R12 Oracle E-Business Tax Configuration 1.

Tax Basic Tax Configuration Tax Definition: comprises the tax data that you set up for each tax regime and tax that your company or institution is subject to. The Tax Authority designates the regulations and rates that apply to the tax regime. Required Task List a) External Dependencies Create First Party: Legal Entity and Establishments Create Reporting and Collecting Tax Authorities b) Tax Configuration Create Tax Authorities Party Tax Profiles Create Tax Regimes Create First Party Legal Entity Party Tax Profile Create Tax Create Tax Status Create Tax Jurisdictions Tax Rate Responsibility: Tax Manager Path: Tax Managers -> Tax Managers -> Home Complete the following setup tasks: -Legal Entities and Establishments -Reporting and Collecting Tax Authorities -Lookup Codes (not required at the beginning) -Party Class Categories and Codes (not required at the beginning) Responsibility: System Administrator Path: Profile -> System Setup the following profile options: eBTax: Allow Ad Hoc Tax Changes eBTax: Allow Manual Tax Lines eBTax: Allow Override of Customer Exemptions eBTax: Allow Override of Tax Classification Code eBTax: Allow Override of Tax Recovery Rate eBTax: Inventory Item for Freight eBTax: Invoice Freight as Revenue eBTax: Read / Write Access to GCO Data eBTax Taxware: Service Indicator eBTax Taxware: Tax Selection eBTax Taxware: Use Nexpro eBTax Vertex: Case Sensitive Responsibility: Legal Entity Manager

Path: Legal Entity Manager -> Legal Entities -> Create Legal Entity Use the Legal Entity Configurator to setup the following entities: -First Party Legal Entity (that represents your company) -First Party Legal Establishment (for each office, service center, warehouse and any other location within the company that requires a registration with a tax authority for one or more taxes). Setup associations between each legal establishment and a business entity. -Legal Authority (for each tax authority that administers taxes in a tax regime where you do business) Responsibility: System Administration Path: System Administration -> System Administration -> Lookup Types Tax lookup types include: ZX_INPUT_CLASSIFICATIONS (AP and PO migrated tax codes and tax groups) ZX_OUTPUT_CLASSIFICATION (AR migrated tax codes and tax groups) ZX_WEB_EXP_TAX_CLASSIFICATIONS ZX_EXEMPTION_REASON_CODE ZX_JEBE_VAT_TRANS_TYPE ZX_REGISTRATIONS_REASON ZX_REGISTRATIONS_TYPE (Seeded: CNPJ, CPF and OTHERS: Tax registration number validation for Brazil CUIL, CUIT, DNI, NIT and VAT: Tax reporting purposes only.) ZX_REGISTRATIONS_STATUS (Seeded: Agent Registered and Not Registered) ZX_TAX_TYPE_CATEGORY (Seeded: Sales VAT, Excise, Customs Duty and Environmental) Regime-To-Rate Flow for US Sales Tax Tax Regime: CA Sales Tax Tax: State Sales Tax Tax Jurisdiction: California State Sales Tax Tax Status: Standard Tax Rate: 7.25% Operating Unit Tax Account: 01.005.004.033 Tax: County Sales Tax Tax Jurisdiction: San Mateo County Sales Tax Tax Status: Standard Tax Rate: 1.0% Operating Unit Tax Account: 01.005.004.033 Tax: City Sales Tax Tax Jurisdiction: Belmont City Sales Tax Tax Status: Standard Tax Rate: 0.00% Operating Unit Tax Account: 01.005.004.033 a) Tax Regimes Responsibility: Tax Manager Path: Tax Managers -> Tax Configuration -> Tax Regime -> Create

Set up tax regimes for the taxes in each country and geographic region where you do business and where a separate tax applies. Prerequisites: -Set up Legal Entities and Operating Units -Enable currencies -Design TCA Geography Hierarchy Structures (if required by the country) -Set up Party Tax Profiles -Optional: Set up tax zones, exchange rate types and tax authorities b) Taxes Responsibility: Tax Manager Path: Tax Managers -> Tax Configuration -> Taxes -> Create Set up details of the taxes within a tax regime. A tax includes: -Configurator owner -Default values from the tax regime -Values specific to the tax -Settings for tax accounts, tax exemptions, tax exceptions -Settings for tax recovery, where applicable Prerequisites: -Set up a tax regime -Optional set up ledgers and accounts, tax reporting codes and tax types (lookups). c) Tax Statuses Responsibility: Tax Manager Path: Tax Managers -> Tax Configuration -> Tax Statuses -> Create Create a tax status for a combination of tax regime, tax and configurator owner. Define all applicable tax rates and their effective periods under the tax status. The tax status controls the defaulting of values to its tax rates. Prerequisites: -Set up taxes -Optional, set up tax reporting types d) Tax Rates Responsibility: Tax Manager Path: Tax Managers -> Tax Configuration -> Tax Rates -> Create Create tax rate records for 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.

Prerequisites: -Set up tax status -Set up units of measure (for quantity rate types) -Optional, set up tax transaction type lookup codes, an offset tax, tax jurisdictions, tax reporting types, tax recovery rates, primary and secondary tax recovery types and tax recovery rules. e) Tax Jurisdictions Responsibility: Tax Manager Path: Tax Managers -> Tax Configuration -> Tax Jurisdictions -> Create Create tax jurisdictions for geographic region and tax zone where a specific tax authority levies a tax. At transaction eBTax derives the jurisdiction or jurisdictions that apply to a transaction line based on the place of supply. Also, it either uses a default place of supply or derives a place of supply based on tax rules. Prerequisites: -Set up taxes -Set up tax statuses (for jurisdiction-based rates) -Verify or set up the TCA master geography -Optional, set up tax zones. Additional set up is optional or mandatory depending on the details of your configuration and the tax regulations of your tax regimes. Tax Zones Responsibility: Tax Manager Path: Tax Managers -> Advanced Setup Options -> Tax Zone Types -> Create Define tax zones. Tax zones group existing geographical regions that share the same tax requirement. The tax zone setup makes use of the Trading Community Architecture (TCA) master reference geography hierarchy (identifies which levels are mandatory for the tax zone). A tax zone type references a specific part of a master reference geography hierarchy. Tax zone hierarchical structure in the United States: Country, State, County, City, and Postal Code. Prerequisites: -Verify that the TCA master geography contains the geographic information that you need. Responsibility: Trading Community Architecture Path: Trading Community -> Administration -> Geography Hierarchy Setup and maintain the TCA Geography Hierarchy in these cases: -Taxes that are levied at a level lower than the country level -Tax characteristics vary at a lower level than the country level Tax Accounts Responsibility: Tax Manager Path: Tax Managers -> Tax Configuration -> Taxes -> Tax Accounts Path: Tax Managers -> Tax Configuration -> Tax Rates -> Tax Accounts Path: Tax Managers -> Tax Configuration -> Tax Jurisdiction -> Tax Accounts

Set up tax accounts under a primary ledger and operating unit. The system posts calculated tax amounts to the specified operating unit accounts at transaction time. The actual account information that the system uses depends upon sub ledger accounting rules. Prerequisites: -Set up primary ledgers and sub ledgers -Set up operating units and assign them to primary ledgers -Set up taxes -Optional, set up tax rates, tax recovery rates and tax jurisdictions Tax Reporting Types Responsibility: Tax Manager Path: Tax Managers -> Defaults and Controls -> Tax Reporting Types -> Create Define tax-reporting types to capture additional tax information on transactions. You can also create a group of tax reporting codes for a tax reporting type. Prerequisites: -Set up tax regimes -Set up taxes You must associate a tax regime with tax reporting types except for tax reporting types associated with fiscal classifications, tax registrations, and party tax profiles. Mass Creation of Tax Jurisdictions Responsibility: Tax Manager Path: Tax Managers -> Tax Configuration -> Tax Jurisdiction -> Mass Create Create a tax jurisdiction for each record within a parent geography or tax zone type. Prerequisites: -Set up taxes -Set the Allow Mass Creation of Jurisdiction option for the tax -Set up tax statuses and tax rates (for jurisdiction-based rates) -Enable multiple jurisdictions for the tax -Set up TCA master geography for the applicable parent geography and child records -Optional, set up tax zones. Tax Recovery Rates Responsibility: Tax Manager Path: Tax Managers -> Tax Configuration -> Tax Recovery Rates -> Create You must set up tax recovery rates for all of your recoverable taxes. A recoverable tax is a tax that allows full or partial recovery of taxes paid on purchases, either as a recoverable payment or as an offset against taxes owed. For example, most VAT-type taxes allow for full recovery or taxes paid on goods and services that relate to taxable business supplies. In cases where an organization purchases both taxable and exempt supplies, the tax authority can designate a partial recovery rate to reflect the combination of taxable and exempt statuses.

2. Managing Party Tax Profiles The configuration tier identifies the factors that participate in determining the tax on an individual transaction. These "taxability" factors are: party, product, place and process. a) Party Tax Profile A party tax profile is the body of information that relates to a party's transaction tax activities. A tax profile can include tax registrations, tax exemptions, configuration options, and main and default information, party fiscal classifications, tax reporting codes, and account tax details (for migrated data). You must set up a tax profile for each first and third party involved in your tax transactions. Party Tax Profile and Tax Registration components are supported in three flows: -Legal entity/establishment flows -Supplier/supplier site flows -Customer and customer account sites flows Configuration Options: identify the relationship between each first party legal entity and operating unit in your company and the tax regimes that each first party and legal entity is subject to. You must set up a configuration option for each combination of configuration owner (first party legal entity/operation unit) and tax regimes, where the party or operating unit is subject to any tax regulations belonging to a tax regime. Tax Registrations: contains information related to a party's transaction tax obligation with a tax authority for a tax jurisdiction where it conducts business. Set up tax registrations for your first party legal establishments and your third party customers/customer sites and suppliers/supplier sites. Customer Tax Exemptions: is a discount/surcharge or replacement percentage from the base tax rate that reduces the applicable tax on a Receivables transaction. Set up tax exemptions for your third party customers and customer sites to reflect the eligibility of customers for tax exemptions according to the tax authority. Party Fiscal Classifications: determines, for example, when taxes apply to a party, how much tax applies, and what percentage of the tax is recoverable. Set up party fiscal classification for your first parties, customers and customer sites, and suppliers/supplier sites. There are two types of classifications: -Party fiscal classifications: optionally assigned to a party and used as determining factors in tax rules. -Legal classifications: assigned to legal entities. You assign these classifications using the Legal Entity module. Legal reporting codes: optionally assigned to a party capture tax information from party transactions for both internal and tax authority reporting requirements. Account Tax Details: maintain Release 11i migrated tax information for customer and supplier accounts. The account details override the details at the third party and third party site level, if applicable. Responsibility: Tax Managers Path: Parties -> Party Tax Profiles Enter main information for all party types, according to your requirements. This information controls certain default values and settings on invoices associated with the party. Note: Tax registration settings override the values you set at the main information level. For third party tax profiles, invoice controls defined at the tax registration level override invoice controls at the account tax details level, if defined.

Party tax profile main information includes: -Self-assessment option (self-access taxes) -Tax classification code (determining factor in tax rules) You only enter a tax classification code if you intend to use the Direct Tax Rate Determination tax rule. -Rounding level/rounding rule Note: If you updated the rounding precedence hierarchy for a specific configuration owner and event class, then the related transactions look instead for rounding level information according to the configuration owner and event class settings. -Tax Inclusive option -Use Subscriptions of the Legal Entity (Operating Unit) Release 11i migrates to E-Business Tax as operating units containing their own tax content. Set this option if you want the operating unit to use the tax content of the associated legal entity at transaction time. Note: this is an irreversible setting. -Allow Tax Applicability (third party) Automatically calculate taxes for this party whenever the party acts as a supplier. Note: For third parties without a tax profile record, the default is to allow tax applicability. -Allow Offset Taxes (third party) Set this option to define whether the system considers offset taxes for transactions. b) First Party Legal Entity Tax Profile Responsibility: Tax Managers Path: Parties -> Party Tax Profiles It identifies your organization to the relevant legal authorities. When you create a legal entity, the system automatically creates a legal entity establishment. Once you select a first party legal entity on the Party Tax Profiles page, navigate to the Create Tax Profile page to set up tax profiles for your first party legal entities and legal establishments. You set up legal entities and establishments using the Oracle Legal Entity Manager. c) First Party Legal Establishment Tax Profile Responsibility: Tax Managers Path: Parties -> Party Tax Profiles It identifies each office, service center, warehouse and any other location within the organization that has a tax requirement. You can create additional legal establishments. Select a first party legal establishment as a party type on the Party Tax Profiles page to create and update the tax profile. Prerequisites: Mandatory: Set up legal entities and legal establishments; set up tax regimes. Optional: Set up legal entity secondary establishments, taxes, tax jurisdictions, lookup codes, party fiscal classifications and reporting types. d) Operating Unit Tax Profile Responsibility: Tax Managers Path: Parties -> Party Tax Profiles

Once you select an operating unit owing tax data on the Party Tax Profiles page, navigate to the Update Party Tax Profile page to modify the tax profile for your operating unit. Release 11i tax data migrates to E-Business Tax as operating units containing their own tax content. To help you manager the tax content of operating units, you can use the operating unit tax profile. e) Tax Authority Tax Profile Responsibility: Legal Entity Manager Path: Legal Entities -> Create Legal Entity It identifies a tax authority party as a collecting authority and/or a reporting authority. A collecting tax authority manages the administration of tax remittances. A reporting tax authority receives and processes all company transaction tax reports. Tax registration is not available for a tax authority, they utilize tax reporting codes. After you create the tax authority, you can select a Tax Authority as a party type and update the tax profile on the Party Tax Profiles page. f) Third Party Tax Profile Responsibility: Tax Managers Path: Parties -> Party Tax Profiles Once you select a third party or third party site on the Party Tax Profiles page, navigate to the Create Tax Profile page to set up tax profiles for your customers, customer sites, suppliers, and supplier sites. Prerequisites: Mandatory: Set up parties Optional: Set up tax regimes, taxes, tax jurisdictions, lookup codes, party fiscal classifications, tax reporting types, customers and supplier accounts. Self-Assessment Setup 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 know as reverse charge or use tax in certain tax regimes. 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. Depending on the level, the self-assessment will apply to: -All taxes of the tax regime -All tax jurisdictions of the tax -A specific tax jurisdiction of the tax Offset Taxes

An offset tax calculates and records third party Payables tax liabilities for reverse charges, self-assessments, and Consumer's Use tax (US). An offset tax record is a matching, duplicate record with negative amounts that reduces or completely offsets the tax liability recorded in the tax transactions. Use offset taxes when the tax requirement includes creating offset general ledger postings. Tax Recovery: You cannot update the recovery rate on an offset tax line. The recovery rate is always 100% in order to create credit entries that match the original tax amounts. -Enable offset tax calculations for each applicable transaction event and party -Set up the offset tax, tax status, and tax rate -Set up the original tax and assign the offset tax rate code to the original tax rate. Tax Exemptions Responsibility: Tax Managers Path: Parties -> Party Tax Profiles Once you select a third party or third party site on the Party Tax Profiles page, navigate to the Create Tax Exemptions page to set up tax exemptions for your third party customers and customer sites. You can set up a tax exemption at regime, tax, status, or rate level, for a specific jurisdiction or for all jurisdictions, for a specific product or for all products. Tax exemptions are defined as a discount/surcharge or a new rate. Use the third party tax exemption record to maintain information about a customer or customer site tax exemptions. Also: -Set up eBTax: Allow Override of Customer Exemptions profile option to control the display of the Tax Handling field on the transaction line. -Set up Allow Tax Exemptions option at the levels that correspond to the tax exemptions. -Indicate whether you are creating tax exemptions for the tax, or using tax exemptions previous created for an existing tax for each applicable tax. -Verify that the applicable event class allows tax exemptions. Prerequisites: Mandatory: Set up customer third parties, tax regimes, taxes, tax statuses, tax rates, tax jurisdictions, inventory organizations and inventory items. Optional: Set up exempt reason lookup codes. Tax Registrations Responsibility: Tax Managers Path: Parties -> Party Tax Profiles Once you select a first party legal establishment, or a third party or third party site, on the Party Tax Profiles page, navigate to the Create Tax Registration Details page to set up tax registrations. E-Business Tax uses tax registrations in tax determination and tax reporting. For each tax that you create, you must define either a default tax registration or a tax rule for the rule type Determine Tax Registration. This rule determines which tax registration is stamped on a transaction. You must set up a separate tax registration to represent each distinct registration requirement for a first party. If a party has more than one tax registration under the same tax regime, then E-Business Tax considers the tax registrations in the order: jurisdiction; tax; tax regimes. You optional set up tax registrations for your customers and suppliers.

Tax registrations are a record of the actual registration that the company files with the tax authority. E-Business Tax is not actually filing real registrations, but recording information that gets stamped on the transaction. You indicate the Source of the tax registration as either explicit or implicit: Explicit: The party is registered with the local tax authority. Implicit: The party is not formally registehe local tax authority, but the party is considered to meet one or more requirements for reporting taxes. 3. Configuration Owners and Service Providers a) Tax Configuration Ownership You can apply the tax content that you create to the entire organization using the global configuration owner, or you can let individual parties within the organization either create and maintain their own tax content, or override parts of the shared tax content of the global configuration owner to fulfill specific requirements. When a party overrides tax content, or creates and maintains tax content, it becomes a configuration owner of this tax content. Tax configuration ownership includes: -Legal entities and operating units owning their tax content -Legal entities and operating units using the shared tax content of the global configuration owner. Release 11i data migrates to E-Business Tax as operating units containing their own tax content. To set the operating unit to use the tax configuration of its associated legal entity, you enable the Use Subscription of the Legal Entity option in the party tax profile of the operating unit. Note that this is an irreversible setting. b) Tax Configuration Options Responsibility: Tax Managers Path: Tax Configuration -> Tax Regimes Path: Parties -> Party Tax Profile -> Create / Update Tax Profile -> Configuration Options You should set up the configuration options when you create a tax regime and/or a party tax profile for a fist party legal entity or operating unit (both set up flows display and maintain the same party/regime definitions). Configuration options only apply to tax regimes directly linked to taxes and not to tax regimes that are used to group other tax regimes. Prerequisites: -Set the eBTax: Read/Write Access to GCO Data profile option (for Global Configuration Owner setup) -Set up tax regimes -Set up party tax profiles Use configuration options to associate legal entities and operating units with their applicable tax regimes. c) Configuration for Taxes and Rules The setup that the party uses for taxes, tax statuses, tax rates, tax recovery rates and tax rules. These options are: Common Configuration: The party uses the company tax setup for the applicable regimes. All parties with a Common Configuration option share the same tax setup. When setting up taxes, tax details, and configuration owner tax options, the global configuration owner represents any party with a Common Configuration. Common Configuration with Party Overrides: The party uses the company tax setups for the applicable regimes, but with the ability to override portions of the company tax setup with tax setup specific to the party's requirements.

Party-Specific Configuration: A legal entity or operating unit party does not share the company tax setup, but instead creates and maintain its own tax setup for the applicable regimes. For release 11i migrated data, the configuration owner of the tax setup converts to E-Business Tax in this way: -Tax codes ? Party-Specific configuration, with the operating unit owning its tax setup. -Location-based tax codes ? Common Configuration, with the global configuration owner owning the locationbased tax setup. d) Configuration for Product Exceptions The setup that the party uses for product tax exceptions. It determines whether the product tax exceptions defined for this tax regime are shared with other parties or remain specific to one party: - If the configuration option for taxes and rules is Common Configuration or Party-Specific Configuration, then EBusiness Tax assigns the same setting to the configuration option for the product exceptions. - If the configuration option for taxes and rules is Common Configuration with Party Overrides, you can set the configuration option for product exceptions to Common Configuration to let the party use the product tax exceptions of the global configuration owner; or Party-Specific Configuration to let the party set up its own product tax exceptions that are not shared with any other party. e) Service Subscriptions The external service providers that the party uses in place of Oracle E-Business Tax to provide tax calculation services for US Sales and Use tax. Responsibility: Tax Managers Path: Parties ->-Party Tax Profile -> Create/Update Tax Profile -> Configuration Options -> Service Subscriptions Use the Subscription Options page to assign an external service provider to a configuration option. When assigned, E-Business Tax uses the external service provider tax services to calculate US Sales and Use tax on Receivables transactions and the external service provider tax data for reporting. E-Business Tax provides transparent integration between the external service provider and Oracle Receivables. Both, E-Business Tax and the external service provider execute and complete the tax services without any interruption to the application business flow. You can use the tax services of these external providers: -Taxware, LP ? A First Data Company -Vertex, Inc. Prerequisites: -Set up tax regimes -Set up party tax profiles -Set up configuration options f) Legal Entity and Operating Unit Configuration Options You can define relationships between parties and tax requirements that reflect the specific taxation needs of your company and the way it is organized. Those options includes: -One legal entity owns and maintains its tax configuration - Multiple operating units of one legal entity share the legal entity tax configuration - Multiple legal entities share the same tax configuration

- Multiple legal entities share the same tax configuration; with individual legal entities able to override the shared tax configuration for requirements specific to the legal entity, including tax, tax status, tax rate, and tax rules and formulas - One or more operating units of one legal entity own and maintain a separate tax configuration - A legal entity, or an operating unit that owns and maintains a separate tax configuration, uses third party tax services for specific transaction events g) Event Classes Responsibility: Tax Managers Path: Transactions -> Event Class Settings -> Event Class Mappings Path: Transactions -> Event Class Settings -> Event Class Options Payables: Standard invoices, prepaid invoices and expense reports Receivables: Invoices, credit memos and debit memos Purchasing: Requisitions, purchase orders and agreements, and releases Trade Management: Tax event for claims interfacing to AP and tax event for claims interfacing to AR Use the Event Class Mapping page to review the mappings between event types and tax event types. Use the Event Class Options page to review the default tax settings for each application event class. Event class settings provide a means of standardizing the interaction between E-Business Tax and other applications. E-Business Tax responds to specific applications transaction events, such as Payables invoice, according to the predefined settings of each application event class. In this way, E-Business Tax can determine and calculate taxes without requiring access to each product. By default, the event class option settings of an event class apply to all configuration owners. You can update event class options belonging to an application event class for a selected configuration owner in this way: - If the event class option is enabled, you can deselect the option to exclude it from tax calculation; - -If an event class option is not enabled for a particular application event class, you cannot enable this option. h) Configuration Owner Tax Options Responsibility: Tax Managers Path: Tax Managers -> Defaults and Controls -> Configuration Owner Tax Options -> Create Use the Create Configuration Owner Tax Options page to set up configuration owner tax options for a combination of configuration owner and application event class. Configuration owner tax options let a configuration owner update default tax options on transactions that belong to a specific application event class. At transaction time, E-Business Tax uses the tax option settings of the configuration owner and application event class instead of the default settings. Note: If you are using Direct Tax Determination with tax classification codes and migrated tax data, then you must set up configuration owner tax options using the STCC regime determination set for the applicable configuration owner and event class. 4. Fiscal Classifications Fiscal classifications provide tax determination values for situations where the party, product, or transactions are factors in tax determination. You set up a fiscal classification type to identify a category of fiscal classification that has a potential tax implication; you assign fiscal classification types to tax regimes and taxation countries. You set up fiscal classification codes under a fiscal classification type to provide additional granularity to a particular fiscal

classification category. When creating tax rules, you use fiscal classification types as determining factors and fiscal classification codes as condition set values. The use of fiscal classifications is optional. You set up fiscal classifications under these general categories: a) Party Fiscal Classifications Responsibility: Tax Managers Path: Parties -> Party Classification -> Create Create party fiscal classification types and codes. Classify your first parties (the various parts of your organization) and your third parties (your customers and suppliers and their locations) for use in tax determination. A party fiscal classification determines, for example, when taxes apply to a party, how much tax applies, and what percentage of the tax is recoverable. Set up party fiscal classification for: First parties, customers and customer sites, suppliers and supplier sites. Once you set up your party fiscal classification types and codes, you can associate a party fiscal classification with a party tax profile for each party that requires a party fiscal classification for tax determination and/or tax reporting purposes. Prerequisites: -Set up TCA class categories and class codes -Set up tax regimes -Set up tax reporting types (optional) Legal Party Fiscal Classifications Responsibility: Tax Managers Path: Parties -> Legal Classification Tax Usage Some countries use a set of codes to identify legal classifications that have a tax requirement. E-Business Tax provides seeded fiscal classification type codes for each set of country-specific legal activity codes. You can assign these legal activity codes to the tax regimes within the applicable country. b) Product Fiscal Classifications Responsibility: Tax Managers Path: Products -> Product Classifications -> Create Path: Products -> Intended Use Classifications Classify the products and services that you buy and sell for use in defining rules for tax determination. You use product fiscal classifications as tax determining factors in tax rules. You can set up product fiscal classifications for: - Inventory-based products and services (Inventory items) - Non-Inventory based products and services (non-Inventory based items) - Product intended use fiscal classification (Inventory-based or non-Inventory based products and services) You associate the product fiscal classification type codes that you create with the corresponding tax regimes that require product fiscal classifications. Prerequisites:

-Set up Inventory items and categories for product fiscal classifications -Set up tax regimes - Set up tax reporting types (optional) Product Tax Exceptions Responsibility: Tax Managers Path: Products -> Tax Exceptions -> Create Set up tax exceptions to apply special tax rates to products. To set up tax exceptions, you must enable the Allow Tax Exceptions option at all applicable levels in the regime-to-rate flow, including tax regime, tax, tax status, and tax rate. Only one product tax exception can apply to a transaction line for a specific tax. You can set up these product tax exceptions: Discount: A reduction of the base tax rate. Surcharge: An increase of the base tax rate. Special Rate: A rate that replaces the base tax rate. You must assign a product tax exception to a combination of tax regime, configuration owner, and tax. You can also optionally assign product tax exceptions to a tax status or tax rate belonging to the tax or to a tax jurisdiction. You can, for example, use product tax exceptions to determine the tax rate for a particular product, instead of using tax rules. Prerequisites: - Set up taxes, tax jurisdictions, Inventory organizations, Inventory items, product fiscal classification types, product fiscal classification codes, exception reason lookup codes (optional), tax status (optional) and tax rates (optional). c) Transactions Fiscal Classifications Responsibility: Tax Managers Path: Transactions -> Transaction Business Categories Path: Transactions -> Transaction Fiscal Classifications -> Create Path: Transactions -> Document Classifications Path: Transactions -> User Defined Transaction Classifications Classify the nature of a transaction itself, and the details that must accompany a transaction, according to its tax requirements. E-Business Tax uses transaction fiscal classifications as tax determining factors in tax rules. You use transaction fiscal classifications when the tax authority requires you to classify the nature of the transaction itself for tax purposes in order to determine the tax rate. You can set up these types of transaction fiscal classification: - Transaction business categories - Transaction fiscal classification codes - Document fiscal classifications - User defined fiscal classifications 5. Setting Up Tax Rules You create tax rules by translating the tax regulations of a tax authority into determining factors and tax conditions that the E-Business Tax tax rules engine uses to evaluate the applicability of a tax on each transaction line. Tax

rules determine: the applicability of a tax; the place of supply and tax jurisdiction of the transaction; the tax registration; the tax status and tax rate; the recovery rate (if applicable); and the taxable basis and tax formula to use in calculation. The E-Business Tax tax rules engine uses the Tax Determination process to identify the taxes that apply to a transaction and to calculate the tax. It is organized into rule types. Each rule type identifies a particular step in the determination and calculation of taxes on transactions. You must either set up tax rules or provide a default value for each rule type in order for the tax rules engine to determine and calculate taxes. 1 ? Determine Applicable Tax Regimes and Candidate Taxes Identifies the first party of the transaction and the countries associated with the transaction. For each country identified, the process selects the tax regimes that are associated with the first party and defined for the country as candidate tax regimes / candidate taxes. 2 ? Determine Place of Supply and Tax Jurisdiction (Determine Place of Supply rule type) Determines the location where a transaction is considered to have taken place for a specific tax, and the associated tax jurisdiction for each candidate tax. The place of supply, or sites 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. 3 ? Determine Tax Applicability (Determine Tax Applicability rule type) 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. The process first attempts to derive the applicability based on the rule. 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. 4 ? Determine Tax Registration (Determine Tax Registration rule type) Determines the party whose tax registration is used for each tax on the transaction, and, if applicable, derives the tax registration number. During the registration process, E-Business Tax also considers these details of the derived tax registration for each tax: Tax inclusive handling, self-assessment/reverse charge setting and rounding rule. 5 ? Determine Tax Status (Determine Tax Status rule type) Determines the tax status of each applicable tax on the transaction. E-Business Tax attempts to derive the tax status using either tax rules or the default value assigned to this rule type. 6 - Determine Tax Rate (Determine Tax Rate rule type) Determines the tax rate for each tax and tax status. If applicable, the tax rate is modified by any exception rate and/or tax exemption that applies. The result of this process is a tax rate for each applicable tax. Defaulting Logic: If defined, E-Business Tax uses the tax rate assigned to the tax jurisdiction for the applicable tax and tax status; otherwise, it uses the default tax rate.

7 ? Determine Taxable Basis (Determine Taxable Basis rule type) Determines the taxable base amount or quantity upon which to apply the tax rate for each applicable tax. The taxable basis is typically the transaction line amount. Taxable basis formula: taxable basis = line amount. You can set up special taxable basis formulas. If the process cannot find a taxable basis formula for an applicable tax, then E-Business Tax raises an error. It considers the Tax Inclusive settings of the applicable taxes. Tax Rule: Determine taxable basis, or the default value for the tax. 8 ? Calculate Taxes (Calculate Tax Amounts rule type) Calculates the tax amount for each applicable tax on the transaction. The tax is typically determined by applying the tax rate to the line amount. Default tax calculation formula: tax amount = taxable basis * tax rate. You can set up special tax calculation formulas. If the process cannot find a tax calculation formula for an applicable tax, then E-Business Tax raises an error. Tax Recovery Rate (Determine Recovery Rate rule type) Determines the recovery rate on Procure to Pay transactions to apply to each recovery type for each applicable tax on the transaction. Tax recovery is a separate process with its own set of steps, for taxes that allow for full or partial recovery of the tax amount. A recoverable tax is a tax that allows full or partial recovery of taxes paid on purchases, either as a recoverable payment or as an offset against taxes owed. 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 with migrated tax data and the Release 11i tax model in E-Business Tax. a) Tax Rule Defaults Responsibility: Tax Manager Path: Tax Managers -> Tax Configuration -> Tax Rules You can set a default value for each rule type. E-Business Tax uses the default value if no rule belonging to the rule type provides a value that applies to the transaction. For certain tax regimes, you may be able to use default values exclusively, without the need to set up tax rules. You only need to define a tax rule for a result that is different from the default value. b) Default values for Rule Types Determine Place of Supply -Bill From -Bill To -Point of Acceptance (Receivables only) -Point of Origin (Receivable only) -Point of Payment -Ship From

-Ship To Use Bill To as Ship To, if Ship To is not found. In Europe, the default for place of supply of goods is usually Ship From. In the United States, the default for place of supply of goods is usually Ship to. Determine Tax Applicability -Applicable -Not Applicable Determine Tax Registration -Bill From Party -Bill To Party -Ship From Party -Ship To Party -Use Bill To, if Ship To is not available. The default is usually Bill From Party, but there are cases, such as reverse charge and self-assessment, where the default is Bill To Party for specific transactions. Determine Tax Status You specify the default value when you set up the tax status (it can be overridden). Determine Tax Rate You specify the default value when you set up the tax rate (it can be overridden). Determine Taxable Basis The seeded formula STANDARD_TB (Taxable Basis = Line Amount) Calculate Tax Amounts The seeded formula STANDARD_TC (Tax Amount = (Taxable Basis) * (Tax Rate)). c) Tax Rules Entry Responsibility: Tax Manager Path: Tax Managers -> Tax Configuration -> Tax Rules -> Guided Rule Entry E-Business Tax provides two entry flows for setting up your tax rules: Guided Tax Rule Entry: Five-step flow that lets you build determining factors and tax conditions as you create the tax rule. Page flow: -Tax Rules -Create Tax Rule: General Information -Create Tax Rule: Determining Factors and Conditions -Create Tax Rule: Condition Results -Create Tax Rule: Rule Order -Create Tax Rule: Rule Templates A tax rule is defined by: -Ownership information Identifies the tax rule configuration owner. If the configuration owner is a legal entity or operating unit, then the

rule only applies to the transactions of this legal entity or operating unit. If the configuration owner is the Global Configuration Owner, then the rule applies to the transactions of all legal entities and operating units with a configuration option setting for the tax regime of either Common Configuration or Common Configuration with Party Overrides. -Context information Identifies the tax regime, tax, and rule type for which a rule is defined. -Rule order Identifies the order in which a rule is evaluated. -Additional context information Applies further restrictions to a rule -Determining factor set Identifies the factors to consider when evaluating a tax rule -Tax condition set Identifies the conditions to satisfy in order evaluate a tax condition set successfully. -Result The value that results when the tax conditions are satisfied. Prerequisites: -Set up tax regimes -Set up taxes -Set up tax statuses -Set up tax rates and enable the Allow Tax Rate Rules option -Set up TCA geography hierarchy structures -Set up tax zones -Set up fiscal classifications -Set up determining factor sets -Set up tax condition sets -Set up taxable basis tax formulas -Set up tax calculation tax formulas -Set up tax recovery rates Expert Tax Rule Entry: three-step entry flow that makes use of determining factor sets and tax condition sets that you have previously defined. d) Make Tax Available on Transactions Prereqither tax rule defaults or tax rules for the rule types -Define a primary tax recovery rate, if you set the allow recovery option for the tax -Define at least one tax jurisdiction for the tax -Define an exchange rate type, if the tax is used in cross-border transactions Responsibility: Tax Manager Path: Tax Managers -> Tax Configuration -> Taxes -> Update Use the Update Tax page to make each tax available on transactions. You must enable the Make Tax Available for Transactions option before E-Business Tax can use this tax setup to calculate taxes on transactions. When you enable this option, E-Business Tax runs a series of checks to ensure that all of the definitions related to the tax

have been defined. E-Business Tax displays an error message if you have not set up the definitions properly. e) Oracle Tax Simulator Responsibility: Tax Simulator Path: Tax Simulator Use the Oracle Tax Simulator to enter simulated transactions (enter transactions to simulate the tax determination process without creating live data), view your tax rules in action, simulate workbench characteristics, view tax lines and override tax lines. 6. Setting Up Tax Rules ? Determining Factors Determining factors are the key building blocks of your tax rules. They are the variables that are passed at transaction time or derived from information on the transaction. Determining factors fall into four groups, namely: Party, Product, Place and Process. A determining factor is an attribute that contributes to the outcome of a tax determination process, such as a geographical location (place) or tax registration status (party). Determining factors can be used in tax rules, taxable basis formula, and tax regime determination. Determining Factor Classes Tax determining factors are categorized into logical groupings called determining factor classes, such as Geography. Class Qualifiers You use a class qualifier with a determining factor class when it is possible to associate a determining factor class with more than one value on the transaction. For example, for the determining factor class Geography and the determining factor Country, you need to specify which party location to use by means of a class qualifier such as ship from party or ship to party location. a) Determining Factor ? Party The Party determining factor includes the following determining factor classes and their class qualifiers: Legal party fiscal classification: Fiscal party Registration: Bill From Party, Bill To Party, Ship From Party and Ship To Party Party Fiscal Classification: Bill From Party, Bill To Party, Point of Acceptance (AR transactions), Point of Origin Party (AR transactions), Ship From Party and Ship To Party Transaction input factor: Not applicable (groups together additional factors entered on the transaction line that can influence tax determination) b) Determining Factor - Product The Product determining factor includes the following determining factor classes and their class qualifiers: Product - Inventory linked: Not applicable Product ? Non-Inventory linked: Product Fiscal Classification level (Levels 1-5) Transaction input factor (intended use, product override): Not applicable c) Determining Factor - Place

The Place determining factor includes the following determining factor classes and their class qualifiers: Geography: Bill From, Bill To, Point of Acceptance (AR transactions), Point of Origin (AR transactions), Ship From and Ship To. Tax Zones: Bill From, Bill To, Point of Acceptance, Point of Origin, Ship From and Ship To. d) Determining Factor ? Process The Process determining factor includes the following determining factor classes and their qualifiers: Document: Document fiscal classification level (Levels 1-5) Transaction fiscal classification: Not applicable Transaction generic classification: Classification level (Levels 1-5) ? it references fiscal classification codes belonging to the designated level in the corresponding fiscal classification type Accounting event: Accounting segments of the selected ledger Transaction input factor: Not applicable e) Tax Determining Factor Set Responsibility: Tax Managers Path: Advanced Setup Options -> Tax Determining Factor Sets -> Create Create determining factor sets for use in tax rules determination and tax regime determination. Tax Rules Associate a tax determining factor set with a rule type to use in the creation of tax rules for the rule type. You associate one determining factor set with each tax rule to create the tax condition sets for the tax rule. You can maintain and reuse a tax determining factor set that you create for one rule with another rule for a different tax or a different rule type, where requirements are identical. You can also reuse a tax determining factor set within the same rule type for a different condition set. You can set up determining factor sets in advance to use with tax rules, or set up a determining factor set during the creation of a tax rule. Regime Determination Associate a regime determination set with a combination of configuration owner and application event class to identify tax regimes and candidate taxes on transactions. Tax regime determination is the first step in the tax determination process. A regime determination set differs from tax rule determining factor sets in that the determining factors are location types only. E-Business Tax compares the location types in the active regime determination set to the locations specified on the transaction to identify the countries associated with each location and the tax regimes associated with each country. Note: By default, E-Business Tax provides a seeded regime determination set for all Payables and Receivables transactions for all configuration owners. This regime determination set considers all location types (except Paying Location) to look for applicable tax regimes on a transaction. Tax Determination Set Setup for Tax Rules Prerequisites: - Set up tax regimes, if you intend to create a determining factor set for use with a specific tax regime, or if you intend to use a fiscal classification determining factor class that requires a tax regime assignment - Set up ledgers, if you intend to use the Accounting determining factor class. The ledger accounting segments

become available for use as tax condition values. - Set up TCA geography hierarchy structures, if you intend to use the Geography determining factor class. - Set up TCA party classifications, if you intend to use the Party Fiscal Classification or Legal Party Fiscal Classification determining factor class. - Set up party tax profiles, if you intend to use the Registration determining factor class. - Set up fiscal determinations, if you intend to use a determining factor class related to fiscal classifications. - Set up tax classification codes, if you intend to use the Transaction Input Factor determining factor class for tax classification codes. - Set up tax zones types and tax zones, if you intend to use the User Defined Geography determining factor class. Regime Determination Set Setup Prerequisites: - Set up tax regimes - Optionally, set up tax zone types and tax zones, if you want regime determination to take place at the tax zone level for a location type. f) Tax Formulas Responsibility: Tax Managers Path: Advanced Setup Options -> Tax Formulas -> Create Set up tax formulas for use in the tax rules Determine Taxable Basis and Calculate Tax Amounts. Determine Taxable Basis The Determine Taxable Basis tax rule derives the amount or quantity on the transaction line that E-Business Tax uses to apply the tax rate. The standard taxable basis formulas are: Taxable Basis = Line Amount Taxable Basis = Quantity If the tax requires the calculation of a taxable basis other than the line amount or line quantity, then create a taxable basis tax formula and either associate it with a Determine Taxable Basis tax rule for the applicable tax regime and tax or set it as the default taxable basis for a tax. Calculate Tax Amounts The Calculate Tax Amounts tax rule determines the formula that E-Business Tax uses to calculate the tax amount on the transaction line. The standard tax calculation formula is Tax Amount = (Taxable Basis) * (Tax Rate). If the tax amount is to be altered by adding or subtracting the tax amount of another tax, then create a tax calculation tax formula and either associate it with a Calculate Tax Amounts tax rule for the applicable tax regime and tax or set it as the default tax calculation formula for a tax. If you do not assign a tax calculation tax formula to a specific tax regime, then it becomes available to all tax regimes. Prerequisites: - Set up tax regimes - Set up taxes - Enable the applicable cross-regime compounding and compounding precedence for the tax regimes and taxes that will use tax formulas with compounding details.

g) Tax Condition Sets Responsibility: Tax Managers Path: Advanced Setup Options -> Tax Condition Sets -> Create The tax conditions belonging to an individual tax condition set constitute the conditions to consider in order to determine if the result of the condition is true for the applicable transaction. The tax condition set or sets belonging to an individual tax rule constitute the logic of the tax rule ? if any tax condition set belonging to a tax rule arrives at a true result, then the tax rule applies to the transaction. You can set up tax condition sets in advance and apply them to a tax rule, or you can set up tax condition sets during tax rule creation. The tax condition set specifies the factors to consider, and the resulting value that must exist for each factor, in order for the result of the tax rule to be true. Each tax condition in a tax condition set consists of a tax determining factor, an operator, and a value. Prerequisites: - Set up determining factor sets - Set up values for the applicable determining factor classes.

Summary Required Task List a) External Dependencies Create First Party: Legal Entity and Establishments Create Reporting and Collecting Tax Authorities b) Tax Configuration Create Tax Authorities Party Tax Profiles Create Tax Regimes Create First Party Legal Entity Party Tax Profile Create Tax Create Tax Status Create Tax Jurisdictions Tax Rate