non-recoverable tax distribution for this amount.

   If a primary recovery type was not defined for a tax, E-Business Tax designates the entire apportioned amount for the item distribution as the non-recoverable tax amount.

Rule Order and Rule Evaluation

During tax determination processing, E-Business Tax considers the rules belonging to each rule type in the order that you defined them. If the configuration option for the tax regime and configuration owner is set to Common Configuration with Party Overrides, then E-Business Tax considers both the rules defined under the applicable configuration owner (legal entity or operating unit) and the Global Configuration Owner for the same tax regime, tax and rule type, arranging both sets of rules into one rule order for evaluation.

The evaluation of tax rules takes into account specific transactions for applications and source applications, and specific locations. See: Tax Handling on Transactions for more information about applications and source applications.

If one or more tax rules belonging to a tax regime, tax, and rule type are defined for specific transactions and/or specific locations only, then these rules are evaluated first regardless of the overall rule order. Because of this, you need to plan your rule order carefully. For example, consider using tax conditions to initiate a different result based on the transaction business category of a source application.

E-Business Tax evaluates tax rules for a tax regime, tax, and rule type in this order:

1. Source application event class - Select the rules, if any, defined for a source application event class that belong to the configuration owner and/or the Global Configuration Owner, depending on the configuration option of the tax regime:

   1. Evaluate each of the selected rules in order of priority.

   2. For each rule, consider whether it refers to a specific location:

      • If it does but the context does not match the transaction information, then the rule is not evaluated further.

      • If it does and the context does match the transaction information, then E-Business Tax evaluates the rule condition sets in order of condition set priority. If a condition set is successfully evaluated, then the rule is successfully evaluated

   3. If a rule is successfully evaluated, then the result associated with the rule is used.

   4. If no rule is successfully evaluated, then E-Business Tax considers the next group of rules for the same tax regime, tax, and rule type.

2. Source application tax event class - Select the rules, if any, defined for a source application tax event class that belong to the configuration owner and/or the Global Configuration Owner, depending on the configuration option of the tax regime.

   E-Business Tax evaluates these rules using the same sub-steps as described in step 1.

3. Application event class - Select the rules, if any, defined for an application event class that belong to the configuration owner and/or the Global Configuration Owner, depending on the configuration option of the tax regime.

   E-Business Tax evaluates these rules using the same sub-steps as described in step 1.

4. Application tax event class - Select the rules, if any, defined for an application tax event class that belong to the configuration owner and/or the Global Configuration Owner, depending on the configuration option of the tax regime.

   E-Business Tax evaluates these rules using the same sub-steps as described in step 1.

5. No specific transactions - Select the rules, if any, that are not defined for specific transactions and that belong to the configuration owner and/or the Global Configuration Owner, depending on the configuration option of the tax regime.

   E-Business Tax evaluates these rules using the same sub-steps as described in step 1.

Rule Evaluation on Updated Tax Lines

If you enter a new tax line manually on a transaction, E-Business Tax does not evaluate tax rules defined for the tax for any rule type.

If you update a tax line that E-Business Tax generated automatically, E-Business Tax evaluates tax rules according to the procedures described in this table:

Tax Rules and System Performance

The performance of the tax rules engine is in inverse proportion to the number of rules and conditions that the engine needs to evaluate in order to arrive at a specific result. Use these guidelines and examples to help plan your tax rules implementation:

• If the tax condition results and rule results always equal the default values, then you do not need a tax rule. You only need to define a tax rule for a result that is different from the default value. For example, if more than one tax rate is possible for a given tax and tax status, then you need to create at least one tax rule.

  These qualifications apply to tax rules and default values:

  • If you require many different results other than the default value for a given tax and rule type, it probably means that the default value itself sometimes applies. In these cases, you should also define a tax rule for the default value. Otherwise the rules engine must always process and eliminate the rules defined for all other values before arriving at the default.

  • As an alternative to defining a tax rule for the default value, you can assign the least frequent result as the default value. In this way the rules engine will process the maximum number of rules on the minimum number of occasions. In this kind of an implementation, you must ensure that your rules and conditions cover all of the more common results in order to prevent the rules engine from defaulting an incorrect result.

• If more than one tax rate is possible for a given tax, then you need to create at least one set of tax rules.

• When you define multiple tax rules to derive distinct results for a process, assign the least frequent result as the default value for the process.

• When you define tax rules for multiple rule types, do not use the same tax conditions in multiple rules. For example, if you define a Determine Tax Applicability rule for UK VAT that only applies when <Ship To> Equal To <United Kingdom>, then you do not need to repeat this condition in a rule for a subsequent tax determination process, such as a Determine Tax Status rule.

• Where possible, use the tax rule header information instead of creating tax conditions that arrive at the same result.

  For example, if tax rules apply to the Purchase business process, set the tax event class to Purchase Transaction rather than defining a tax condition within the rule, such as <Tax Event Class> Equal To <Purchase Transaction>.

• When you order the tax condition sets within a tax rule, assign the higher priority to the set of conditions that occurs more frequently.

  Similarly, when you order the tax rules within a rule type and tax, assign the higher priority to the tax rule that gives the most frequently arrived at process result.

• Use product tax exceptions for special rates based on product fiscal classifications rather than defining a Determine Tax Rate rule based on product fiscal classifications.

  For example, if three out of five product fiscal classifications use a special rate, define three product tax exceptions based on the three product fiscal classifications that need a special rate, and set the standard rate as the default rate.

• Define the minimum number of tax conditions necessary for a rule.

  For example, if a special rate applies to goods shipped outside a state as opposed to within a state, define one tax condition as <Ship From State> Not Equal To <Ship To State>, rather than defining two separate tax conditions for each Ship From and Ship To location, such as <Ship From State> Equal To <Nevada> and <Ship To State> Not Equal To <Nevada>.

• For tax rules that involve the shipping to and from a tax zone, for example the European Union, define a tax condition for all Ship To countries within the tax zone rather than separate tax conditions for each country, such as <Ship To Country> Equal To <Great Britain>; <Ship To Country> Equal To <France>; and so on.

• For tax rules that apply to a specific geographic area, define tax rules with the additional context of the geographic area rather than adding location-based Equal To tax conditions. For example, if you have a tax rule that only applies if the Ship To state is California, then define the rule such that it is only evaluated when the Ship To state is California.

• Define rules that are common across all legal entities or operating units under the Global Configuration Owner, instead of creating the same rules for each legal entity or operating unit.

  If all rules are not commonly applicable to all legal entities or operating units:

  • Set the configuration option of the legal entities or operating units that require additional rules to Common Configuration with Party Overrides.

  • Define supplementary party-specific rules under the applicable legal entities or operating units. You can set priority values for party-specific rules that complement the tax rules of the Global Configuration Owner, in accordance with the tax requirements.

Translating Tax Regulations into Tax Rules

This example illustrates how to set up tax rules based on the text of a tax regulation.

Consider this tax regulation for the purchase of goods by a company in the United Kingdom from a company in another country belonging to the European Community:

"If you purchase goods from a VAT-registered business in another European Community country and the goods are removed to the United Kingdom, you may be required to account for VAT in the United Kingdom on the acquisition of the goods."

This table describes the requirements contained in this tax regulation.

Tax regulations 1-4 become a tax condition set. This table describes the contents of the tax condition set.

Tax regulations 5 and 6 indicate the results associated with the tax condition set. This table describes the tax regulation results.