Create Tax Rules

The E-Business Tax 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.

E-Business Tax 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.

During execution of the tax determination process, E-Business Tax evaluates, in order of priority, the tax rules that have defined against the tax configuration setup and the details on the transaction. If the first rule is successfully evaluated, the result associated with the rule is used. If not, the next rule is evaluated until either a successful evaluation or default value is found.

The E-Business Tax tax determination process is organized into rule types. Each rule type identifies a particular step in the determination and calculation of taxes on transactions.

The tax line determination process uses the information of the transaction header and transaction line to determine the tax lines.

The rule types and related processes used for tax line determination and tax calculation are:

• Determine Place of Supply - Determines the location where a transaction is considered to have taken place for a specific tax.

• Determine Tax Applicability - Determines the taxes that apply to a given transaction.

• Determine Tax Registration - Determines the party whose tax registration status is considered for an applicable tax on the transaction.

• Determine Tax Status - Determines the tax status of each applicable tax on the transaction.

• Determine Tax Rate - Determines the tax rate for each applicable tax on the transaction.

• Determine Taxable Basis - Determines the amount upon which to apply the tax rate.

• Calculate Tax Amounts - Calculates the tax amount for each applicable tax on the transaction.

The rule type used for tax recovery determination is:

• Determine Recovery Rate - Determines the recovery rate to apply to each recovery type for each applicable tax on the transaction.

The single rule type used for tax determination is:

• 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 for specific tax determination requirements.

Depending on the requirements of a given tax, you can either create a tax rule for each rule type or use a default value.

E-Business Tax provides two entry flows for setting up your tax rules:

• Guided Tax Rule Entry - The guided tax rule entry provides a five-step flow that lets you build determining factors and tax conditions as you create the tax rule.

• Expert Tax Rule Entry - The expert tax rule entry provides a concise, three-step entry flow that makes use of determining factor sets and tax condition sets that you have previously defined.

Tax Authority Regulations and Tax Rules

First determine the nature of each tax that applies to your business and the processes involved in arriving at the tax amount. Examine the regulations that govern the determination of the tax amount for each tax, from identifying the situations in which a tax applies to the determination of the tax amount. Then organize the regulations around one or more of the rule types for each tax. Whenever the regulations indicate that more than one result is possible for a given rule type, then you need to define rules under that rule type.

The complexity of tax rule setup falls into three general categories:

• No tax rules required. The tax authority levies tax on all sales and purchase transactions at the same rate. Neither tax applicability nor the tax rates and recovery rates vary by: the parties to the transaction; the products or services included in the transaction; the business processes involved in the transaction. In such cases, E-Business Tax can use the default tax status, tax rate, and tax recovery rate defined for the tax.

• Simple tax rule regimes. The tax authority levies tax on your transactions at the same rate, with a simple set of identifiable exceptions. The exceptions either apply to one part of the transaction only--such as to certain parties--or to a combination of parties, products, and transaction processes that you can summarize in a simple way. In such cases, use a simple set of tax rules, for example, to identify place of supply and tax registration, and use default values for other processes.

• Complex tax regimes. Tax regimes in certain countries require a complex logic to determine the applicable taxes and rates on a transaction. Both tax applicability and tax rates can vary, for example, by place of origin and place of destination, party registration, status, service, or a combination of factors. In some cases, the taxable amount of one tax may depend upon the amount of another tax on the same transaction. And in rare cases, the tax amount itself may depend on the tax amount of another tax. For all of these and similar situations, you set up tax rules to define the logic necessary to identify each step of the tax determination process.