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

If you set the Allow Tax Recovery option, select the default recovery settlement:

  • Immediate - Tax recovery is available at invoicing.
  • Deferred - Tax recovery is available only after the invoice is paid

Check the Allow Cross Regime Compounding box and enter the compounding precedence, if taxes in this regime are involved in any compounding operation with taxes in another regime of the same configuration owner. The compounding precedence indicates the order in which to consider the taxes in each regime.
You must set this option in each of the participating tax regimes if any of these cases apply:
• a tax in this regime impacts the taxable base of a tax in another regime.
• a tax in another regime impacts the taxable base of a tax in this regime.
• a tax in this regime impacts the taxable base of a tax in another regime on the same transaction line.
Note: You must ensure that you set this option correctly for each tax regime. You cannot update this setting after you save the tax regime record.

You must also complete these setup steps for cross-regime compounding:
• Define the compounding precedence for the taxes in this regime according to the cross-regime compounding requirements.
• Set up a taxable basis tax formula or tax calculation tax formula for each tax involved in the compounding.
• Set up a Taxable Basis tax rule or Calculate Tax tax rule for each tax regime and tax, and assign the tax formulas to these rules.

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