1- Value Added Tax (VAT),
2- US Sales Tax, or
3- Canadian Sales Tax.
VATValue Added Tax (VAT) is imposed on the supply of goods and services paid for by the consumer, but collected at each stage of the production and distribution chain. The VAT charged on a customer invoice is called Output Tax. Any VAT paid on a vendor invoice is called Input Tax. The amount due each period can be described as follows:
Amount Due = Output Tax - Input Tax
Receivables provides a comprehensive solution for VAT reporting using standard and country-specific reports.
Sales Tax: Sales tax in Receivables is based on the destination of the supply of goods or services. The calculation of sales rates is automatic, and is based on the state, county, city, and zip code of your customer's address and the tax rates assigned to each of these components. You can override any tax rate through customer and product exemptions and you can compile periodic sales tax returns using the US Sales Tax Report.
You can import address validation and sales tax rates from your tax vendor and use the Tax Vendor Extension to integrate external tax calculation programs with Receivables and Oracle Order Entry.
Canadian Sales Tax: Canadian sales taxes exist at both the federal and the provincial level. Sales tax at the federal level, which is referred to as Goods and Services Tax (GST), is standard across Canada. Some goods and services are exempt from GST.
Provincial Sales Tax (PST) is levied by each Canadian province except Alberta and the Territories. Each province has its own legislation which determines the PST rate and decides which goods and services are exempt from PST. The appropriate Provincial Sales Tax is based upon the destination of the goods or services, not their origin.
Country Specific VAT Reporting
In many countries, the standard VAT reports described in this book will cover your VAT reporting requirements.
Implementing Value Added Tax
VAT is imposed on the value added to goods or services at each stage of their supply. The VAT charged on a customer invoice is referred to as Output Tax. Any VAT paid on a vendor invoice is referred to as Input Tax.
The amount due each period can be described as follows:
Amount Due = Output Tax - Input Tax
Not all businesses are required to collect and remit Value Added Tax. To determine your legal obligations in the collection and reporting of Value Added Tax, seek the advice of a qualified tax professional.
[ If you use the Oracle Applications Multiple Organization Support feature, you need to perform this implementation for each of your operating units. For more information, refer to the Multiple Organizations in Oracle Applications manual.]
You can use the Implementation Wizard as a resource center to read online help for a setup activity and open the appropriate setup window and to see a graphical overview of setup steps. You can also document your implementation by using the Wizard to record comments for each step for future reference and review.
Major Features of VAT Receivables lets you control and automatically record VAT charges on your receivable invoices. Using Receivables you can:
- Control VAT using both the inventory item and destination country (item method).
- Optionally control VAT from your Revenue Account (account method).
- Automatically calculate VAT for domestic, import, and intra-EU taxed transactions.
- Automatically calculate and account for multiple VAT regimes, levying additional taxes such as Surcharges, Excise, and Sales Equalization taxes as required.
- Compile your periodic VAT returns using a comprehensive set of standard and country-specific VAT reports.
- Easily integrate your implementation of VAT with Oracle Order Entry, Oracle Sales and Marketing, and your legacy systems.
- Round VAT amounts at the Transaction Header or Line Level.
- Round VAT Amounts Up, Down, or Nearest, to a different precision and minimum accountable unit.
- Calculate inclusive or exclusive VAT Amounts.
- Print transactions inclusive or exclusive of VAT.
- Import transactions using AutoInvoice with inclusive or exclusive taxes.
- Allow VAT to be controlled in Receivables or your feeder system.
- Control changes in rate for any given tax code over time.
- Exempt customers and sites from VAT.
- Ensure that your VAT returns are complete.
- Manually defer Output Tax liability on unpaid invoices using the VAT Reconciliation Report.
Acquisition Tax: VAT on the acquisition of goods from a VAT Registered supplier in another EU member state will be zero-rated. The receiver must account for VAT as both Input and Output amounts at the VAT rate applicable for the same goods in the country that they are received, giving a net VAT liability of zero. Oracle Implements Acquisition tax with Oracle Payables using Offset Taxes.
Deferral: France, Italy and Russia allow the liability on Output VAT to be deferred until payment has been collected on certain transactions. This is referred to as "Cash accounting for VAT" and, if allowed, may be used in an accrual system.
Document Rounding: VAT amounts are typically calculated once per tax code within an invoice. Receivables controls tax codes at the document line, but allows VAT amounts to be rounded at the document header or line.
Domestic Transaction: Transactions between registered traders in the same EU (European Union) country. Domestic transactions have VAT charged on goods and services with different countries applying different VAT rates to specific goods and services.
EU: The European Union is a single European market where customs and tariff barriers between member states have been removed.
Input VAT: The tax charge on the receipt of taxable goods and services (e.g. tax on supplier invoices or expense items). Input VAT should be reported wherever you account for expenditures. Input VAT is usually deductible.
Intra-EU, Taxed Transactions: Transactions between non-registered traders in different EU (European Union) countries. VAT must be charged to customers within the EU if you do not know their VAT registration number. The destination country and inventory item controls which VAT rate to use.
Intra-EU, Zero-Rated Transactions: Transactions between registered traders in different EU (European Union) countries. An Intra-EU transaction is zero rated if and only if you know the customer's VAT registration number; otherwise, VAT must be charged on the invoice.
Japanese Consumption Tax: The Value Added Tax (VAT) paid on any expense (Input VAT) is usually recoverable against the VAT Charged on revenue (Output VAT). This ensures that VAT is not inflationary within a supply chain.
Natural Account: The segment of your accounting flexfield that you assign the qualifier 'Natural Account'. This segment indicates whether the Accounting Flexfield is an Asset, Liability, Equity, Revenue, or Expense account. In Receivables, the Natural Account typically identifies the Revenue account.
Non-Deductible Input VAT: The VAT amount paid on expense items that may not be reclaimed against Output VAT. Usually, all items purchased for a business are deductible. Certain high value purchases, (for example, luxury cars for an executive's spouse) may be considered non-deductible. For small companies, service or items of value to both the owner and business may be partially non-deductible.
Output VAT: The tax charge on the supply of taxable goods and services (e.g. tax on customer invoices or revenue items). Output VAT should be reported wherever you account for sales.
Recargo de Equivalencia: An additional tax levied in Spain on specific types of businesses. The rate of tax is related to the primary rate of VAT for the item sold.
Tax Engine: A collection of programs, user defined system parameters, and hierarchical flows used by Receivables to calculate tax.
VAT Classification: Each country classifies VAT into a small number of rates. Following are the five basic classes of VAT:
- Standard: The majority of transactions are classified at a Standard rate. In Europe, the Standard rate of VAT varies between 12-25%.
- Reduced: A lower rate of tax for specific goods or services. For example, within the EU, the reduced rate is applied to consumption of domestic fuel and power.
- Luxury: A higher than standard rate of tax, normally applied to a very limited set of goods or services.
- Zero: Zero-rated, gross sales are reported separately from exempt rated transactions.
- Exempt: Exempt from VAT. Gross sales are reported separately from zero-rated transactions.VAT Regime: A set of VAT rules and rates applicable to a well defined set or type of transactions. In Europe, the most common VAT regimes are Domestic, Import, and Inter-EC. However, many countries have additional regimes for special geographical regions or types of businesses.
Setup Checklist for Value Added Tax
Complete the following steps in the order shown to implement Value Added Tax in Receivables:
Step 1: Choose Tax Method for VAT Compliance
Step 2: Define Tax Codes and Rates
Step 3: Set Up Account Method VAT (optional)
Step 4: Set Up Tax Groups for Distance Sales (optional)
Step 5: Set Up Item Method VAT
Step 6: Choose a Sales Tax Location Flexfield Structure
Step 7: Define Tax Preferences
Step 8: Set Up Tax Defaults and Rules
Step 9: Assign a Default Application Rule Set
Step 10: Save System Options
Step 11: Define Tax Exemptions
Step 12: Define Transaction Types
Step 13: Define AutoAccounting for Tax
Step 14: Enable Calculation of VAT on Freight
Step 15: Define Tax Profile Options
Step 16: Define VAT Reconciliation Report Set