With the release of E-Business Suite 12, Oracle introduced a new tax engine for invoices called E-Business Tax (eB-Tax). This new single-point solution allows you to set up and maintain your transaction-tax requirements. Whether you are dealing with simple taxes with fixed rates (i.e.: VAT / GST) or more complex calculations where rates are dependent on location or involve withholding tax there are basic concepts to understand from eB-Tax prior to configuring taxes for your organization:
- Tax Regime
The set of regulations to determine the treatment of the taxes. It groups the taxes based on the requirements of the tax authority for the country and/or a region in that country. Your organization subscribes to a tax regime to enable the tax calculation on transactions. Suppliers can also subscribe to an existing tax regime or, alternatively, with eB-Tax you can define tax rules.
Tax authorities classify the taxes on transactions. In eB-Tax, the geography scope of a specific tax is defined here.
Indicates the taxable nature of a product or a service. It helps to group different tax rates depending on the condition of the transaction. Typical status definitions are STANDARD (for most of the regular tax rates), ZERO, REDUCED (for exceptional rates), EXEMPT, etc.
Are geographic areas where a tax is levied at a rate for a specific region? These jurisdictions are closely related to the tax rates definition. In the United States, for example, rates vary by region (state and county mostly). You will need to create the jurisdictions prior to the rates.
- Tax Rates
Represent a percentage of a transaction between parties that has to be paid to one or many tax authorities. Rates may vary by region and are usually applied over the taxable amount in a payable transaction.
- Recovery Rates
Taxes paid on purchase transactions can be fully or partially reclaimed. For example, if your organization is based in a European country subject to the VAT regime, the tax authority can designate a percentage recovery rate.
- Tax Rules
A set of conditions used to determine the tax for a specific transaction. EB-Tax provides a guided rule-definition process for tax experts. Typical payables rule definition to define when (and what) tax rate applies such as place of supply and supplier tax registration. You can assign the rules to specific legal entities, operating units or share them with the other parties within the organization (this option is called “Global Configuration Owner”).
- Make a Tax Available
Once the whole tax configuration is completed, EB-Tax requires you to enable it, then run the validation process where the engine verifies the components for the tax has been properly created.
- Party Subscriptions and Suppliers’ Tax and Reporting Region
For taxes created without indicating an operating unit or legal entity you manually update the tax profile details to include the new regime you created. Default values, fiscal classifications and tax registrations necessary for the tax rate calculation are defined here. There is a tax and reporting section for suppliers where you can indicate if regular taxes apply, if they should self-assess and what tax classification and tax rules apply.
- Integration with Tax-Service Providers
Companies with complex tax regimes and/or operating in different countries may face challenges in maintaining up to date tax rates. Some major providers such as eBiz Answers (@ebizanswers) can help to update your tax rates daily and apply tax rules to replace your Oracle EB-Tax standard configuration with their own set of tools.
If you are one of the many organizations out there processing AP invoices using MS Excel, I invite you to check out AP Invoice Wizard. More4Apps AP Invoice Wizard provides a very flexible way to handle taxes. Download a