Archive for April, 2013

Oracle eBTax: Reverse charge taxes, do you use Offset taxes or the Self Assess solution?

What is reverse charge VAT?

“Reverse Charge” is a part of the VAT law in a growing number of European countries. It states that the VAT (Value Added Tax) for Goods and Services delivered inside the country by a foreign company is owed by the recipient of the goods and not by the foreign service provider/supplier.

VAT must not be charged on invoices to the recipient. By law, a clear statement must appear on each of these invoices indicating that the liability for the payment of VAT is reversed to the recipient. The recipient has to calculate, report and pay the VAT (it may be recoverable if the recipient is VAT registered). The foreign service provider/supplier may be entitled to a VAT refund claim for all VAT charges by local suppliers.

So, in Oracle do we use Offset or Self Assessed tax?

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Oracle eBTax: Examples of how Offset Tax differs from Self Assessed Tax.

This post offers examples of how Offset Tax differs from Self Assessed Tax.

There are 3 options available to you with Payables and Oracle when it comes to Tax.

Option 1 – (No special requirements)

Invoice entered for a foreign supplier so tax shown on AP invoice was 0%.
The tax calculated is a zero amount.

 

The tax calculated is as follows:

The distribution of the invoice is shown as follows – you can see that there is no value in the recoverable and non recoverable tax.

 

When the accounting has been created (what is sent to GL), the following GL entries will be made. A zero value is recorded for tax.

 

Option 2 – (Use Offset Tax)

Invoice entered for a foreign supplier so tax shown on AP invoice was 0%.
The following screen shot shows that Offset tax has been calculated, a 5% and a -5% so the net amount is 0.

The tax calculated is as follows:

The distribution of the invoice is shown as follows – you can see that both the tax and offset tax are shown.

When the accounting has been created (what is sent to GL), the following GL entries will be made. You can see the two taxes should cancel each other out (ignore the cost centre value of 0). Even though the values cancel each other out, the journal entry is made and the taxes have been recorded.

ebtax

 

Option 3 – (Use Self Assessment)

Invoice entered for a foreign supplier but when we calculate the tax, no tax line is created!

r12 ebtax

 

The tax calculated is as follows – so, even though no tax line is shown on the distributions, a tax is calculated (however it has a status of ‘Self Assessed’ in the system).

r12 etax

The distribution of the invoice reflects the entered lines – i.e. there is only one line – no recoverable or non recoverable tax shown.

The Big difference is that when the accounting has been created (what is sent to GL), the following GL entries will be made. 500 will be credited to a Self Assessed account and 500 debited to a self assessed liability account.

The major difference between offset and self assessed is what is visible on the distributions of the invoice. Both options make journal entries to account for the tax that should be charged. The account values can of course be changed so the liability account could be different if required.

 

 

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VAT Number Check

VAT Number Check

Below are  links to help with Tax/VAT number checking for various countries. If you require an automated number check then please contact us

For EU members:

http://ec.europa.eu/taxation_customs/vies/?locale=en

France:

Companies can be checked by SIRET number on these websites. Unfortunately only available in French language:
http://www.verif.com/
http://www.cofacerating.fr/portail/general_accueil/accueil.asp?metier=ALL&geo=ALL&idnav=&lg=uk
The second website can be viewed in English and French. Those websites can be helpful for invoices where only SIRET is put.

Australia:

You can verify ABN number (Australian Business Register):
http://abr.business.gov.au/

Denmark:

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Oracle Fusion Tax – how can it be enhanced to make it better?

How can Oracle Fusion be improved to better enhance the visibility of Tax Rates calculated and whether it is a service, asset or inclusive without the need for additional rates?

Like any ERP solution, a good eTax consultant will design the way the eTax module is setup based on how the tax needs to be reported, often resulting in additional tax rates being required in order for these rates to be clearly visible. The design of the Tax engine with Oracle Fusion is looking at improving the way tax can be reported and thus reduce the number of rates needed. For example, in Europe, it is important to be able to report the sale of goods, services and also triangulation separately. Oracle offers ‘Tax Reporting Codes’ to do this with one ‘Intra EU Rate’ but when the tax is calculated, it is extremely difficult for a user to see what type of ‘Intra EU rate’ has been calculated until it has been reported – often too late.

It is too late to change R12 to accommodate changes to make the reporting easier but what can be done to Oracle Fusion to enrich the tax reporting so that at the point the tax is calculated, the user knows what tax rate is being used, whether it is a service or inclusive or an asset or even a ‘Self Assessed’ tax immediately.

Below are the lsit of potential Enhancements

  • One potential way to allow less rates but use the Tax Reporting Codes more is to have a Flexfield type structure that can be driven by the tax rules so that a single tax such as ‘Intra EU Rate’ can have the values of ‘Service’ or Triangulation’ attached to it. It needs to be clearly visible when the tax is calculated and it needs to be picked up on reports. Additional segments would indicate if it is inclusive, the recovery % or whether it is an asset. 
  •  In Belgium, a client recently requested that a rate be created to accommodate the fact that the tax was both an asset and a service. It would have been better to have been able to have had one rate with attached flags rather than several rates to capture all the possible combinations. 
  • AP Triangulation Tax. this is the scenario: Your organization in Finland is selling goods directly to an end customer in Estonia but the goods are being shipped directly from your organization in Ireland to Estonia. The organization in Finland will raise a an EU zero rated invoice which the end customer in Estonia will reverse charge. Your organization in Ireland will raise an EU zero rated intercompany invoice to your organization in Finland. In AP the organization in Finland does not need to reverse charge the I/C invoice from Ireland as the goods were not supplied to Finland so there is not an equivalence requirement. The verification of the correct tax rate needs to be identified but this would mean a requirement to capture the ship to country as a country – not a stored location. We cannot use a ship to location because the Supplier may have drop shipped directly to our Customer so we would not even have that location setup nor available to us. Having a field where we can populate just a country value would be a massive benefit to the ebtax solution in both AP and AR particularly for EU VAT.
  • Similar to above, the supplier could be billing from the EU but shipping from outside the EU and so having a field for ‘Ship From country’ that would default in from the supplier address but could be overridden would be useful.
  • Another enhancement request would be to extend the the place of supply to options to be something other than bill from, ship form, bill to, ship to. As an example, if you have a French entity selling to an Australian entity but the tax needed is a spanish tax, then it is impossible to get the place of supply rule to allow the ES tax regime as done of the available values for the place of supply could be used to determine that spain was a value. What is needed is the ability on orders to choose the place of supply country manually for these types of orders. Would an additional field allow for this?
  • The scenario is that the an entity is registered for both AT and DE VAT but has a 3rd party supplier that they make drop shipments from in Austria but no warehouse. The users want the ability to manually choose the tax classification code of AT VAT STANDARD for sales to a German customer when shipping from the Austrian 3rd Party supplier but when this happens, the Bill from is DE, the Bill to is DE and the ship from and ship to are either NULL or also DE. This means that the place of supply can never be AT and so the AT tax regime can never be activated. If we could set the place of supply to use the country linked to the tax regime of the Tax Classification Code being used. This means that we would be able to drive the tax regime from a tax rate being used. This would also be an ideal way of driving tax for iExpenses where you may want to recover the VAT from several countries where the bill from and ship from are NULL because the supplier is an employee and the Bill to and Ship to are linked to just one country.
  • After hitting the ‘calculate tax’ button on the AP workbench, the eBtax is calculated but sumamrised as tax lines after the item lines. It would be useful if there was an option that allowed the tax to be listed after the ITEM line it relates to. This would help uses who need to quickly check the correct tax amounts have been charged to the right lines.
  • Add a ‘Notes’ section to tax rules and rates so that the consultants can put detailed comments as to whay a rate was created or why a particular rule was created.
  • The ability to use DFF values for Determining factors for tax.
    I think this could be reasonably straight forward with the ability to choose a combination of the DFF and the attribute segment in the determining factor set up, then in the conditions you could link a tax rule that would say if the DFF Attribute6 = ‘Bonded’ then do X.
  • Add filters to the setup screens for eBTax – for example, for the Fiscal Classification Codes.
  • Ability to hide the NON-Recovery line on an AP distributions and to stop the line going to GL. Only show a non-recovery line if the tax is not recoverable. 
  • Purchasing Categories should be seamlessly linked in with Oracle so that if there are 4 segments to a purchasing category then each of these segments should be available to run taxes against. An example would be to have the ability to run tax determining factors on SERVICE-TRAINING-ONSITE-OTHER so that I can run a tax ruloe based on SERVICE-TRAINING which is specific to Training or simply on SERVICE which would be for all services. Particularly useful in the US where the split of the type of services is need so that in the states where all services are exempt, a simple rule linked to the Purchasing Category SERVICE cna be used but in NY where only professional services are exempt then the rule would be linked to SERVICE TRAINING.
  • Credit memos that are linked to an original invoice or return should use the original invoice tax date to calcaulte the tax for the credit memo.
  • Only having one tab/form for tax for Suppliers and customers, currently in AP you have tax reporting detail and tax details.
    In a discussion with a senior Oracle Product developer, he was mentioning about changing the way the tax logic worked for the inclusive tax so that rather than having to create a separate tax rate that is set as inclusive, you would just use a tick box on the invoice. his reasoning was that the tax rate should not need to be duplicated just to be able to change the ‘standing’ of the rate. You really cannot have it as a manual tick box in the tax details as this would slow down users especially when rules are often needed to drive whether the tax is inclusive or not. However, I think from the design of the tax solution, I think removing the need to set the tax rate as inclusive or not is an excellent step forward but I think you need to go further. With the tax Rules, it could be good to add a few more sections here similar to the recovery rate, to maybe include the following 

    • Tax reporting codes – this has already been done by putting the ability to select the reporting code at the rule result.
    • Legal Justification message – this has already been done by putting the ability to select the reporting code at the rule result.
    • Recovery Rate – this is already in the rules, however, the ability to make the amount of recovery known would be good, either in the tax details or on the invoice line.
    • Offset Tax – this is not needed in the rules as in my opinion, if you are choosing a tax with an offset then there is a one to one relationship between the VAT rate and the offset Rate.
    • Inclusive – this should be put into the rules along with ‘determine recovery rate’
    • Deferred – this should be put into the rules along with ‘determine recovery rate’

    So to me, it looks like most of the rate factors are already in the rules, just whether it is inclusive or whether it is differed is not! How easy would it be include these two sections in the tax logic?

     

     

Luxembourg to raise VAT, will it be 16 or 17%?

The following was published by the TMF Group, you can see the full link here

Luxembourg has announced that it plans to raise its standard VAT rate to help reduce is deficit.
Currently, the Value Added Tax rate in Luxembourg is 15%, the lowest in the European Union.  Whilst there is no confirmation of what the new rate will be, the government is adamant that it will remain the lowest in the EU.

The rise will probably be to 16% based on previous discussions.  However, it could go to 17% as the next lowest EU rate is 18% in Malta.  Cyprus also has a VAT rate of 18%, although this will rise to 19% at the start of 2014.

Luxembourg is home to the European headquarters of many global companies

Further update;

Luxembourg: VAT rate to be slightly increased from 2015

Grant Thornton Luxembourg report that: On 10 April 2013, the Luxembourg Prime Minister, Mr Juncker, has announced in his “State of the Nation” speech that the Luxembourg standard VAT rate of 15% will increase as from 2015.

This increase will help to offset the planned deficit of VAT revenues in Luxembourg related to the new rules applicable to e-commerce services as from 2015. Indeed, the place of taxation of e-commerce services provided to EU private customers will be the country of the supplier instead of the country of the customer as from 2015.

The Prime Minister has specified that Luxembourg government wishes however to maintain in the future the lowest standard VAT rate in the EU despite the increase. Currently, the lowest VAT rate is Luxembourg (15%). The second lowest VAT rates are applied by Cyprus and Malta (18%). However, the VAT rate of Cyprus will increase to 19% as from 2014. At this stage, there are no other indications regarding the future Luxembourg VAT standard rate except that it will not exceed 18% in order to remain the lowest VAT rate in the EU.

Croatia is joing the EU

Whilst we can offer advice on how to setup Oracle R12 to accomodate the changes to Croatia VAT, below is a link that will give more information on what is actually happening.

Grant Thornton advice on Croatia joining the EU

Oracle eBTax: How to add Croatia to your EU Tax Zone


The intention of this posting is to show you how to add Croatia to your European Economic Region Tax Zone in Oracle eBusiness Tax R12

Step 1

Navigate to your Tax Zones.
This should be in the Tax Manager Responsibility (or whatever your equivalent is).
Tax Manager–>Advanced Setup Options–>Tax Zone Types

 
ebusiness tax european union tax zone