eBusiness Tax

Ebusiness Tax provides a repository to store tax information and record tax events.
Individual applications (for e.g. Purchasing) avails the tax services provided by Ebusiness Tax to create/update/display tax information for its transactions. The tax services that can be availed from Ebusiness Tax are listed below.

• Define Tax Content
• Determine Tax
• Manage Tax
• Record Tax
• Report Tax
• Reconcile Tax

• Oracle E-business tax is a new product in R12.
• It provides the infrastructure for transaction tax knowledge management and delivery using a global system architecture that is configurable and scalable for adding country-specific tax content.
• It is a single point solution for managing transaction-based tax.
• Uniformly delivers tax services to all E-Business Suite business flows through one application interface.
• It Consists of a tax knowledge base, a variety of tax services that respond to specific Tax events, a set of repositories (for tax content and tax recording) that  allows customers to manage their local tax compliance needs in a proactive  manner, as well as the ability to integrate with external tax content providers  through a single integration point.

E-Business Tax Setup Steps

E-Business Tax to set up and maintain your transaction tax requirements in all geographic locations where you do business. You can set up tax configurations to include the rules, default values, and other information necessary for each separate tax requirement. At transaction time, E-Business Tax uses your tax configuration to determine the taxes that apply to each transaction and to calculate the tax amounts.

The tasks involved in setting up a tax requirement in E-Business Tax fall into three general categories:
1. Setting up transaction taxes.
2. Completing all of the setups and settings related to the processing of taxes on transactions.
3. Setting up tax rules and defaults to manage tax processing.

Tax Authority
“A government entity that regulates tax law, administers, or audits one or more taxes”.

Tax Regime
“The set of tax regulations that determine the treatment of one or more taxes administered by a tax authority”
Examples of a tax regime include:

• A sales and use tax in the United States includes rules for state, county, and city sales and use taxes.
• An excise tax regime in India includes rules for excise tax and additional excise tax.
• A VAT tax regime in Argentina includes rules for standard VAT, additional VAT, and perception VAT.

Tax
“A distinct charge imposed through a fiscal or tax authority”
Examples of a tax include VAT for the United Kingdom and TVA for France.

Tax Jurisdiction
“A geographical area where a tax is levied by a specific tax authority or where a specific tax rate applies”
A tax jurisdiction is limited by a geographical boundary that encloses a contiguous political or  administrative area, most commonly the borders of a country. For example, the countries of UK, France and Argentina serve as the respective tax jurisdictions for their VAT tax regimes and related taxes.

Often this contiguous political or administrative area falls within a country, such as a state, province, city or a county tax jurisdiction; examples include US state sales tax and Canadian Provincial Sales Tax (PST). In countries where you define tax jurisdictions at a level lower than the country level , you typically need to define tax registrations for your company or your third parties at the level of tax jurisdictions. You can define a tax registration, for example, either to capture a tax registration number or to specify nexus for a supplier in a particular tax jurisdiction.
Examples of tax jurisdictions include:

• The tax jurisdiction for VAT in Germany is the country of Germany.
• The tax jurisdiction for a San Jose city tax is the City of San Jose, California.
• The tax jurisdiction for Provincial Goods and Services tax (PST) in Canada is a particular Province, such as Ontario or British Columbia.

Tax Status
“The taxable nature of a product or service in the context of a transaction for a tax type”
Examples of a tax status include taxable standard rate, zero rated, exempt, and non-taxable. A tax status is similar to the concept of the tax type definition used within Payables and receivables in releases prior to Release12.

Tax Rate
“The rate specified for a tax status in effect for a period of time. You can express the tax rate as a percentage or as a value per unit quantity”
An example of a tax rate is 7.5% for a state sales and use tax.

Defining Recovery Types and Recovery Rates
In some tax regimes, a tax that is paid by a registered establishment can claim back all or part of taxes due from the tax authority. In E-Business Tax this is called tax recovery. There are usually many regulations surrounding the details of tax recovery. Typically only a portion of the tax amount paid is recoverable, and tax authorities designate the
tax recovery rates that indicate the extent of recovery for a specific tax.
 
In Canada, two types of recovery possible on Goods and Services Tax (GST). Certain types of establishment can claim both an Input Tax Credit and a Tax Rebate. Both of these types of recovery will have one or more recovery rates applicable under different transaction conditions. E-Business Tax defines these two recovery types as primary and secondary recovery types. For the primary recovery type (and, in rare cases, the secondary recovery type), you can define one or more recovery rate codes with values between 0% to 100%. Like a tax rate code, the recovery rate code can have different rates for different effective periods

Operating Unit Tax Accounts
The tax accounts that the system uses to post the tax amounts derived from your transactions.
The tax accounts you define serve as default accounting information for taxes, tax rates, tax jurisdictions, and tax recovery rates.

Processing Taxes on Transactions

After you set up the basic tax configuration for the taxes that your company's legal entities and operating units are subject to, you must decide how to automate the processing of taxes on your transactions.

The tax determination process derives the taxes that apply to a transaction and the tax amounts charged on the transaction by evaluating the factors of the transaction according to the rules that you define. These taxability factors are:

Party - The parties of the transaction. This can include:
First party legal entities.
Ship from/ship to parties; bill from/bill to parties.
Tax registrations and registration statuses of each party.
Type or classification of a party.

Product - The products transacted. This can include:
Designation of physical goods or services.
Type or classification of a product.

Place - The places involved in the transaction, including the ship from and ship to locations, and the bill from and bill to locations.

Process - The kind of transaction that takes place. This can include:
Procure to Pay transactions, such as purchases, prepayments, and requisitions.
Order to Cash transactions, such as sales, credit memos, and debit memos.
Type of sale or purchase: retail goods, manufactured goods, intellectual property, resales.

Use these factors to develop your tax determination process and translate your operational procedures into tax rules.

Tax Regimes

Set up tax regimes for the taxes in each country and geographic region where you do business and where a separate tax applies. A tax regime associates a common set of default information, regulations, fiscal classifications, and registrations to one or more taxes with the same tax requirement.
The tax regime provides these functions:

• groups similar taxes together.
• designates the geography within which taxes apply.
• defaults the settings and values you define to each tax in the regime.
• contributes to the definition of configuration options and third party service subscriptions.
• optionally provides a single registration for all taxes associated with the regime.
• defines the use of fiscal classifications.

1. The common tax regime setup is one tax regime per country per tax type, with the tax requirements administered by a government tax authority for the entire country.
   
2. There are also cases where tax regimes are defined for standard geographical types or subdivisions of a country, such as a state, province, county, or city. In these cases, you base the tax regime on the Trading Community Architecture (TCA) standard geography.
   
3. There are more rare cases where a tax regime is based on disparate parts of a country or more than one country. In these cases, you can create one or more tax zones and set up tax regimes for these tax zones
   
4. You can also set up a tax regime as a parent tax regime to group related tax regimes together for reporting purposes.

Taxes and Geographic Locations
In E-Business Tax you can set up geographic information at three levels: tax regime, tax, and tax jurisdiction. You can use these levels to define different tax requirements within a geographic hierarchy:

• Tax regime. Tax regime level defines a tax that applies to a country or tax zone. For example, the tax regime United States Sales and Use Tax refers to the country United States.
• Tax. Tax level defines a tax and the geographic level for the tax, such as a City tax or a County tax.
  
• Tax jurisdiction. Tax jurisdiction level defines a geographic entity and the tax and tax jurisdiction rates, if any, that belong to this entity. For example, a US County Sales Tax jurisdiction for San Francisco county refers to the county San Francisco as a child of the state California as a child of the country United States.

Tax-level controls for this tax regime:
Allow Tax Recovery - Lets you set up tax recovery for the taxes in this tax regime.
You must set this option to set up tax recovery definitions at the tax level and to set up tax recovery rates for taxes in this tax regime. 
Allow Override and Entry of Inclusive Tax Lines - Lets you change the setting for tax inclusive handling at the tax level.
You should only set this option if the taxes in this tax regime vary in their treatment of tax inclusive handling. For example, if all taxes in this tax regime are inclusive of tax for all transactions, then do not set this option.
Allow Tax Exemptions - Lets you set up customer tax exemptions for this tax. A tax exemption is a full or partial exclusion from taxes within a given time period.
You must set this option to set up tax exemptions for this tax regime and for taxes in this tax regime. 
Allow Tax Exceptions - Lets you designate special tax rates for specific products as determined by the tax authorities. A tax exception is a condition or combination of conditions that result in a change from the standard values for a
particular product.
You must set this option to set up product tax exceptions for taxes in this tax regime.

Enter a tax currency:
The tax currency is the currency required by the tax authority.
You use the tax currency to pay the tax authority and to report on all tax transactions.
The tax currency may differ from the functional currency and transaction currency.
The functional currency is the accounting currency of your primary ledger. The transaction currency is the currency or currencies used on your transactions.

Enter the default tax authority to use on your tax reports, for the submission of tax reports (Reporting) and the submission of tax remittances (Collecting).

Use the Allow Tax Inclusion field to define the nature of tax inclusive handling. Tax inclusive handling defines the relationship, as designated by the tax authority, between the line amount and the tax amount:
Standard Inclusive Handling - The price on the transaction line is inclusive of tax.
Standard Non-Inclusive Handling - The price on the transaction line is exclusive of tax. The tax amount is added to the price.
Special Inclusive Handling - Use this option for special tax handling, such as a taxable base amount based upon the line amount rather than the adjusted line amount, or based on the line amount plus another tax amount

Tax Statuses

Set up the tax statuses that you need for each tax that you create for a combination of tax regime, tax, and configuration owner.
A tax status is the taxable nature of a product in the context of a transaction and a pecific tax on the transaction. You define a tax status to group one or more tax rates hat are of the same or similar nature.
For example, one tax can have separate tax statuses for standard, zero, exemption, and educed rates. A zero rate tax status may have multiple zero rates associated with it in rder to handle different reporting requirements for zero rate usage, such as Intra EU,zero-rated products, or zero-rated exports.

You define a tax status under a tax and a configuration owner, and define all applicable ax rates and their effective periods under the tax status. The tax status controls the efaulting of values to its tax rates.


1)  Set as default Tax status:  Each tax status must have at least one default.  Tax Rules must be written to set alternate values as required.
2) Allow Tax Exemptions: With a rule based approach to setting tax exemptions, exempt transactions will be linked to an exempt tax status and rate.  Setting the "Yes" value to this configuration option will also allow a user to define a tax exemption on a transaction or directly in the party tax profile to record the exempt reason code.  This is however not required nor enforced.   Because the exemptions are primarily tracked by way of tax status/rates we suggest that you use Caution when reporting if you intend to use the tax exemption fields on the seeded reports.

Tax Code & Rates

Set up tax rates for your 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 jurisdictions. 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. You can define tax jurisdiction and tax status rates as a percentage or as a value per unit of measure. For example, a city may charge sales tax at a rate of 8% on most goods, but may levy a duty tax with a special rate of $0.55 per US gallon on fuel. Values per unit of
measure are in the tax currency defined for the tax.

You define tax rate codes and rate detail information per rate period. Rate periods account for changes in tax rates over time. A tax rate code can also identify a corresponding General Ledger taxable journal entry.

Tax Jurisdictions

Setting Up Tax Zones

Defaults and Controls

Parties (Managing Tax Profiles and Registrations)

Parties include:

1. All legal entities, legal establishments, and operating units in your organization that have a transaction tax requirement.
2. Your customers and suppliers and their locations.
3. Tax authorities that administer tax rules and regulations.

A tax profile is the body of information that relates to a party's transaction tax activities. A tax profile can include tax registration, tax exemptions, configuration options, main and default information, party fiscal classifications, tax reporting codes, and account tax details.

The tax registration contains information related to a party's transaction tax obligation with a tax authority for a tax jurisdiction where it conducts business. The tax registration is part of the tax profile of a first party legal establishment and a third party and third party site.

A tax exemption defines, for a customer or a customer and product, a discount or replacement percentage that reduces the applicable tax. The configuration options identify the tax regimes associated with a first party and the configuration owner and service provider settings associated with each tax regime.

The configuration options are part of the tax profile of  configuration owners, that is, first party legal entities and operating units owning tax content.

The main and default information identify characteristics of and default values for the transactions associated with a party.

The party fiscal classifications optionally assigned to a party are used as determining factors in tax rules.

The tax reporting codes optionally assigned to a party capture tax information from party transactions for both internal and tax authority reporting requirements.

The account tax details maintain Release 11i migrated tax information for customer and supplier accounts.

Setting Up Parties for Self-Assessment
You can let a first party self-assess the taxes calculated on the Payables invoices it receives. 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 known as reverse charge or use tax in certain tax regimes.
 

When self-assessment applies to a tax line, E-Business Tax creates the recoverable and/or non-recoverable distributions, and Payables creates an additional accounting distribution to record the liability for the self-assessment.
You can set the self-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. The specific tax registration record that E-Business Tax uses is derived either from Determine Tax Registration rules or from the default tax registration.

Under normal circumstances, the Determine Tax Registration rules or default tax registration will derive the Bill From party as the place of supply for purchase transactions where the supplier is responsible for calculating the transaction tax and collecting it from the customer. In the case of Self Assessment, Reverse Charge, or, in the United States, Use tax, customers are responsible for self-assessing the tax.

Customers will therefore self-assess under their own tax registration, and the Determine Tax Registration rules or default tax registration will derive instead the Bill To party registration. In this case, you expect to see the Set for Self Assessment/Reverse Charge option set on the applicable first party establishment registration record.

Tax Basics

The word tax has two meanings: first, the financial duty or levy contributed to the entity (be it a government or any other organization) a person or group of persons (say, a business) is part of. The second definition is "a very heavy burden" and can essentially summarize the first definition.

 While there are opposing views on imposing tax, the general idea is that taxes are used to fund projects that can benefit society as a whole, or at least the majority of it. Businesses are taxed by the state because they use government-owned infrastructures and services. Individuals are taxed as part of their social contract, i.e., their rights and responsibilities as citizens of the state. Tax is what John F. Kennedy called "the annual price of citizenship."

 India has a well developed Tax structure with a three‐tier federal structure, comprising of the Union Government, the State  Governments, and the urban/rural local bodies. The power to levy taxes and duties is distributed among the three tiers of governments, in accordance with the provisions of the Indian Constitution

 The main taxes/duties that the Union Government is empowered to levy are Income Tax (except tax on agricultural income, which the State Governments can levy), Customs duties, Central Excise and Sales Tax(CST)(VAT is used in place of sales tax), and Service Tax.

• 4% For Items Consisting Mainly Of Raw Materials Used In The Manufacturing Process
• 12.5% For All Goods Unless They Are Listed Under The Other Rates.
• Foodgrains Including Pulses, Milk, Vegetables Books are Not Subject To Vat.

• Agricultural  Products
• Most Of Pharmaceutical Products
• Educational & Scientific Materials
• Equipment For Fighting AIDS & CANCER

Use Tax

Use Tax is a substitute for sales tax. All states which have a sales tax also impose a use tax. Use taxes are imposed to minimize unfair competition between sales made in-state and those made out-of-state. The use tax rate is the same as the sales tax rate.

When does use tax apply?
Use tax applies when sales tax has not been charged. Purchases made over the internet and out-of-state are the most common type of transactions subject to a use tax. For instance, if you purchased goods from a supplier located in Massachusetts, whether by mail order or by taking delivery in Massachusetts, use tax applies if the goods are brought to Maine for use here. A Maine resident or business does not escape sales tax by purchasing out-of-state or over the internet. Use tax is based on the purchase price of the item.
Another situation where use tax applies is when a business withdraws goods from inventory for its own use. Use tax, in this case, is based on the cost of the item when it was purchased.

Common taxable items for businesses are office supplies and equipment, computer hardware, software and supplies, janitorial supplies, fax machines and supplies, photocopiers and supplies and books. For individuals common taxable purchases are computers, books, downloaded music & cd’s, clothing, and auctionhouse purchases.

What if I paid tax to another state?
If you made purchases in a state which charges sales tax and your purchase was taxed, you may not owe any use tax in Maine. If the amount of tax was equal to or more than Maine’s rate, no tax is due. However if you paid less than Maine’s rate you owe the difference. For instance if another state’s rate is 4%and Maine’s rate is 5%, a Maine use tax of 1% is due.

Why do some out-of-state companies charge tax?
Some out-of-state companies charge the Maine sales tax because they have a presence in Maine that requires them to register, collect and remit sales tax. Others voluntarily register. Use tax does not apply if your supplier charges you a Maine sales tax.

Is there use tax when I purchase used goods from an individual?
Sales by a person who is not in the business of selling goods are casual sales and not taxable. However, certain casual sales are specifically taxed by law. The most common are camper trailers, cars, trucks, snowmobiles, ATV’s, boats and aircraft. When you buy one of these items, you will be required to pay use tax or show proof that tax was paid when you register the vehicle.

Is there use tax when I purchase goods over the internet?
Yes. Purchases over the internet are treated the same way as purchases made out-of-state. If the vendor is not registered with Maine and does not charge Maine sales tax, then you would be liable for the use tax.

CENVAT & MODVAT (India)

Cenvat (Central Value Added Tax) has its origin in the system of VAT (Value Added Tax), which is common in West European Countries.  Concept of VAT was developed to avoid cascading effect of taxes. VAT was found to be a very good and transparent tax collection system, which reduces tax evasion, ensures better tax compliance and increases tax revenue.

Modvat (modified value added tax) was introduced in India in 1986 (Modvat was re-named as Cenvat w.e.f. 1-4-2000). The system was termed as Modvat, as it was restricted upto manufacturing stage and credit of only excise duty paid on manufacturing products (and corresponding CVD paid on imported goods) was available.

System of VAT was introduced to service tax w.e.f. 16-8-2002.

VAT was not extended to sales tax, as sales tax is under jurisdiction of State Governments. However, State Governments have agreed to introduce sales tax VAT and it is likely to be introduced from April 2005. Haryana Government has introduced sales tax VAT in April 2004 and the experience is reported to be good.
 

VAT - Reverse Charge

"Reverse Charge" is a part of the VAT law in a growing number of European countries.

It states that the VAT (Value Added Tax) for Goods and Services delivered inside the country by a foreign company is owed by the recipient of the goods and not by the foreign service provider/supplier.

VAT must not be charged on invoices to the recipient. By law, a clear statement must appear on each of these invoices indicating that the liability for the payment of VAT is reversed to the recipient.

The recipient has to calculate, report and pay the VAT (it may be recoverable if the recipient is VAT registered).

The foreign service provider/supplier may be entitled to a VAT refund claim for all VAT charges by local suppliers.

Please contact a local accountant or the VAT authorities in the country in which the event will take place, well in advance of the time it is organized/scheduled to commence.
 

First Party Tax Profile

Set up tax profiles for your first party legal entities and legal establishments. First party legal entities identify your organization to the relevant legal authorities, for example, a national or international headquarters. First party legal establishments identify each office, service center, warehouse and any other location within the organization that has a tax requirement.
 
When you create a legal entity, the system automatically creates a legal entity establishment. You can create additional legal establishments according to your needs. For each legal establishment there are one or more tax registrations, depending upon the tax requirements of the applicable tax authority.

To set up a party tax profile for a first party legal entity or first party legal establishment navigate to the Create Tax Profile page.

1. Party main information values default to all tax registrations and invoices
belonging to this party. You can update these values at the tax registration level and, if authorized, at the invoice line level.
Note: The values set at the tax registration level override the values set at the party tax profile level.

2.1 Check the Set for Self Assessment/Reverse Charge box to automatically self-assess taxes on purchases.
2.2 If applicable, enter a tax classification code to use as a determining factor in tax rules for this party or party site.
2.3 Set the rounding level and rounding rule for this party.
2.4 If this party intends to send or receive invoices with invoice line amounts inclusive of tax, check the Set Invoice Values as Tax Inclusive box.
This option overrides the tax inclusive handling setting at the tax level, but not at the tax rate level.

EU VAT

The European Union Value Added Tax ("EU VAT") is the system of value added tax ("VAT") adopted by member states in the European Union Value Added Tax Area. The European Union itself does not collect the tax, but member states of the European Union are required to adopt VAT that which comply with the EU VAT system. Some of the VAT collected by member states is used to fund the European Union.

As a consumption tax, the EU VAT taxes the consumption of goods and services in the EU VAT area. The EU VAT's key issue asks where the supply and consumption occurs thereby determining what member state will collect the VAT and what VAT rate will be charged.

Different rates of VAT apply in different EU member states. The minimum standard rate of VAT throughout the EU is 15%, although reduced rates of VAT, as low as 5% or 0%, are applied in various states on various sorts of supply (for example, domestic fuel and power in the UK). The maximum rate in the EU is 25%.

VAT that is charged by a business and paid by its customers is known as "output VAT" (that is, VAT on its output supplies). VAT that is paid by a business to other businesses on the supplies that it receives is known as "input VAT" (that is, VAT on its input supplies). A business is generally able to recover input VAT to the extent that the input VAT is attributable to (that is, used to make) its taxable outputs. Input VAT is recovered by setting it against the output VAT for which the business is required to account to the government, or, if there is an excess, by claiming a repayment from the government.

Supply of Goods
As a consumption tax, the general rule is that the VAT is ultimately collected where the goods are purchased by the consumer. The supply of goods (the exchange of goods for consideration) is a taxable transaction, that is, VAT at the appropriate rate is added to the purchase price.[18] If the purchaser is a business (a taxable person) that is not the final consumer, it may reclaim as a credit the VAT paid on the purchase. When the business resells the goods, VAT is added to the resale price. The taxable person then pays to the government the VAT on the resale, less a credit for the VAT on the purchase, and in effect thus pays to the government tax on the value added. The supply of goods follows a chain of businesses until it reaches the final consumer. The final consumer does not receive a credit for the VAT paid so that the final consumer bears the cost of the VAT.

Domestic supply
A domestic supply of goods is a taxable transaction where goods are received in exchange for consideration within one member state.[19] Thus, one member state then charges VAT on the goods and allows a corresponding credit upon resale.

Intra-Community Acquisition
An intra-community acquisition of goods is a taxable transaction for consideration crossing two or more member states and the goods are not sold to the final consumer but rather between merchants. The place of supply is determined to be the destination member state, and VAT is charged at the rate applicable in the destination member state.

The mechanism for achieving this result is as follows. The exporting member state zero-rates the VAT. This means that the member state of the exporting merchant does not collect VAT on the sale, but still gives the exporting merchant a credit for the VAT paid on the purchase by the exporter (in practice this often means a cash refund). The importing member state "reverse charges" the VAT. This means that the importer is required to pay VAT to the importing member state at its rate. In many cases a credit is immediately given for this as input VAT. The importer then charges VAT on resale in the normal way.

Supply of Services
A supply of services is the supply of anything that is not a good.
The general rule for determining the place of supply is the place where the supplier of the services is established (or "belongs"), such as a fixed establishment where the service is supplied, the supplier's permanent address, or where the supplier usually resides. VAT is then charged at the rate applicable in the member state where the place of supply of the services is located and is collected by that member state.

This general rule for the place of supply of services (the place where the supplier is established) is subject to several exceptions. Most of the exceptions switch the place of supply to the place where the services are received. Such exceptions include the supply of transportation services, the supply of cultural services, supply of artistic services, the supply of sporting services, the supply of scientific services, the supply of educational services, the supply of ancillary transport services, services related to transfer pricing services, and many miscellaneous services including legal services, banking and financial services, telecommunications, broadcasting, electronically supplied services, services from engineers and accountants, advertising services, and intellectual property services. The place of supply of services related to real estate is where the real estate is located.

Importation of Goods
Goods imported from non-member states are subject to VAT at the rate applicable in the member state into which the goods are imported, regardless of whether the goods are received for consideration and regardless of who imports the goods.VAT is generally charged at the border, at the same time as customs duty and using the price determined by customs.
VAT paid on importation is treated as input VAT in the same way as VAT on domestic purchases.