Self Assessed Tax VS Use Tax in oracle apps R12

Self Assessed Tax VS Use Tax in oracle apps R12

1. Oracle E-Business Tax – Self Assessed Tax / Use Tax Concept Self Assessed Tax Treatment Configuration Calculation Logic Pros and Cons Use Tax Facts 11i treatment R12 treatment Pros and Cons

2. Concept If goods purchased from a seller who is not registered for a tax then, To ensure that tax is not evaded on that transactions, it is buyers responsibility to calculate and remit the tax to relevant authority. Known as “ Self Assessed Tax ” or “ Use Tax ” Even though they are fundamentally same, release 12 of Oracle EBusiness suite has different setup and treatment for each of them. For Example :- ABC procures goods from XYZ ( Unregistered Seller) worth $1,000 Normal tax rate :- 15% Since XYZ is a unregistered seller , It is ABC’s ( Buyer’s) responsibility to calculate tax ABC will pay XYZ :- $1,000 (Invoice Amount) ABC will pay calculate and pay to Tax Authority :- $150 (Tax Amount)

3. Approach 1 :- Self Assessed Tax

4. Self Assessed Tax - Treatment Buyer pays only for item to the unregistered seller, Only item information is displayed at the lines level, Self Assessed Tax information displayed in the Tax Details tab.

5. Self Assessed Tax - Treatment For such self assessed tax line, the “Self Assessed” flag will be checked as shown below. “Self Assessed” flag can be checked / unchecked on the fly for a transaction. For a normally calculated, if this flag is manually checked then tax will be treated as “Self Assessed” and no longer be visible at lines level. Similarly for a Self Assessed calculated tax if this flag is manually unchecked then tax will be treated as normal tax and be visible at lines level.

6. Self Assessed Tax :- Configuration

7. Self Assessed Tax - Configuration Step 1 :- Self Assessed Tax calculation is primarily driven by Suppliers or Supplier Sites registration status. So users should configure following rule under the Registration status rule type :- If Bill From OR Ship From ( i.e. Supplier Site PTP) = Not Registered Then Result is Take Registration status of Bill To Party (First Party legal Establishment)

8. Self Assessed Tax - Configuration Step 2 :- Navigate to the Party Tax Profile of First party Legal Establishment and check the Set for Self Assessment flag and give the registration details.

9. Self Assessed Tax - Configuration Step 3 :- If Supplier is uniformly not registered for all jurisdictions :- Navigate to Supplier / Site Party Tax Profile Registration tab and update the Registration status as “ Not Registered” for that Regime.

10. Self Assessed Tax - Configuration However for particular tax, if a supplier is registered in one jurisdiction and not for others, then there should be 2 Registration details :- One with Regime, Tax information and the status as “ Not Registered.” Second with that same Regime,Tax and also jurisdiction information with status as “ Registered .” For Example :- Supplier registered in CA and nowhere else in US i.e. Tax should be calculated normally for CA but as Self Assessed for other states then, Two Registrations will have to be created at PTP level First with US Regime, State Tax and Registration status as “ Not Registered.” Second with US Regime, State Tax , CA Jurisdiction and Registration status as “ Registered .”

11. Self Assessed Tax - Configuration For Example 2) :- Supplier registered across US except in CA i.e. Tax should be calculated normally for all other locations but Self Assessed for CA then - Two Registrations will have to be created at PTP level First with US regime, State Tax and Registration status as “ Registered.” Second with US regime, State Tax , CA Jurisdiction and Registration status as “ Not Registered.”

12. Self Assessed Tax – Calculation Logic If Supplier (or Site) is Registered then rule specified earlier will not be honored and normal tax will be calculated. However if the Supplier (or Site) is Not Registered then rule will get honored, due to which tax engine will look at registration status under the PTP of First party Legal Establishment. Since there “Set for Self Assessed” flag is checked, Tax will be correctly calculated as Self Assessed.

13. Self Assessed Tax :- Pros and Cons

14. Self Assessed Tax – Pros and Cons Pros :- Easy one time set up required. Correctly driven by suppliers registration status. Automatic tax calculation. No Manual intervention needed Automatic accounting of tax liability. Recommended approach if customer is using rules model. It is possible to check the “Self Assessed” flag on the fly in the tax details tab. Users can run “Account Analysis Report” to get details of Self Assessed Tax. Cons :- Can be used only if customer intends to configure tax rules. If a suppliers have multiple registrations spread across many jurisdictions then set up might become complicated.

15. Approach 2 :- Use Tax

16. Use Tax - Facts New use taxes cannot be configured in R12. Tax type “Use” does not come in the list of values of while creating new taxes. Users can create new use tax rates or change the percentage of existing use tax rate. However no other updates are allowed. Functionality retained to support backward compatibility for upgraded cases. Recommend to use this approach only till the customer moves to rules model and configures Self Assessed tax.

17. Use Tax - The 11i functionality When a tax code with tax type as “Use” was attached to a AP invoice, then the details of that tax would not be visible on invoice but displayed only in the “Use Tax Liability Report.” Tax distribution (accounting) would not get created for this tax rate. The total of Use Tax Liability Report would determine the use tax liability User would then have to create 2 accounting entries - One for accruing tax liability and other for settlement.

18. Use Tax - The R12 functionality Only supported for upgraded customer. Post upgrade users can continue using Use Tax in the exact same manner as in 11i. When a tax code with tax type as USE is associated in AP invoice at lines level, then the details of that use tax would Not be visible on invoice but displayed only in the Use Tax Liability Report.   Tax distribution would not get created for this tax rate. The total of that report would determine the tax liability. User would have to create 2 accounting entries - One for accruing tax liability and other for settlement. Use taxes will be migrated with tax type as “Use”

19. Use Tax – Pros and Cons Cons :- Supported only for backward compatibility. New Use tax creation not allowed. It is not driven by the supplier registration status. Tax will be calculated as Use tax only if that tax code is manually entered or defaulted on the transaction. No automatic accounting. Based on the Use Tax liability report, users have to pass two accounting entries – One for liability and one for payment. No details displayed on the Invoice. Pros :- Easy set up in 11i with seamless upgrade. Use Tax Liability report displays the details of the calculated use tax . Customers using Use Tax in 11i, can use the same functionality post upgrade.