The eBS R12 Tax Engine

and the Australian GSTJeannie Dobney

August 2010

Updated slides can be found at www.jdobney.com

Introduction to R12 eBSTax Application

Implementation example for Aust. GST

Tangent: Use of newLegal Entity architecture

Upgrade experiences 1

2

This paper has been enabled by:◦ DEECD’s generously

sharing their learningwith the user community

◦ Solution Beacon’s R12 Vision instance and “Imelda” for her set-up

◦ Solution Beacon consultants for sharing their knowledge

◦ Kiran Kunderu from Oracle Support

New product in Release 12◦ Supports international tax obligations for global

implementations

Single control point for transaction based taxes◦ No need to set up tax separately in AP, AR & GL

Components include:◦ SetUp Repository

◦ Tax Engine (Services & Service Request Mgr)

◦ Tax Record Repository & Tax Reporting Ledger

◦ Tax Simulator (for testing)

Schema ZX

a) Non-Tax Configuration◦ 1. First Party: Legal Entity

◦ 2. Reporting and Collecting Tax Authorities

b) Tax Configuration◦ 1. Tax Authorities Party Tax Profiles

◦ 2. Tax Regimes

◦ 3. First Party Legal Entity Party Tax Profile

◦ 4. Tax

◦ 5. Tax Status

◦ 6. Tax Jurisdictions

◦ 7. Tax Rate

◦ 8. Tax Rules

There are several “parties” involved in a transaction to which GST applies:◦ The “First Party”:

the organisation remitting the tax

◦ The Legal / Tax Authority:the organisation to which the tax is reported e.g. ATO

◦ Third Parties e.g. suppliers and customers (not applicable for Aust GST)

The 11i Legal Entity organisation classification was essentially a placeholder for Financials

Now has its own Schema (XLE)

Set up via the Legal Entity Manager Responsibility or via GL using the Accounting SetUp Manager (the only way to assign Balancing Segment values to Legal Entities)

Bank Accounts are now owned by Legal Entities and may span Operating Units.

LE set up is also used by Intercompany

Legal Entity◦ has rights and responsibilities under commercial law, thru

registration with the country's appropriate legal authority.

Establishment◦ 100% owned and controlled sub-units e.g. branches,

divisions. Some countries require registration with local regulatory bodies (e.g. US SIC code).

Jurisdictions / Legal Authorities◦ LE’s must be registered against a jurisdiction that is

governed by a legal authority. e.g. the tax jurisdiction for Australian GST is the country of Australia and the Authority is the ATO

11i Organisations classified as GRE / LE’s will be migrated as Legal Entities and Main Establishments

Operating Units and Inventory Organisations associated with the GRE / LE will be migrated as Establishments

Legal Entities will also be migrated as parties in the Trading Community Architecture (TCA)

Legal Entity Reporting now allows you to filter transaction data based on the legal entity stamped on them (for example, AP Invoices, AR Transactions, etc) or based on the ledger/balancing segment value that is associated with a legal entity.

Image is from Chapter 2 of Oracle Financials Concepts Guide

Legal AuthoritiesCountries, States, Local,

Agencies, Taxation,

Registrars, Regulators...

Legal EntitiesRegistered Companies,

Funds, Partnerships…

Inc. Ltd. SA. GmBH. Etc. “exist in the outside world”

Management OrgsDivisions, LOBS, Plants,

Cost Centers, Whatever =

“Decision Making Tags”

Regulates

Managed & analyzed by

Public

Company

(ultimate parent)

Public

Company

Subsidiary

Company

(regional parent)

Subsidiary

Company

(business parent)

Subsidiary

Company

Subsidiary

Company

Subsidiary

Company

Subsidiary

Company

Subsidiary

Company

• Parent companies (LEs) “own or

control” subsidiaries (LEs)• LEs create commercial transactions

Complies

Next 4 slides from a presentation by Oracle’s Mary Burns

• LEs pay the taxes

- need tax registrations

• Trade between LEs

needs intercompany

• LEs own the money

and bank accounts

• LEs file the accounts,

take care of accounting

• LEs comply with

whatever needs

compliance: “legal” in LE

Why We Care

• Addresses, Officers, etc.

• Enabled First Party stamp

• Added Establishments:

map Registrations to

Authorities

• GRE/LE not touched

• Authorities as TCA parties

• LE Configurator

What we’ve done

Transaction

Taxes -

Complies &

Files, Pays

Actual Registered

Companies, etc.

Et Cetera, 11i

Maintains

its Subledger

Documents

in many OUs

Default Legal

Context (DLC)Accounts

for itself

in a Ledger

or BSVs

Legal

Entity

Ledger

Business

Group

GRE/LE

Operating

Units

Registrations

with AuthoritiesFiles

Files

Establishments

Registrations

with Authorities

Legal Entity:

Vehicle for compliance

Exists

Locally

Let’s put LEs to work

• Isolate legal compliance from management needs

• Track your registered companies

• Make your compliance flow more easily

Accounting Setup ManagerAssign books, bookkeeping rules and currency

management to your registered companies

eBusiness TaxHave your registered companies calculate, file, and pay the

transaction taxes they owe

IntercompanyDo business between and across your registered

companies with full legal documentation

Bank ModelHave your registered companies use their money to pay

their bills, et cetera

This and the last 4 slides are from Oracle’s Mary Burns’ presentation:

“Overview of the New Financial Architecture in Oracle E-Business Suite Release 12”

Image from http://davidhaimes.wordpress.com/2008/01/28/

defining-intracompany-balancing-rules/

There is no longer a

direct relationship

between LE and OU.

The Relationship is

derived from the OU

assigned and the LE

mapped to the Ledger

Ledger

Legal Entities BSV’s assigned

Reading the fine print:◦ David Haimes confirms that non-US architecture

should be 1:1:1 (i.e. Ledger: Op Unit: Legal Entity)

Refer: http://www.orafaq.com/forum/t/70130/2/on 15 January 2008, and

http://davidhaimes.wordpress.com/2007/11/21/how-do-i-define-my-legal-entities/

◦ Oracle Support confirmed that eBus Tax was designed based on the assumption of this 1:1:1 architecture

Concept Meaning Value Used

Tax Authority Gov’t Entity that regulates tax ATO

Tax Regime Country of Taxation Australia / country

Tax Tax imposed GST

Tax Jurisdiction Area where tax is levied Australia / country

Tax Status Applicability of tax Standard

Tax Rates 10% and 0%

Recovery rates Full or partial reclaim of taxes

paid on the purchases

Full

4 steps performed by the tax engine◦ Applicability

Determine tax regime and candidate taxes

Determine place of supply and tax registrations

Determine applicable tax and jurisdiction

◦ Status Determine tax status for each applicable tax

◦ Tax rate Determine tax rate

Evaluate exemptions and exceptions & thresholds

◦ Tax calculation Calculate tax

Evaluate thresholds

Perform rounding

Use a Default, or

Let the system guide you through creating one (Guided Rule Entry) or

Just create the rule (Expert Rule entry)

Determining Factor◦ Class: Transaction Input Factor

◦ Name: Tax Classification Code

Condition◦ Operator: Equal To

◦ Value: Will be the same as your tax names e.g. GST 10%

Tax Rules ◦ Combine the Determining Factors with the

Conditions

◦ (see next slide for screen image)

11i 12

AP / AR Tax Types Tax Regime Code

Tax Code Tax Code & Rate Code

All Tax Codes Tax Status “Standard”

Tax Rate Details Tax Rate record% rate, dates etc

Location based rates TCA geographies,Tax Jurisdictions

Tax Calc details Tax Classification Codes

Every 11i tax rate created it’s own ◦ R12 tax

◦ R12 tax status

◦ R12 tax Classification code

The Upgrade process applies STCC as the Regime Determination Set (see next slide)

It worked…

Oracle’s Recommendation:◦ Replace the upgraded configuration with a fresh

R12 implementation

But consider:◦ On going reporting.

Can you obtain the reporting you need? Especially if you upgrade mid-month.

◦ Defaults from existing suppliers, customers etc

The Tax Reporting Ledger consists of tax information recorded in each of the related Applications (i.e. AP, AR, GL).

The tax extract simply copies the original accounting data from each application and stores it in an interface table without performing any calculations or derivations on it.

The Tax Reporting Guide describes each of the many columns (100’s) in the single reporting view ZX_REP_EXTRACT_V

Tax Reporting is not mature or robust…

The Financial Tax Registeris the key report, it is an RXi report, it must be run from the Forms interface and offered limited flexibility.

Based on the view ZX_REP_EXTRACT_V

Other standard reports include:◦ Tax Register

◦ Tax Reconciliation by Taxable Account

◦ Tax Reconciliation

Business Requirements◦ Produce BAS input (summary data)

◦ A mechanism for reconciling the summary data against transaction detail and account details

Our Solution Proposal:◦ Produce 2 custom reports based on the view used

by this report i.e. ZX_REP_EXTRACT_V – one summary level grouped by tax code and one with transaction detail for each tax code

◦ Use the Account Analysis (with sub ledger details) report as it might provide a reconciliation solution for the tax account.

MOS # 1117544.1

If you have questions and comments about the Australian GST, contact Michael D’Ascenzo (ATO)

Other questions and comments:jdobney@bigpond.com

Updated slides can be found at jdobney.com