Understanding Oracle EBusiness Tax Calculation

The Importance of Understanding Your Tax

Calculation in R12

Written & Presented by Sophie Ravenel-Grosso, SmartDog Services

Sponsored by Central States OAUG

Copyright 2013 SmartDog Services, LLC

0

Agenda
What is Oracle E-Business Tax (EBTax)?

Identify the Key Concepts used in EBTax

Basics of Oracle EBTax Architecture
Tax Calculation Process Flow
Sample EBTax Setup
Questions

Copyright 2013 SmartDog Services, LLC

1

About the Author

Sophie Ravenel-Grosso, Senior Functional
Consultant at SmartDog Services, LLC.

Sophie has been involved in implementing EBTax for eight countries in

EMEA (Europe Middle East and Africa). In early 2013, she implemented
EBTax with Vertex for a subdivision for US and Canada.
Sophie offers a solid background in troubleshooting back-end software
within the financial and human resources domains. She has 11+ years of
experience as an Oracle Support Consultant for Oracle Financials,
Oracle HRMS, EBS R12 Payables and Payments implementation
including EBTax and EMEA Localizations.

Copyright 2013 SmartDog Services, LLC

2

What is Oracle E-Business Tax (EBTax)?

Oracle E-Business Tax (EBTax) is a R12 product that:

Provides the infrastructure for tax knowledge management

Provides tax service to all E-Business Suite Flows
Use a global system architecture
Is configurable and scalable
Is a single point of solution
Is a one-application interface
Copyright 2013 SmartDog Services, LLC
3

What is Oracle E-Business Tax (EBTax)?

We start by acknowledging that EBTax is a new module
developed for R12. For EBS R11i, the tax structure was by
module. The tax engines and the setup were done separately in
AP and AR.
EBTax offers major features in R12 such as providing the
infrastructure for tax knowledge management along with
providing tax service to all E-Business Suite Flows using a global
single architecture.
As a single point solution, EBTax is configurable and scalable and
uses only one application interface.

Copyright 2013 SmartDog Services, LLC

4

Key Concepts: Tax Authority

Let us now identify what are the Key Concepts used in EBTax. It uses a particular
hierarchy of concepts starting from Tax Authority.

A Tax Authority is a government entity that regulates tax laws, administers,

and/or audits one or more taxes. An example of tax authority is the California
State Board of Equalization.

Source: ilearning.oracle.com
5

Key Concepts: Tax Regime

A Tax Regime is the level at which similar taxes governed by

common tax rules or laws are grouped together.

Source: ilearning.oracle.com
6

Key Concepts: Tax

There can be multiple taxes under one regime. In the US, we have STATE, COUNTY
and CITY sales and use taxes.

Another layer under Tax (not shown here) is Tax Status. The Tax Status is the taxable
nature of a product or service. It is a way of grouping different tax rates under one
single tax. It provides additional granularity for reporting. There can be multiple tax
status under a tax but at least one has to be specified as a default status. In our
Business Scenario, applicable Status will be Standard Status.

Source: ilearning.oracle.com
7

Key Concepts: Tax Jurisdiction

A Tax Jurisdiction is a geographical area where a tax is levied by a specific tax

authority. There can be multiple jurisdictions for a tax but at least one has to be
specified as a default jurisdiction.
Source: ilearning.oracle.com
8

Key Concepts: Regime To Rates Flow

Copyright 2013 SmartDog Services, LLC

9

Oracle EBTax Architecture Overview

Here we see all the components that are part of the EBTax Architecture. Basically, when
EBTax is used as tax engine, as an example during a transaction entry, the transaction
information is passed from E-Business Suite module to EBTax. EBTax determines the
applicable taxes, and generate the tax transaction lines which are linked back to the
original transaction. Review the main EBTax components on the next page.
Source: ilearning.oracle.com
10

Oracle EBTax Architecture Overview

Tax Service Request Manager: This component manages the access to all tax data
and services, including:
Integration with E-Business Tax Services and its three components:
Tax Content Services: This Component addresses the creation, maintenance, and
management of tax content. It includes the basic tax configuration such as
Jurisdictions, Tax profiles, Exemptions etc.
Tax Determination Services: This component consists of two sub-components
which are:
Tax Determination Management - Manages the requirements and processes
around automatic tax calculation based on transaction details and tax setup
information
Tax Rules Management - Manages the setup and definition of tax rules
Tax Administration Services: This component manages the accounting for all tax
transactions.
Integration with Tax Services Partners / Providers:
Tax Content Repository: This component contains master and reference setup
data. Data created via Tax Content Services is stored in the Tax Content Repository
Tax Record Repository: This component contains the key attributes necessary to
record a tax event
Copyright 2013 SmartDog Services, LLC
11

Oracle EBTax Architecture Overview contd

Source: ilearning.oracle.com

12

Processing Taxes For Transactions

Summing up the main points of EBTax architecture: the tax definition must be
entered first, then the configuration of the four Ps Party, Product, Place, Process
from which the tax calculation will be based on. Then the Tax Rules and the
services will be entered.
Source: ilearning.oracle.com
13

Tax Determination Steps

But are all the components working together? Based on the EBTax setup,
information is passed to EBTax to Determine Regimes, then Applicable taxes.
Then Tax Status and Rate, then taxable basis and lastly calculate tax amount.

Source: ilearning.oracle.com
14

Tax Determination Service: Party

The determination based on Party is using a party classification.

A classification used by tax authorities to categorize parties. Parties having similar

attributes can be grouped together. Taxation of many countries depends on Party
Classification. Different tax rates can be applicable for similar transactions with
parties classified as : Government Organizations , Whole Sellers, Retailers ,
Manufacturers, etc. Small scale , Medium Scale or Large Scale Incorporations

Source: ilearning.oracle.com
15

Tax Determination Service: Product

The tax determination based on Product is using Product Fiscal Classification:

Classification used by tax authorities to categorize Products.
Products having similar attributes can be grouped together.
Taxation of most of the countries depends on Product classification.
Examples of Taxation on Product Classification can be : Different tax rates for products falling in category of Hazardous Goods , Beverages ,
Raw material , fees etc
Source: ilearning.oracle.com
16

Tax Determination Service: Place of Supply

(Most Default Value Used)

The determination based on Place of Supply decides which location to be considered

for tax calculation. This is the most used default tax rule with Ship To location.
The different options available are: Bill To, Ship From, Bill From, Ship To Use Bill To if
Ship To not found.
Source: ilearning.oracle.com
17

Tax Determination Service: Process

Transaction Fiscal Classification
Classify transactions for tax determination according to the
requirements of a tax authority
Used where the nature of the transaction itself determines the tax
and the tax rate that applies
Transaction Fiscal Classification need to be entered manually in
the transaction workbench
Three Types

Transaction Business Category

Document Fiscal Classification
User Defined Fiscal Classification

Copyright 2013 SmartDog Services, LLC

18

User Interface Setup Screen

Here we have the one-application interface where you would perform the
EBTax setup steps.

Copyright 2013 SmartDog Services, LLC

19

EBTax Setup Map

Here is the EBTax setup map presenting the different interactions between EBtax and
other Oracle Modules such as: TCA trading Community Architecture where you can
find the supplier, customers, geography or locations, Inventory where you can find
Products and product categories, Payables , Receivables, etc.

Copyright 2013 SmartDog Services, LLC

20

EBTax Tax Rules

Analyzing a Rule

Copyright 2013 SmartDog Services, LLC

21

EBTax Tax Rules

Analyzing a Rule
As we saw earlier, the tax determination process uses your tax configuration
setup and the details on the transaction to determine:
Which taxes apply to the transaction?
How to calculate the tax amount for each tax that applies to the transaction.
EBTax tax rules let you create a tax determination model to reflect the tax
regulations of different tax regimes and the tax requirements of your business.
You can create a simple tax model that makes use of default values without
extensive processing, or a complex tax model that considers each tax
requirement related to a transaction before making the final calculation.

Copyright 2013 SmartDog Services, LLC

22

US SALES TAX > Regime To Rate Flow

You can use the Regime to Rate flow icon to display a table for the setups of a
particular tax regime. The Regime to Rate flow table lets you drill down into the
details of a tax regime setup, including all taxes, tax statuses, and tax rates.

Copyright 2013 SmartDog Services, LLC

24

US SALES TAX > Tax Regime

Copyright 2013 SmartDog Services, LLC

25

US SALES TAX > Taxes

Important note: You can only enable a tax for use on transactions after you have
completed all of the related setup required. If the Enable flag is unchecked, this tax
will not be available in the LOV when entering a transaction.

Copyright 2013 SmartDog Services, LLC

26

US SALES TAX > Tax Statuses

Copyright 2013 SmartDog Services, LLC

27

US SALES TAX > Tax Rates

Copyright 2013 SmartDog Services, LLC

28

US SALES TAX > Tax Rules

Please note that the Default value for Determine Place of Supply is Ship To,
use Bill To if Ship To is not found
Copyright 2013 SmartDog Services, LLC
29

US SALES TAX > Transaction Tax Calculation

Place of Supply
For this particular transaction, we
have a Ship To location in the state of
California, and the tax for the State of
California has been generated with
6.5% tax rate.

Tax Calculated

Copyright 2013 SmartDog Services, LLC

30

Useful EBTax Tools

Once the EBTax setup is complete, you can extract the whole setup using Oracle
Diagnostics in order to review your setup and configuration.
When taxes are not calculated as expected, one of the most useful tool is an EBTax
FND log. The FND log will trace in details the tax calculation process to help your
troubleshooting effort.
How to Extract EBTax setup?
Application Diagnostics Responsibility > Diagnose > Select Application >
Application Short Name = ZX > Setup > EBTax Tax Setup (checked) > Execute
Please refer to Oracle Metalink Note [ID 564080.1]
How to Generate EBTax FND Log?
In order to trace in details how EBTax is calculating taxes for a transaction, one
needs to generate a FND log.
Please refer to Oracle Metalink Note [ID 1061743.1]
Note: you will need an Oracle Metalink account to access these documents. Go to:
support.oracle.com/

Copyright 2013 SmartDog Services, LLC

31

Questions?
Contact SmartDog Services
www.smartdogservices.com
(800) 309-1213 Toll Free
info@smartdogservices.com

Copyright 2013 SmartDog Services, LLC

32