Ebtax Eu Steps Final_v2phase

Oracle Applications

White Paper Oracle Financials Release 12 Setups for 2010 EU VAT Package

—Solution Based on Tax Rules

Author: Anand Naik

Contributors: Desh Deepak, Amit Jain, and Nigel Chapman

Version: 1.1

Create Date 15-May-2010

Update Date 27-May-2010

Oracle Financials Release 12 Setups for 2010 EU VAT Package—Solution Based on Tax Rules My Oracle Support Doc ID 1107453.1 Page 2 of 22

Contents

1. INTRODUCTION .................................................................................................................................................................3 1.1 Scope..............................................................................................................................................................................3

2. IMPORTANT POINTS AND PATCH DETAILS ........................................................................................................................4 3. SUMMARY OF CHANGES IN EU VAT PACKAGE EFFECTIVE JANUARY 1, 2010 .................................................................5 4. SOLUTION SUMMARY .......................................................................................................................................................7 5. SAMPLE SCENARIO ...........................................................................................................................................................8 6. SETUP IN E-BUSINESS TAX AND BILL PRESENTMENT ARCHITECTURE (BPA) ..................................................................9

6.1 Setup in E-Business Tax for Order-to-Cash Transactions.......................................................................................9 6.2 Setup in E-Business Tax for Payables....................................................................................................................14 6.3 Setup in Bill Presentment Architecture (BPA) .......................................................................................................15

7. TRANSACTION PROCESSING IN RECEIVABLES AND PAYABLES FOR INTRA EU SERVICES ...............................................17 7.1 Receivables (Order to Cash Flow).........................................................................................................................17 7.2 Payables (Procure to Pay Flow)............................................................................................................................18

8. EUROPEAN SALES LIST (ESL) REPORT...........................................................................................................................19


1. Introduction

1.1 Scope

This document includes the summary of changes for the European Union Value Added Tax (EU VAT) provisions, effective January 1, 2010. It also includes the required setups in Oracle Financials Release 12.

Note: There are two similar documents that provide setup scenarios for EU VAT 2010:

o Doc ID: 974979.1 – offers a solution based on Tax Rates

o Doc ID: 1107453.1 – offers a solution based on Tax Rules (this white paper)


2. Important Points and Patch Details

i) The setup described in this document is only a sample setup. There may be other ways of configuring the

2010 EU VAT requirements. This note does not override the content of Doc ID 974979.1, which offers a solution based on Tax Rates. The details given in this document offers another way of configuring the setup for EUVAT 2010 changes with an emphasis on Tax Rules. It is recommended that customers exercise due diligence before making any changes to their existing setups.

ii) Note: There is a separate Note addressing the setups in Release 11.5.10 (Refer to Note 961600.1) iii) Patch Details – Users should apply the following Oracle patches for their releases:

• R12.0: 9337544:R12.ZX.A and 9123675:R12.BPA.A • R12.1: 9337544:R12.ZX.B and 9123675:R12.BPA.B

The patches will allow users to perform the above setups. They will also allow the user to do the following:

• Create Legal Justification Tax Reporting Type, • Create template in BPA to print Tax Invoice Date at the header region of a Receivables invoice, • Create template in BPA to print Legal Legal Message at the footer/ line region of a Receivables invoice • Associate Reporting Type Codes and Reporting Codes at the Rule result / Tax Rate level, • Extract Summary and Detailed ESL report in the format explained above.

iv) Users should continue to extract the old ESL report from the Receivables responsibility until they have fully

configured the solution given in this Note. Only after completing the required setups, will they be able to specify the correct ESL report extraction parameter explained in this note, which will allow them to display Services and /or Goods and/or Triangulation transactions on the report.

v) The Setup described in this note is mainly for identifying transactions related to Intra EU ‘Services’ and displaying them on the ESL report.


3. Summary of Changes in EU VAT Package effective January 1, 2010

EU VAT changes are introduced to modernize and simplify rules relating to cross-border supply of services and recovery of input tax. These are the most far-reaching changes to VAT law since the introduction of ‘Single European Market’ in 1993. This will undoubtedly have an impact on all businesses, which supply and/or purchase services across EU countries. Companies have to rethink their service flow, as well as, their compliance and reporting obligations.

Document Reference

Title Author Link

COUNCIL REGULATION (EC) No

143 2008 of 12 February 2008

EU Commission http://eur-

lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:044:0001:0006:EN:PD

F

COUNCIL DIRECTIVE 2008 8 EC

of 12 February 2008



F

COUNCIL DIRECTIVE 2008 9 EC

of 12 February 2008



F

It is recommended that customers exercise due diligence and discuss these changes with their tax advisors. The summary of important changes in the VAT package is described below.

3.1 Business Features Addressed

3.1.1 Place of Supply

For Business-to-Customer (B2C) supply of services, the general rule for place of supply continues to be the place where the supplier is established. The new rule for ‘Place of Supply of Services’, for tax determination in a Business-to-Business (B2B) transaction, is where the customer is established and not where the supplier is established (as is before January 1, 2010). There are exceptions to this new rule described above for certain types of services. Examples include -

Service Type Place of Supply

Immovable Property Place where property is Located

Passenger Transport Services Place where the transport takes place proportionate to the distance covered.

Cultural, Educational Events etc including ancillary services

Until 31st Dec 2010: Place where the activities are physically carried

out.

From 1st Jan 2011: Place where the customer is established (main rule

B2B).

Admission to Cultural, educational events etc including ancillary services

From: 1st Jan 2011: Place where the event actually takes place.


Service Type Place of Supply

Restaurants and Catering Services Place where the services are physically carried out.

Short term hiring of means of transport Place where the means of transport is actually put at the disposal of the customer.

3.1.2 Legal Justification Messages

Legal message specifying that the customer of such services must self-assess the relevant tax should be printed on the Receivables (Intra EU Services) Invoices. The exact text of the message may be defined by the country-specific legislation.

3.1.3 European Union Sales Listing (ESL) for Services

As of January 1 2010, for some EU countries, services transactions, which are subject to reverse charge arrangements in the customer’s Member State, should be included in the existing ESL report for Goods. For other EU countries, the ESL report should be separately produced to show only such Services.

3.1.4 Tax Point Date

The tax point date is deemed to be earlier of these two dates: (a) when the service was completed or (b) when payment was made. In the case of continuous supply of services, the tax point is linked to the end of each billing or payment period. Where no invoice or other accounting document is issued or payment is made during the year, the time of supply is the end of each calendar year.

3.2 Business Features Not Addressed

3.2.1 VAT Number Validation

The VAT number for the parties involved in the supply of services should be validated periodically against the VIES system (http://ec.europa.eu/taxation_customs/vies/vieshome.do). This system allows VAT registration numbers to be validated for all EU countries.

3.2.2 VAT Refunds/Claims

A new electronic VAT Refund procedure will be introduced across the EU effective January 1, 2010 to replace the current paper-based system. Businesses established in any EU country have to submit claims for overseas VAT electronically on a standardized form. This information has to be submitted to their tax authority rather than to the member state of refund.

3.2.3 European Union Purchase Listing Report

Requirements around Purchase Listing Report are scoped out / not addressed in this solution.


4. Solution Summary

Requirement Setup Summary Explained in

Sections

Receivables Flow

Identify Intra EU services transaction lines and display it on the European Sales Listing (ESL) Report.

Create Tax Reporting Code for Intra EU services and associate it with rules result to derive the correct Tax Status for Intra EU service transactions. Specify this Reporting Code as a selection parameter to display the Intra EU services invoice lines on the ESL report.

6.1.1 , 6.1.3 (D), 7.1.1 8

Print country-specific legal justification message on the Receivables invoice for Intra EU services.

Create Tax Reporting Code for legal justification message and associate it with rules result to derive the correct Tax Status for Intra EU service transactions. Create a template in BPA to print the legal justification message on Receivables invoice/lines based on such Reporting Code.

6.1.2, 6.1.3 (D), 6.3 & 7.1.1

Print tax date on Intra EU services Receivables invoice.

Enter Tax Invoice Date on such services Receivables invoice. Create a template in BPA to print Tax Invoice Date on Receivables invoice header.

6.3 & 7.1.2

Create reverse charge on Intra EU services Payables invoice.

Create Regime to Rate flow setup for the applicable Tax and associated Offset Tax. Configure rules to correctly derive the Place of Supply. Ensure applicable Tax is calculated for Intra EU services invoice line and the associated Offset Tax would get automatically calculated. Alternatively, Self Assessed Tax can be configured instead of Offset Tax for reverse charging the transaction.

6.2 & 7.2


5. Sample Scenario

For the ease of understanding the setups required for the EU VAT 2010 changes, let us take an example of an Intra EU Business-to-Business (B2B) transaction of services provided by a Seller in the United Kingdom to a Buyer in Germany.


6. Setup in E-Business Tax and Bill Presentment Architecture (BPA)

6.1 Setup in E-Business Tax for Order-to-Cash Transactions

To identify Intra EU services (B2B) transactions, the seller in the United Kingdom has to perform the following setup steps:

6.1.1 Create Tax Reporting Codes for Identifying Intra EU Transactions

i) Navigate to E-Business Tax –> Defaults and Controls –> Tax Reporting Types –> Create. ii) Enter appropriate Tax Reporting Type Code and Name. iii) Select Tax Reporting Type in the Reporting Type Purpose drop down. iv) Select Define List of Reporting Codes checkbox. v) Enable Reporting Type Use for Process Result (and Tax Rate if Service transactions are imported and

manually entered– Refer to Section 7.1.1 for further details). vi) Specify Minimum and Maximum Length of Reporting Codes. vii) Regime and Tax are not mandatory parameters. If entered, Reporting codes would be specific to that

Regime and Tax. To reduce duplication of efforts, users can create one setup of Reporting codes and make them available across all Regimes.

viii) Enter appropriate Tax Reporting Codes as per user requirements. ix) Value entered in Reporting Code Description column is printed on the ESL report header. Reporting code is

printed on the ESL report at line level. Both Reporting Code and Description are displayed as selection parameters for ESL report. Note: • Reporting Codes for Triangulation transactions may not be required for all EU countries. • Follow codification requirements of each country while defining the Reporting Codes and Description.

Screenshot for creating sample Intra EU Transaction Tax Reporting Codes (for Services and Triangulation) for United Kingdom


6.1.2 Create Legal Justification Reporting Codes

i) Navigate to E-Business Tax –> Defaults and Controls –> Tax Reporting Types –> Create. ii) Enter appropriate Tax Reporting Type Code and Name. iii) Select Legal Justification Message Type in the Reporting Type Purpose dropdown. iv) Date Type should be Text and Define List of Reporting Codes checkbox are automatically selected. v) Regime and Tax are not mandatory parameters. If entered, Reporting codes would be specific to that

Regime and Tax. x) Enable Reporting Type Use for Process Result (and Tax Rate if Service Transactions are imported – Refer

Section 7.1.1 for further details). vi) Enter appropriate Reporting Code and Legal Justification Text.

Note: Legal Justification Text (of maximum 240 characters) is printed on the invoice as per the template created in BPA.

Screenshot for creating sample Legal Justification Reporting Type and Code


6.1.3 Create Tax Rule and Associate Reporting Codes

i) Navigate to E-Business Tax –> Tax Configuration –> Tax Rules. ii) Specify Regime and Tax for United Kingdom and the appropriate Configuration Owner. iii) Create the following Tax Status rules (Depending on their setup, user will have to create rules from either of

screenshots (A) or (B) below). iv) Navigate to Reporting Codes (besides Result) and associate the Tax Reporting Code and Legal Justification

Reporting Code as created in Section 6.1.1 & 6.1.2 (Please refer screenshot (D) below).

(A) Screenshots of Rules to be created by users who do not want to create “Service” as a Inventory Item

(A1) Rule to be configured to correctly calculate the Tax Status for Exception Services

(A2) Rule to be configured to correctly calculate the Tax Status for Non Exception or Normal Services.


(B) Screenshot of rule to be configured by users who are ready to create “Service” as a Inventory Item

(B1) Rule to be configured to correctly calculate the Tax Status for Exception Services.

(B2) Rule to be configured to correctly calculate the Tax Status for Non Exception or Normal Services.


Notes:

1. Depending on whether the user wants to configure Service as an Inventory item or not, they will have

to create the rules given in either (A) or (B) above. 2. If the rules are created using the Expert Entry flow, users will have to create the required Tax

Determining Factor and Condition Sets. 3. As per the new provisions, Place of supply for Normal Services is where the Customer is

established. We have assumed that this would be the ‘Bill To’ Country and we created the rule accordingly. For exception services, rules are created based on the ‘Ship To’ country.

4. User should create the setup for (zero rated) Tax Status and a default zero-rated Tax Rate under that Status.

5. Users who do not want to setup “Service” as an Inventory Item (Screenshot (A) above) will have to create a rule based on Product Category for identifying the Invoice line as “Intra EU Services”. In such a case, the user should have configured “Services” under Product Category (E-Business Tax –> Products –> Fiscal Classification –> Product Category).

6. Users who are ready to setup “Services” as an Inventory Item (Screenshot (B) above), have to create a rule based on Product Fiscal Classification for identifying the Invoice line as “Intra EU Services”. In such a case, the user should have configured “Services” under Product Fiscal Classification (E-Business Tax –> Products –> Fiscal Classification). Users should also have completed the setup for Inventory Category Set and Codes (in Inventory module) based on which Product Fiscal Classification is created in EBTax.

7. Users will have to specify the Legal Establishment (Bill From Party) as Registered for the United Kingdom Regime.

8. Users have to create the setup under Party Fiscal Classification for specifying that Customer is registered in Germany. The Party Tax Profile of Customer (Bill To Party) should be updated with this Party Fiscal Classification details. Please see screenshot (c) below.

(C) Screenshot of Party Fiscal Classification Details being specified in the Customers Party Tax Profile

(D) Screenshot of associating Tax Reporting and Legal Justification Reporting Codes to the Rule Result


6.2 Setup in E-Business Tax for Payables

Buyer of services (in Germany) must create a reverse charge on the Payables invoice line for such Intra EU services. This can be achieved by calculating Offset Tax associated to the applicable German Tax or by configuring the Self Assessed Tax setup for German Tax. The buyer should also ensure that the tax is calculated on the transaction as per correct Place of Supply (by configuring rules explained below). Setup for Payables

i) Configure Regime to Rate flow for the applicable tax in supplier (Germany) country (existing/updated

Regime to Rate can also be used). ii) Specify the Tax Rate percent (19% or the applicable Tax Rate). iii) Create the set up for associated Offset Tax. iv) For the Offset Tax Rate Code, specify the tax Rate percent equal to negative of the actual Tax Rate (-19% or

the applicable Tax Rate). v) When the applicable tax is calculated, associated Offset Tax automatically gets calculated. vi) Alternatively, instead of Offset Tax, Self Assessed tax can be configured to create a reverse charge on the

Payables invoice line. vii) Create the following Place of Supply rules to calculate correct tax as per EU VAT 2010 requirements

(assuming that default Place of Supply is Ship From). (A) Screenshot of rule to be configured by users who are ready to create ‘Service’ as an Inventory Item


(B) Screenshot of rule to be configured by users who are ready to create ‘Service’ as an Inventory item

Note:

1. The above rules should be created by users who are ready to create “Service” as a Inventory Item.

For users who do not want to create “Service” as a Inventory Item, will have to replace determining factor ‘Product – inventory Linked’ with ‘Product category similar to (6.1.3 (A) above).

2. User will have to create set up for Tax Zone ‘Economic Regions’ specifying all the EU countries. 3. Users will have to create a Registration status of ‘Registered in EU (non DE) at the supplier party tax

profile under Germany Regime to specify that supplier is registered in the EU.

6.3 Setup in Bill Presentment Architecture (BPA)

Appropriate legal justification message and tax date must be printed on Intra EU services (B2B) transactions Receivables invoice. Seller (in United Kingdom) must create a new template or modify the existing template in BPA as follows. Steps for Creating Templates to print ‘Country Specific Legal Justification Messages’ and ‘Tax Invoice Date’ on Receivables Invoice: Navigate to Bill Presentment Architecture -> Template Management -> Create a new template that contains the following content (existing/upgrade template can also be modified):

• Tax Invoice Date at the Header region. • Legal Justification Message at the Footer region (and if required on the Lines).


Screenshot of Sample Template to Print Tax Invoice Date on the Invoice Header

Screenshot of Sample Template to Print Legal Justification Message on the Invoice Footer

If required, users can create a similar template for printing legal justification message at the line level.

In Section 6.1.3 above, it is recommended that ‘Tax Status’ rule should be created. However such rule can be

defined at other levels as well. In that case, for displaying information in ESL reports and for printing the Legal

Justification Message, priority will be given in the following order-

• Direct Tax Rate Determination rule • Determine Tax Rate rule • Tax Rate • Determine Tax Status rule


7. Transaction Processing in Receivables and Payables for Intra EU Services

7.1 Receivables (Order to Cash Flow)

7.1.1 Calculate correct Tax Status/ Zero-Rated Tax Rate on Intra EU Services Invoice lines

If all the pre-requisite setups mentioned in Section 6 above are completed, then upon entering the relevant details on the Receivables invoice, the Tax Status rule created in Section 6.1.3 would be evaluated, and the relevant Tax Status (and the default Zero rated Tax Rate under it) would get calculated. If Services are not configured as Inventory Item, users will have to manually enter the Product Category of Exception / Normal Services (in the Additional tax Determining Factors UI) and only then rule created as per 6.1.3 (A) would get processed. Screenshot of Receivables Invoice Additional Tax Determining Factors UI for entering Product category

If Services are configured as Inventory Item, then they should be entered on the invoice line as an Item and only then rule created as per 6.1.3 (B) would get processed.

If such services transactions are imported or the Tax Rates are manually entered, users must attach the Reporting Codes at the Tax Rate level and ensure that it is available as a Tax Classification Code on each interface item line or as a Tax Rate Code on each imported tax line. In that case, in addition to enabling the Reporting Type Use for Process Result (Section 6.1.1 & 6.1.2 above), users will have to enable it for Tax Rate as well. Please refer to Metalink note 974979.1 for further setup details in this area.


7.1.2 Enter Tax Date on the Intra EU Services Invoice

On the Receivable invoice, users must manually enter the Tax Invoice Date by navigating to the Tax Information. Screenshot of Receivables Invoice Additional Tax Determining Factors UI for entering Tax Date

The Tax Invoice Date is not defaulted from the Transaction Date or General Ledger (GL) date. However, users have an option to choose either of these dates as the Tax Date while extracting the ESL report i.e in the ESL report extraction parameter, there is a option called Default for Tax Date (if Null). If Tax Date is not provided on the invoice, then to display data on the report, system picks up value from that source which is selected in this parameter (refer to ESL report extraction parameter chart in Section 8 below).

7.2 Payables (Procure to Pay Flow)

Users must ensure that the applicable Tax (created in Section 6.2 above) is calculated on the Payables invoice lines for such Intra EU services. Associated Offset Tax will automatically be calculated or the Tax would be flagged as self assessed. If such services transactions are imported, users must ensure that the relevant Tax Rate Code is available as a Tax Classification Code on each interface item line or as a Tax Rate Code on each imported tax line. As per rule created in Section 6.2 above, on entering the relevant details on the Payables invoice, correct ‘Place of Supply’ will get determined.


8. European Sales List (ESL) Report

European Sales List (ESL) Report must show Intra EU supplies of services, which are subject to reverse charge arrangements in the customer’s Member State, either as a separate report or included with the existing ESL Goods report. In both cases, to identify such services transactions, users should specify Intra EU Transaction Type Reporting Code created for the ‘Intra EU Services’ as a selection parameter for the report.

Steps for Extracting European Sales Listing Report for Intra EU Services Navigate to E-Business Tax -> Request -> European Sales Listing i) In the report selection parameter, after entering the mandatory parameters specify the Intra EU Tax Reporting

Type Code and Reporting Code (3 used to denote UK-INTRA-EU-SERVICES - Created in Section 6.1.1 above). Both Reporting Code and Description are displayed as selection parameters for ESL report.

ii) Users can also enter other Reporting Codes to include ‘Goods’ and ‘Triangulation’ transactions. Note: This is a XML based report in a generalized format. Oracle will not deliver country specific electronic files. Customized report layouts can be built using the Tax Reporting Ledger (TRL) and Business Intelligence (BI) Publisher. Lastly, the report displays only cross border Intra EU transactions. Screenshot of the ESL Report Parameters


Report Parameter

Description UK Specific parameters for report output below

Trader VAT No. List contains registration numbers for all the First Party Legal Establishments. This is used to filter and display data related to only that registration number. Users must ensure that tax registration number is specified for the relevant Legal Establishment before entering such transactions.

GB123456789

Detail/Summary/Both

Users can decide to produce a Detail or Summary listing. If users select Both, report generates two sections – one for summary and another for the detailed.

First screenshot is for Detail and second for Summary Report

Tax Date From Select start tax date for the report. 01/01/2010

Tax Date To Select end tax date for the report. 31/01/2010

Default for Tax Date (if Null)

List contains two values, namely, Transaction Date and GL Date. If Tax Date is not provided on the invoice, then to display data on the report, system picks up value from that source which is selected in this parameter.

GL Date

Site Reported List contains two values, namely, Bill To and Ship To. Choose the site whose Country Code is to be displayed on the report when tax registration number does not have first two characters as the country code.

Bill To

Show Out of Period Adjustments and Credit Memos

List contains two values, namely, Yes and No. Determine whether to show out of period adjustments and credit memos. Select Yes to separately display adjustments, which are created in the selected reporting period, but are related to transactions that are reported in a different period. Select No for adjustment to be included in the regular totals.

Yes

Include Discounts

List has two values namely Yes and No. Default value is set as ‘No’. Only if 'Yes' is specified, discounts are included in the report. This is applicable both for summary and detail reports. The option (Show Out of Period Adjustments and Credit Memos) will be used to present Out of Period Discount in separate column/section. Both earned and unearned discounts will be included.

No

Rounding Rule List has four values, namely, No, Up, Down and Nearest. If No is selected, then no rounding is done. If Up is selected, then the amounts are rounded up. If Down is selected, then the amounts are rounded down. If Nearest is selected, then the amounts are rounded off to the nearest level.

Down

Minimum Accountable Unit

Enter a minimum accountable unit. This is the smallest unit used for the functional currency amounts.

1

Tax Reporting Type

List contains all Tax Reporting Type Codes defined in E-Business Tax. Select the appropriate Intra EU Transaction Tax Reporting Type created in Section 6.1.1 above.

Intra EU Transaction Type

Reporting Code-Intra EU Goods

List contains all Reporting Codes (description) defined under the Tax Reporting Type Code selected above. Users should specify the Reporting Code created for goods here. It should be kept null if goods transactions are not to be included in the report.

Reporting Code-Intra EU Services

List contains all Reporting Codes (description) defined under the Tax Reporting Type Code selected above. Users should specify the Reporting Code created for services here.

3

Reporting Code-Additional 1

List contains all Reporting Codes defined under the Tax Reporting Type Code selected above. Users could specify (if required) Reporting Code created for triangulation of goods or goods and services as necessary.

Reporting Code-Additional 2

List contains all Reporting Codes defined under the Tax Reporting Type Code selected above. Users could specify (if required) Reporting Code created for triangulation of goods or goods and services as necessary.


Screenshot of the Detail ESL Report

Screenshot of the Summary ESL Report


The report output has a column named ‘Country’. The value for this column is derived based on the first two characters of the tax registration number specified on the ‘Site Reported’ parameter. If they match the VAT member state code of the country/territory, then that is taken as ‘Country’. It is advised to always prefix the tax registration number with the country code. If the tax registration number specified for the site reported does not have the first two characters as country code or it does not match with the VAT member state code of the country/territory, then the country code of the address for the site reported (ESL report selection parameter) is printed on the report. The Setup described above is mainly for identifying transactions related to Intra EU ‘Services’ and displaying them on ESL report. If customers have to include Intra EU Goods transactions in the ESL report, they can refer to this Note and create appropriate setups accordingly. In such a case, customers will have to associate the Reporting Codes (created in Section 6.1.1 & 6.1.2 above) with the applicable Tax Rate or the Tax Rule by virtue of which tax is calculated on such Intra EU Goods transaction. Users will then have to specify that relevant Reporting Code in the ESL report extraction parameter (under ‘Reporting Code-Intra EU Goods’) for such transactions to appear on the ESL report.

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