Case Study Spotlight: Introduction to Goods and

ERP CLOUD Services Tax Compliance in Oracle ERP Cloud

Table of Contents
1. Document Objectives....................................................................................................................................................2
2. Assumptions and Prerequisites.....................................................................................................................................2
3. GST Structure................................................................................................................................................................2
4. GST processing..............................................................................................................................................................3
5. Management of General GST Compliance in Oracle ERP Cloud....................................................................................7
a. Management of GST Registration Numbers..............................................................................................................7
 Legal Reporting Units (LRUs).................................................................................................................................8
 First Party Registration Numbers...........................................................................................................................9
 Third Party Registration Numbers.........................................................................................................................9
 Tax Registration Levels........................................................................................................................................11
b. Implementation of Harmonized System Nomenclature Codes (HSN).....................................................................12
 Product Fiscal Classifications...............................................................................................................................13
c. Implementation of Service Codes............................................................................................................................21
 Product Category Fiscal Classifications................................................................................................................21
d. Management of Location-Based Transaction Taxes................................................................................................28
 Geography Tax Determining Factor.....................................................................................................................29
e. Implementation of Self-Assessed Taxes..................................................................................................................33
 Self-Assessment of Taxes (Reverse Charge)........................................................................................................33

1 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
1. Document Objectives

A goods and services tax (GST) is a type of general consumption tax that is imposed and collected incrementally on
transactions, based on the increase in value of a product or service at each stage of production or distribution. In
multiple countries, GST is usually implemented as a destination-based tax, where the tax rate is based on the location of
an end customer, the location to which goods are shipped, or the location at which services are rendered.

The purpose of this document is to examine how to manage fundamental global GST compliance in Oracle ERP Cloud.

2. Assumptions and Prerequisites

In this document, the following entities comprise prerequisite configuration.

 Data Security
Assign the seeded Tax Manager job role to the user. For more information, please reference Cloud Security.

 Enterprise Structures
Oracle ERP Cloud is designed to ensure your enterprise can fulfill legal and management objectives. For more
information, please reference Enterprise Structures.

 Ledger, Business Unit, Legal Entity and Legal Reporting Unit (LRU). Common setups for Payables, Receivables,
Purchasing and Order Management. For more information, please reference Implementing Financials Cloud and
Implementing Supply Chain Management Cloud.

3. GST Structure

Business organizations must analyze and understand the GST conventions and practices applicable to a specific country
to identify the required tax statutes and the applicable geography level of country, state, province, etc. at which the
taxes need to be configured. Consequently, the applicable tax jurisdictions, tax statuses, tax rates, and tax recovery
rates are relevant configuration entities which must be evaluated in the context of a particular country’s GST
requirements.

Sample GST tax regime and tax configuration for selected countries may be referenced in a standard Rapid
Implementation (RI) template (Tax Configuration Workbook). You can use this sample GST configuration to understand
the simple and common transaction tax setup model in Oracle ERP Cloud. The data provided is only provided for overall
illustration of concepts, and a business organization must implement specific GST configuration based on specific
country, operational, and industry requirements. Since the sample configuration may be referenced only to jumpstart
your implementation, you must define your required GST configuration accordingly.

Each tax in a tax regime has its own tax status and tax rates configuration to accommodate standard GST tax calculation
and reporting. In addition, tax configuration may also possibly consist of tax rules to define exceptions to common
standard scenarios. Additional details are available in the Tax Implementation Guide for better understanding of Oracle
ERP Cloud tax configuration concepts which assists in configuring GST regime-to-rate as well as tax rules configuration.

2 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
4. GST processing

At transaction time, Oracle ERP Cloud uses tax configuration and determines the tax applicability on each transaction
line. Once tax applicability on a given transaction line is determined, applicable tax lines are created. Each tax line
displays tax regime, tax name, tax jurisdiction, tax status, tax rate, tax amount, and other information where applicable.
For each tax line, required distribution lines are created. These concepts may be illustrated with a simple example.

Case Study Illustration

An organization based in New York (NY) sells and dispatches two different products to one of its customers located in
California (CA) for an amount of 4,460 USD. Assume this transaction is hypothetically subject to a GST at the rate of
18%.

The buyer enters a purchase order in Oracle ERP Cloud Purchasing with following transaction lines.

Purchase Order (PO) Lines (Payables Invoicing Match to PO Option)

Line Item Unit Price Quantity Line Amount Bill to State Ship from State
1 A (Inventory 1.83 USD 1,000 1,830.00 CA NY
Item)
2 B (Inventory Item) 2.63 USD 1,000 2,630.00 CA NY
Total in USD 4,460.00

Purchase order has been entered and saved. GST will be applied. As a prerequisite, the GST regime and its required
taxes, tax jurisdictions, and tax rates must have been previously created either through Rapid Implementation
spreadsheet upload or directly in the tax user pages before GST can be applied. The following table outlines the
sequence of tax determination processes, which Oracle ERP Cloud uses to calculate and apply GST on the transaction.
Each process requires the upfront completion of certain setup tasks. You may refer to the components used column for
the relevant setup driving each process.

Tax Determination Processes Evaluated

Order Process Name Activities Included Components Used Result

1. Determine Identify the applicable Based on the location Applicable Regime – GST
Applicable Tax tax regime(s). (Country = United States)
Regimes involved in the transaction
2. Determine Place of Identify the relevant Navigation: GST tax Place of Supply – State CA
Supply and Tax tax jurisdiction and definition > tax rule Tax Jurisdiction – State CA
Jurisdiction place of supply. defaults > place of supply
Refer to Note 1. = Bill to
3. Determine Tax Evaluate taxes based Tax Applicability Rules GST Applicable
Applicability on any tax applicability
rule for each tax. Tax conditions –

Refer to Note 2. 1. Registration Status

(Qualifier Ship from
party) = Registered

3 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
 Order Process Name Activities Included Components Used Result

2. Geography
(Qualifier Ship from
state CA <> bill to
state NY) = Not Equal
4. Determine Tax Determine the party Navigation: GST tax Bill-to-party
Registration type to use to derive definition > tax rule
the tax registration for defaults > tax registration
each applicable tax. = Bill-to- party

5. Determine Tax Consider tax statuses Define the tax status for Standard
Status of the applicable taxes. GST as Standard and set it
as default tax status.

Navigation: GST tax

definition > tax rule
defaults > Indirect
defaults > tax status=
Standard
6. Determine Tax Rate Consider the tax rate(s) Tax Rate Rules Applicable GST rate – 18%
of each applicable tax
status associated with Tax conditions –
the applicable tax.
Product Inventory Linked
(Qualifier Level 1 = HSN
Code)

7. Determine Taxable Determine the taxable Standard taxable basis Taxable Basis = Line
Basis basis on which the tax formula = STANDARD_TB Amount, i.e. in this case,
rate for each tax is the two line amounts are
applied. 1,830 and 2,630.

8. Calculate Taxes Identify the tax Standard tax calculation Taxable Basis * Tax Rate
calculation formula. formula = STANDARD_TC 1,830*18% + 2,630*18% =
Calculate taxes using 329.40+ 473.40 =
the tax calculation 802.80
formula.

9. Determine Recovery Determine any tax For a GST input tax credit, Tax Recoverable Amount =
Rate recovery rates, tax define a 100% tax Tax Amount * 100%
recoverable amounts, recovery rate of GST TAX = (329.40*100%) +
and nonrecoverable STANDARD RECOVERY and (473.40*100%)
tax amount amounts. choose a default tax = 802.80 BRL
recovery rate.
Refer to Note 3.
Navigation: GST tax
definition > tax rule
defaults > Indirect
defaults > Tax recovery
rates > GST TAX
STANDARD RECOVERY
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Note 1: The determine place of supply step identifies the applicable place of supply, which is the location where the
supply of goods or services is deemed to have taken place for a specific tax and Oracle ERP Cloud identifies the tax
jurisdiction for the location that corresponds to the place of supply. In this case, the GST Place of supply is the bill-to
location.

Note 2: Set up tax registrations for customers/suppliers. Navigate to the Manage Tax Registrations page to set up any
required tax registrations. A tax registration contains information related to a party's transaction tax obligation with a
tax authority where it conducts business. The supplier located in NY has a tax registration record against the GST regime
with a current tax registration status as Registered.

Note 3: Tax recovery is the full or partial recovery of the tax paid on purchases by a registered legal reporting unit to
offset the taxes collected from any sales transactions. GST is recoverable by way of an input tax credit after complying
with applicable regulations. In Oracle ERP Cloud, tax recovery functionality is available, and the GST recovery rate on a
tax may vary based on one or more transaction factors. You should set up any required tax recovery rate rules to
determine the appropriate recovery rate that should apply on the transaction. Please reference the Oracle Applications
Help tool in Oracle ERP Cloud and search for the topic Tax Recovery: Explained.

PO Tax Determination Applied

Transaction Serial Tax Regime Tax Tax Tax Tax Tax Recoverabl Non
Line No Name Status Jurisdiction Rate Amount e Recoverable
No Tax Amount Tax Amount
1 1 GST GST Standard CA 18% 329.40 329.40 -
2 2 GST GST Standard CA 18% 473.40 473.40 -
Total GST Tax on Payables Invoice 802.80 802.80 -

After successful tax determination processing has been applied, Oracle ERP Cloud inserts tax lines at a summary level
(i.e. one line for each applicable tax). In this illustration, there is one tax line for the GST tax.

PO Tax Line

Tax Line Rate Name Rat Tax Amount Tax Tax Name Tax Status Tax Jurisdiction
e Regime
1 GST_18 18 802.80 GST GST Standard CA

Once PO is approved, buyer sends it to seller with following details –

Seller – XYZ
Bill to Location – CA

Lin Item Unit Quantity Line Amount

e Price
1 A (Inventory Item) 1.83 USD 1,000 1,830.00
2 B (Inventory Item) 2.63 USD 1,000 2,630.00
Total in USD 4,460.00
18% GST 802.80
Total PO Value in USD 5262.80

5 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
The seller located in NY sends an invoice for in the total amount of 5,262.80 USD (4,460 item amount plus taxes of
802.80).

Buyer configures tax point basis as invoice so recoverable taxes are accounted at payables. Buyer enters payables
invoice in ERP Cloud by matching to PO, chooses first party tax registration number and validates invoice. Tax
determination process explained previously is triggered and following taxes are computed.

AP Tax Determination Applied

Transaction Serial Tax Regime Tax Tax Tax Tax Tax Recoverabl Non
Line No Name Status Jurisdiction Rate Amount e Recoverable
No Tax Amount Tax Amount
1 1 GST GST Standard CA 18% 329.40 329.40 -
2 2 GST GST Standard CA 18% 473.40 473.40 -
Total GST Tax on Payables Invoice 802.80 802.80 -

After successful tax determination processing has been applied, Oracle ERP Cloud inserts tax lines at a summary level
(i.e. one line for each applicable tax). In this illustration, there is one tax line for the GST tax.

AP Tax Line

Tax Line Rate Name Rat Tax Amount Tax Tax Name Tax Status Tax Jurisdiction
e Regime
1 GST_18 18 802.80 GST GST Standard CA

After a tax line(s) has been created, the respective distributions line(s) are created for both transaction and tax lines.

Line Distribution Type Amount

1 Accrual 1,830.00
2 Accrual 2,630.00
3 Recoverable Tax 329.40
3 Non Recoverable 0.00
Tax
3 Recoverable Tax 473.40
3 Non Recoverable 0.00
Tax
Total Balance 5,262.80

After successful accounting has been initiated, the following accounting entries are created.

Account Class Account Type Debit Credit

Accrual Accrual 4,460.00
Tax Recoverable Asset 802.80
Tax Non Recoverable Expense 0.00
Liability Liability 4,460.00
6 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
 Liability Liability 802.80
Total Balance 5,262.80 5,262.80

5. Management of General GST Compliance in Oracle ERP Cloud

a. Management of GST Registration Numbers

Establishing and applying the GST tax registration a business with the relevant tax authorities is a key legal
requirement in many countries. A unique GST tax registration number is generally assigned to taxpayer registered
with the applicable GST tax authorities. The registration number is used as a basis for referencing and tracking the
tax obligations of a taxpayer. In some cases, tax determination and its compliance administration is also dependent
on the nature of the taxpayer registration established.

Case Study for Illustration

 A GST tax regime has two taxes and requires a taxpayer to register separately for each of the states imposing
GST, where the taxpayer has specific business operations. For a given state, the GST tax registration number is
the same for both taxes in that GST tax regime.

 Trader XYZ has business operations in two states California (CA) and New York (NY). Obviously, XYZ has two GST
tax registration numbers for the states CA and NY respectively. Furthermore, the customers and suppliers of
XYZ have GST tax registration numbers for compliance and administration purposes.

Fulfilling GST Tax Registration Requirements

The GST tax registration requirement in Oracle ERP Cloud is achieved through the Manage Tax Registrations feature.

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8 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
For the given case study, the first party and legal entity is XYZ in Oracle ERP Cloud.

 Legal Reporting Units (LRUs)

Legal reporting unit (LRU) is the lowest level component of a legal structure that requires tax registrations. For legal
entity XYZ, it is necessary to configure two LRUs for the tax registration number pertaining to the two states of CA and
NY. Configure tax registrations for each respective LRU in the Manage Tax Registrations page.

Legal Reporting Unit Configuration

1. Login as a Tax Manager.

2. From the Navigator, select Setup and Maintenance.
3. Search for the Manage Legal Reporting Unit task.

Attribute Value Comments

Territory CA The legal reporting unit representing the state of California.
Name XYZ CA The name of the legal reporting unit selected by the user.
Main Legal Yes Not applicable.
Reporting Unit
Legal Reporting Unit Addresses
Country United States The country of the legal reporting unit address for tax registration
purposes.
Address Line 1 5070 Wilshire Blvd The street of the legal reporting unit address for tax registration
purposes.
Address Line 2 Not applicable.
City Los Angeles The city of the legal reporting unit address for tax registration
purposes.
State CA The state of the legal reporting unit address for tax registration
purposes.
Postal Code 90036 The postal code of the legal reporting unit address for tax registration
purposes.

Attribute Value Comments

Territory NY The legal reporting unit representing the state of New York.
Name XYZ NY The name of the legal reporting unit selected by the user.
Main Legal No Flag used to designate whether this record represents a main legal

9 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
 Attribute Value Comments
Reporting Unit reporting unit.
Legal Reporting Unit Addresses
Country United States The country of the legal reporting unit address for tax registration
purposes.
Address Line 1 401 7th Avenue The street of the legal reporting unit address for tax registration
purposes.
Address Line 2 Not applicable.
City New York The city of the legal reporting unit address for tax registration
purposes.
State NY The state of the legal reporting unit address for tax registration
purposes.
Postal Code 10001 The postal code of the legal reporting unit address for tax registration
purposes.

 First Party Registration Numbers

To set up tax registrations for a legal reporting unit:

1. From the Navigator, select Setup and Maintenance.

2. Search for the Manage Tax Registrations task and change the page-level switcher to Legal Reporting Unit Tax
Profiles.
3. Under the Tax Registrations tab, click on Create icon.
4. Create the legal reporting unit tax registrations using the following values:

Attribute Value Comments

Legal Reporting Unit XYZ CA Choose from a list of values.
Tax Regime Code GST Choose from a list of values.
Registration number 36AASPF6826T1ZB Enter the first-party tax registration number.
Legal Reporting Unit XYZ NY Choose from a list of values.
Tax Regime Code GST Choose from a list of values.
Registration number 45NYSPF6826T1ZB Enter the first-party tax registration number.

 Third Party Registration Numbers

For the given case study, the suppliers and customers of XYZ are considered third parties in Oracle ERP Cloud. Third
party registration numbers (supplier/customer) are recorded and reported via the capabilities available from the
Manage Tax Registrations page. You can create tax registrations either at the third party tax profiles level or at the
third party site tax profiles level. Oracle ERP Cloud honors the tax registration number at the third party site level as a
priority, and if there is no existing tax registration record, the tax registration number at the third party level is honored.

To create a third party site tax profile:

1. From the Navigator, select Setup and Maintenance.

2. Search for the Manage Party Tax Profiles task and change the page-level switcher to Third-Party Site Tax
Profiles.
3. Click on the Create icon.
10 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
 4. Select the Party Site Number from the list of values.
5. Save and Close the record.
To set up tax registrations for a third-party site:

1. From the Navigator, select Setup and Maintenance.

2. Search for the Manage Tax Registrations task and change the page-level switcher to Third- Party Site Tax
Profiles.
3. Under the Tax Registrations tab, click on the Create icon
4. Create the third-party site tax registration using the following values:
Attribute Value Comments
Party Site Number XXXX Choose from a list of values.
Tax Regime Code GST Choose from a list of values.
Registration number 36AASPF6825M1Z Enter the Goods and Services Tax Identification Number of
B the customer or supplier.
5. Save and Close the record.

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 Tax Registration Levels

You can define tax registrations at three different levels of detail:

1. Tax regime level: The tax registration is used for all taxes and tax jurisdictions within the tax regime.

2. Tax level: The tax registration is used for all tax jurisdictions where the tax regime and tax are applicable.

3. Tax jurisdiction level: The tax registration is applicable for the locations covered under the tax jurisdictions
defined for the tax regime, tax, and tax jurisdiction.

A tax regime is mandatory in order to define a tax registration for all three levels. In turn, a tax is mandatory to define a
tax registration for the tax jurisdiction level.

In the given case study, the tax registration number is common for the two taxes under the GST regime. Hence, tax
registrations defined at a tax regime level will be appropriate. In this context, you need to leave the columns for the tax
and tax jurisdiction blank, and if not done, duplicate records will exist for the same tax registration number.

12 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
 b. Implementation of Harmonized System Nomenclature Codes (HSN)

The Harmonized Commodity Description and Coding System, also known as the HSN (Harmonized System
Nomenclature) is an internationally standardized system of names and numbers used to classify traded products. In
different countries, tax legislation follows the HSN coding system to drive GST taxes and reporting.

Case Study for Illustration

ABC wholesaler sells confectionery products; GST compliance is to adopt four digit HSN codes for their commodities. Tax
rate applicability based on HSN code.

Sample HSN and Applicable Tax Rates for Illustration

Commodity HSN Applicable

Code GST Rate
Rusk and Toast 1905 5
Pasta 1902 18
Wafers 1905 18
Baking Powder 2102 12
Namkeen 2106 12

Management of Product Taxability

This case study involving HSN codes can be achieved in Oracle ERP Cloud using product fiscal classifications.

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 Product Fiscal Classifications

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For this case study, we will evaluate two different GST tax rates of 18% and 12%.

 Rate 12 is applicable for the HSN codes of 2102 (Baking Powder) and 2106 (Namkeen).
 Rate 18 is applicable for the HSN codes of 1902 (Pasta) and 1905 (Wafers).
 There are four HSN codes and two tax rates.

Prerequisite Inventory Setup Steps

i) Create a Catalog

A catalog is a collection of categories which used to classify items. Create one catalog specifically for the
HSN coding system with the name of HSN.
1. Log in as a Product Manager.
2. From the Navigator, select Product Management > Product Information Management > Item
Management > Manage Catalogs.
3. Click on the Plus Sign icon to create a new catalog.

ii) Create Categories under a Catalog

Every 4-digit HSN code will be defined as a category under the catalog. The category code will be six
digits that are comprised of the 4-digit HSN code prefixed by a two-digit code representing the tax slab
and category name (commodity name). In this example, you need to define four categories.

Category Category Name

Code
AA1902 Pasta
AA1905 Wafers
BB2102 Baking Powder
15 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
 BB2106 Namkeen

The prefix of two digits AA or BB is added to the category code. In the future, if a tax authority changes the
tax rate on any specific commodity, then it is easy to maintain using this approach. For example, if the GST
tax rate on wafers changed from 18% to 12%, then a user can simply end date the category code AA1905
that represents 18%. At the same time, a user can create a new category code BB1905 that represents a
12% GST tax rate.

To Create Categories

1. Log in as a Product Manager.

2. From the Navigator, select Product Management > Product Information Management > Item
Management > Manage Catalogs.
3. Search for the catalog and click on the catalog name.
4. In Edit Catalog page, click on the Plus Sign icon to create a new category.

iii) Assign Categories to an Item

After you identify items falling under a particular HSN code, then assign them to a respective category. For
example, for baking powder, you have two associated items of butterfly and nestle. Both of these items are
taxable at a GST tax rate of 12%. Therefore, these two items from item master are assigned to a category of
BB2102 (i.e. baking powder).

To assign Items to a Category

1. Log in as a Product Manager.

2. From the Navigator, select Product Management > Product Information Management > Item
Management > Manage Items.
3. Search for the desired item and click on the item name.
4. In Edit Item page under the Categories section, click the Plus Sign icon to assign an item to a category.

For more information, please reference Assigning Items to Categories for defining catalogs, categories, and
items as well as assigning categories to items.

Tax Setup Steps

i) Create Product Fiscal Classification Types

1. Log in as a Tax Manager.

2. From the Navigator, select Setup and Maintenance.
3. Search for the Manage Product-Based Fiscal Classifications task.
4. Click the Plus Sign icon to create a new product fiscal classification type with following attributes:

Attribute Value Comments

Inventory HSN Assign the catalog previously created in step 1. This is the point
Category Set where you link inventory categories and the corresponding tax
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 Attribute Value Comments
product fiscal classification.
Number of 2 The item category code created in step 2 which has 6 digits. The
Levels first two digits are tracked as level 1 and represent the tax rate. The
remaining four digits represent the HSN code and tracked as level 2.
Level 1 Details
Type Code GST_RATE The value entered is based on user discretion. The first two digits of
the category code represent the GST tax rate.
Type Name GST_RATE The value entered is based on user discretion.
Start position 1 This value ensures the tax engine will start processing the category
code from the first digit as a level 1 value.
Number of 2 This value ensures the tax engine will identify that the level 1 value
characters ends with the second digit.
Level 2 Details
Type Code HSN_CODE The value entered is based on user discretion.
Type Name HSN_CODE The value entered is based on user discretion.
Start position 3 This value ensures the tax engine will start processing the category
code from the third digit as a level 2 value.
Number of 4 This value ensures the tax engine will identify that the level 2 value
characters ends with the fourth digit.
Tax Regime GST The entry of the tax regime is required in order to use the product
Code fiscal classification in tax rules.

ii) Create Tax Rates

You must create ach unique GST tax rate. The federal and state levels are simultaneously levying GST
taxes called GST1 and GST2 respectively. In the given case study, you will need to create four specific
GST tax rates.

GST GST1 GST2

Rate
12% GST1 6% GST2 6%
18% GST1 9% GST2 9%

iii) Create Tax Rate Rules

17 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
 A tax determining factor (TDF) can be a geographical location, tax registration status, or a product fiscal
classification, or any other criteria which helps drive tax determination. TDF’s are categorized into
logical groupings called tax determining factor classes. Each tax determining factor class contains
determining factor names that constitute the contents of the class. For the given scenario, inventory
categories are used as product fiscal classifications.

The following table outlines TDF details required to fulfill the given scenario.

Attribute Value Comments

Tax Determining Product This determining factor class allows the use of a
Factor Class inventory linked product fiscal classification as a tax determining factor
to create tax rules.
Tax Determining Product Fiscal This determining factor name uses the Oracle ERP
Factor Name Classification Cloud inventory catalog, category, and item
Type functionality to derive an inventory category from an
item populated in a transaction line.

Create Tax Determining Factor Sets

1. Login as a Tax Manager.

2. From the Navigator, select Setup and Maintenance.
3. Search for the Manage Tax Determining Factor Sets task.
4. Click on the Plus Sign icon to create a tax determining factor set with following attributes:

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 Create Tax Condition Sets

1. Login as a Tax Manager.

2. From the Navigator, select Setup and Maintenance.
3. Search for the Manage Tax Condition Sets task.
4. Click on the Plus Sign icon to create tax condition sets with the following attributes:

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 Create Tax Rules

1. Login as a Tax Manager.

2. From the Navigator, select Setup and Maintenance.
3. Search for the Manage Tax Rules task. Choose the tax rule type of Tax Rate Rules.
4. Click the Plus Sign icon to create a tax rule with the following attributes:

Transaction Simulation in the Procure-to-Pay Cycle

Enter invoice pertaining to the purchase of pasta, choose first party tax registration number and validate
in Oracle ERP Cloud Payables.

Payables Transaction Line

Lin Item Unit Price Quantity Line Amount

e
1 Pasta 250 g 1,000 1 1,000
Total in USD 1,000 USD

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 Tax Determination Process

GST tax is levied at 18% on the transaction line amount (1000*18% = 180 USD). The tax engine
examines the item populated on the transaction line and derives the corresponding item category using
the first two digits of the item category. In turn, the tax rate rule defaults the 18% GST tax rate. GST tax
lines are created upon successful completion of the tax determination process.

Tax Lines

Tax Line Rate Name Rate Tax Amount Tax Regime Tax Name Tax Status
1 GST1_9 9 90.00 GST GST1 Standard
2 GST2_9 9 90.00 GST GST2 Standard

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 c. Implementation of Service Codes

In some countries, GST tax legislation may adopt a coding system for levying taxes on services as well as for reporting
purposes. These service codes determine the applicable GST tax rate(s). A taxpayer rendering services has to align with
the proper service codes for accommodating the required compliance guidelines.

Case Study Illustration of Service Codes

ABC renders the following services, which each correspond to five-digit service codes. The GST tax rate applicability is
based on the service code that applies.

Service Code Taxable Services Applicable GST Rate

996511 Road transport services of Goods 5%
996601 Rental services of road vehicles 5%
997133 Accident and health insurance 18%
services
998321 Architectural advisory services 18%

Use product fiscal classifications to classify items for tax determination and reporting purposes. Also, you may use
product category fiscal classifications when Oracle Fusion Inventory is not available.

 Product Category Fiscal Classifications

In this scenario, there are two distinct GST tax rates of 5% and 18%. Create two product category fiscal classifications for
each distinct tax rate. Implement a two-level classification (level 1 and 2 nodes) for each product category fiscal
classification. All of the service codes on which GST is levied at 5% are grouped as child nodes under the 5% level 1
node. In addition, all of the service codes on which GST is levied at 18% are grouped as child nodes under the 18% level
1 node.

For a typical organization that renders or receives taxable services falling under different GST tax rates, it is necessary to
create a level 1 node for each GST tax rate. Under each level 1-node, group service codes that are chargeable at same
GST rate will serve as child nodes.

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The prefix of the two digits AA and CC are added to the child nodes. In the future, if a tax authority changes a GST tax
rate on any service code, then it is easy to maintain. For example, if the GST tax rate on the service code of 998321 for
architectural advisory services changed from 18% to 28%, then a user can simply end date the existing child node
CC998321 that represents the 18% GST tax rate. At the same time, a user can create a new child node under the level 1
node as DD_IN_GST_SAC to represent the 28% GST tax rate.

To configure product category fiscal classifications:

1. Login as a Tax Manager.

2. From the Navigator, select Setup and Maintenance.
3. Search for the Manage Product-Based Fiscal Classifications task.
4. Create a Level 1 Node with the following attributes:

Attribute Value Comments

Code AA_IN_GST_SAC
The value entered is based on user discretion. AA represents the 5%
GST tax rate.
Name AA_IN_GST_SAC The value entered is based on user discretion.
Country United States This value allows the fiscal classification to be restricted to the United
States.
Start Date 01/01/2017 The date from which the GST tax is applicable.
Create child nodes under level 1 node AA_IN_GST_SAC.
Code AA996511 The specific service code associated with the service rendered.
Name Road transport The detailed description of the service rendered.
services of Goods
Country United States This value allows the fiscal classification to be restricted to the United
States.
Start Date 01/01/2017 The date from which the GST tax is applicable.
Create child nodes under level 1 node AA_IN_GST_SAC.
Code AA996601 The specific service code associated with the service rendered.
23 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
 Attribute Value Comments
Name Rental services of The detailed description of the service rendered.
road vehicles
Country United States This value allows the fiscal classification to be restricted to the United
States.
Start Date 01/01/2017 The date from which the GST tax is applicable.

In this manner, all of the services that are taxable at the 5% GST tax rate are created as child nodes under the level 1
node of AA_IN_GST_SAC. AA represents the 5% GST tax rate. Since we have considered AA to represent the 5% tax
rate, there is no need to explicitly mention the percentage in the convention used for the product category fiscal
classification because if the tax rate changes, a user does not have to change the classification name or code.

In the current scenario, you will need to create another level 1 node for the 18% taxable services:

Attribute Value Comments

Code CC_IN_GST_SAC
The value entered is based on user discretion. CC represents the 18%
GST tax rate.
Name CC_IN_GST_SAC The value entered is based on user discretion.
Country United States This value allows the fiscal classification to be restricted to the United
States.
Start Date 01/01/2017 The date from which the GST tax is applicable.
Create child nodes under level 1 node CC_IN_GST_SAC.
Code CC997133 The specific service code associated with the service rendered.
Name Accident and health The detailed description of the service rendered.
insurance services
Country United States This value allows the fiscal classification to be restricted to the United
States.
Start Date 01/01/2017 The date from which the GST tax is applicable.
Create child nodes under level 1 node CC_IN_GST_SAC.
Code CC998321 The specific service code associated with the service rendered.
Name Architectural The detailed description of the service rendered.
advisory services
Country United States This value allows the fiscal classification to be restricted to the United
States.
Start Date 01/01/2017 The date from which the GST tax is applicable.

Create Tax Rates

You must create each unique GST tax rate. The federal and states levels are simultaneously levying GST taxes called
GST1 and GST2 respectively. In the given example, you will need to create four GST tax rates.

GST GST1 GST2

Rate
5% GST1 2.5% GST2 2.5%
18% GST1 9% GST2 9%

24 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
Configure Tax Rate Rules using Product Category Fiscal Classifications

A tax determining factor (TDF) can be a geographical location, tax registration status, or a product fiscal
classification, or any other criteria which helps drive tax determination. TDF’s are categorized into logical groupings
called tax determining factor classes. Each tax determining factor class contains determining factor names that
constitute the contents of the class. The following table outlines TDF details required to fulfill the given scenario.

Attribute Value Comments

Tax Determining Product noninventory This factor class uses product category fiscal
Factor Class linked classification as a tax determining factor.
Tax Determining Product Category This value recognizes the product category
Factor Name fiscal classification chosen by the user in the
transaction page.

Create Tax Determining Factor Sets

1. Log in as a Tax Manager.

2. From the Navigator, select Setup and Maintenance.
3. Search for the Manage Tax Determining Factor Sets task.
4. Click the Plus Sign icon to create a tax determining factor set with the following attributes:

25 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
Create Tax Condition Sets

1. Log in as a Tax Manager.

2. From the Navigator, select Setup and Maintenance.
3. Search for the Manage Tax Condition Sets task.
4. Click the Plus Sign icon to create tax condition sets with the following attributes:

Create Tax Rate Rules

1. Log in as a Tax Manager.

2. From the Navigator, select Setup and Maintenance.
3. Search for the Manage Tax Rules task.
4. Choose the tax rule type of Tax Rate Rules.
5. Click the Plus Sign icon to create a tax rule with the following attributes:

26 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
Transaction Simulation in the Procure-to-Pay Cycle

Enter payables invoice pertaining to a cab rental service and choose first party tax registration number. Validate
payables invoice.

Payables Transaction Line

Lin Type Unit Price Quantity Product Category

e
1 Item 1,000 1 AA996601
Total in USD 1,000.00

Tax Determination Process

GST is levied at 5% on the transaction line amount (1000*5% = 50 USD). The tax engine examines the product category
given in the transaction line and derives the respective level 1 node value, and based on that derivation, the related tax
rate rule defaults the 5% GST tax rate. Tax lines are created upon successful completion of tax determination process.
27 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
Tax Lines

Tax Line Rate Name Rate Tax Amount Tax Regime Tax Name Tax Status
1 GST1_2.5 2.5 25.00 GST GST1 Standard
2 GST2_2.5 2.5 25.00 GST GST2 Standard

28 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
 d. Management of Location-Based Transaction Taxes

In some countries, the applicability of GST taxes may be based on intrastate or interstate supplies. The intrastate supply
of goods or services is when the location of the supplier and the place of supply are within the same state. In contrast,
the interstate supply of goods or services is when the location of the supplier and the place of supply are in different
states.

Interstate and Intrastate Trade Case Study for Illustration

 GST1 is levied on the supply of any goods and services in the course of interstate trade. If the supplier and
customer are located in two different states, this scenario is considered as interstate trade, and the GST1 tax is
applicable on the transaction.
 If the supplier and customer are located in same state, then intrastate trade applies. Thus, the GST2 and GST3
taxes are applicable on the transaction.
 Party locations for the trade classification are determined based on the ship-from location and bill-to location.

Ship From Location (State) Bill to Location (State) GST Taxes Applicable
California New York GST1
California California GST2 & GST3

Tax Rules Configuration

The place of supply is the location where the supply of goods or services is deemed to have taken place for a specific tax.
In the case of the GST1 tax, the place of supply is the bill-to location.

For the GST1 tax, the tax definition has a tax rule default setting which designates the place of supply as the bill to
location. The GST1 tax applicability is based on an evaluation of whether or not the ship-from location state does not
equal the bill-to location state. With this background, a user may define a tax applicability rule that validates the
transaction line and determines the GST1 applicability.

For the GST2 and GST3 tax, the tax definitions each have tax rule default settings which designate the place of supply as
the bill to location. The GST2 and GST3 tax applicability is based on an evaluation of whether or not the ship-from
location state equals the bill-to location state. Based on this context, a user may define a tax applicability rule that
validates the transaction line and determines the intrastate taxes applicability.

29 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
Tax Applicability Rule Creation

 Geography Tax Determining Factor

A tax determining factor (TDF) can be a geographical location, tax registration status, product fiscal classification, or any
other criteria which helps drive tax determination. TDF’s are categorized into logical groupings called tax determining
factor classes. Each tax determining factor class contains determining factor names that constitute the contents of the
class.

The following table outlines TDF details required to fulfill the given scenario.

Attribute Value Comments

Tax Determining Geograph This determining factor allows the use of ship-from and bill-to locations as
Factor Class y criteria in the tax determination process for a given transaction.
Tax Determining State This determining factor name will always check for the state involved in a
Factor Name location.

Create Tax Determining Factor Sets

1. Log in as a Tax Manager.

2. From the Navigator, select Setup and Maintenance.
3. Search for the Manage Tax Determining Factor Sets task.
4. Click the Plus Sign icon to create a tax determining factor set with the following attributes:

30 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
 Create Tax Condition Sets

1. Log in as a Tax Manager.

2. From the Navigator, select Setup and Maintenance.
Search for the Manage Tax Condition Sets task. Click the Plus Sign icon to create two tax condition sets with the
following attributes:

Create Tax Rules

1. Log in as a Tax Manager.

2. From the Navigator, select Setup and Maintenance.
3. Search for the Manage Tax Rules task. Choose the tax rule type of Tax Applicability Rule.
4. Click the Plus Sign icon to create tax applicability rules with the following attributes:

31 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
Transaction Simulation in the Procure-to-Pay Cycle

XYZ is located in CA and procured materials from ABC located in NY, and this transaction is subject to the GST1 based on
statutes.

Line Item Unit Price Quantity Line Amount Bill to State Ship from State
1 A (Inventory 1.83 USD 1000 1,830.00 CA NY
Item)
2 B (Inventory Item) 2.63 USD 1000 2,630.00 CA NY
Total in USD 4,460.00

32 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
The following table outlines the Oracle ERP Cloud procure-to-pay flow from the perspective of the buyer XYZ:

Activity Explanation Accounting

Create a Purchase  Supplier ABC has been defined with a site address located in the No Accounting
Order (PO) state of NY. Impact
 The XYZ Business Unit is associated with a location in the state of
CA.
 Save the PO, which triggers the tax determination process and
displays interstate tax lines with the GST1 tax applied to the PO.
Assume that the GST1 18% tax rate is applicable, and the
calculated tax is $802.80 (4460*18%).
Create Payables  Enter payables invoice matching to the PO receipt and choose Dr. Payables
Invoice Matched first party tax registration number. Tax determination process is Accrual
to a PO Receipt triggered with tax point basis as invoice and creates a tax line. 4,460.00
Dr. GST1
Recovery
802.80
Cr. Supplier
Liability
5,262.80

Tax Line

Tax Line Rate Name Rat Tax Amount Tax Tax Name Tax Status Tax Jurisdiction
e Regime
1 GST_18 18 802.80 GST GST1 Standard CA

33 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
 e. Implementation of Self-Assessed Taxes

GST self-assessment or reverse charge is required in several countries for certain business situations, and in these cases,
the purchasing organization is responsible for remitting the self-assessed GST taxes directly to the local tax authority.
Since these taxes calculated on the invoice are not included in the amount payable to the supplier, they are accounted
as a tax liability of the purchasing organization.

Case Study for Illustrating Self-Assessment

As an example, the supply from an unregistered dealer to a registered dealer will result in the obligation of the
registered dealer as the receiver of goods to self-assess GST and assume the liability to pay the tax directly to the local
government.

 Self-Assessment of Taxes (Reverse Charge)

In order to trigger automatic self-assessment of taxes, the following setup below must be performed.

1. Enable Self-Assessment for First Party Registration

a. Navigate to the Manage Tax Registrations task.
b. Query for the respective legal reporting unit tax profile > access the Tax Registrations tab > click on the Plus
Sign icon to create the tax registration for the legal reporting unit.
c. In the General tab, enable the checkbox Set as self-assessment (reverse charge). This triggers self-assessed
taxes on Oracle ERP Cloud Payables transactions. This self-assessment applies to all the taxes of the tax regime
chosen at header level of the legal reporting unit tax registration.

2. Update the Third Party or Third Party Site Tax Profile

To define a tax registration for the supplier or the supplier site for the GST tax regime:

a. Navigate to the Manage Tax Registrations task.

b. Query for the respective third party or third party site tax profile > access the Tax Registrations tab.
c. Click on the Plus Sign icon to create a tax registration.
d. In the Registration Details section, select the tax registration status of Not Registered for the unregistered
supplier.

3. Create Tax Determining Factor Set

A tax determining factor (TDF) can be a geographical location, tax registration status, product fiscal classification, or any
other criteria which helps drive tax determination. TDF’s are categorized into logical groupings called tax determining
factor classes. Each tax determining factor class contains determining factor names that constitute the contents of the
class.

34 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
The following table outlines TDF details required to fulfill the given scenario.

Attribute Value Comments

Tax Determining Factor Registration This value allows you to drive tax rules by registration information.
Class
Tax Determining Factor Registration This value will allow registration status verification of parties
Name Status involved in a transaction.

Create Tax Determining Factor Set

1. Log in as a Tax Manager.

2. From the Navigator, select Setup and Maintenance.
3. Search for the Manage Tax Determining Factor Sets task.
4. Click the Plus Sign icon to create a tax determining factor set with the following attributes:

4. Create Tax Condition Set

Create one tax condition set with the following attributes to verify a supplier’s tax registration status.

5. Create Tax Registration Rule

Create a tax registration rule with the following attributes to designate taxes as self-assessed in the situation of an
unregistered supplier.

35 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
After completing the required configuration, when an invoice is entered in Oracle ERP Cloud Payables and is validated,
tax determination will be executed to calculate any taxes that are applicable. In this context, the supplier and supplier
site address are evaluated to see if they are registered or unregistered.

If the supplier or supplier site is registered, then the tax rule criteria are not satisfied, and the default registration setting
based on the supplier ship-from source is used. Here, even if the first party legal reporting unit (bill to) is set up with
the set for self-assessment box checked, the rule for tax registration does not evaluate to true because the supplier or
supplier site is registered.

If the supplier site is not registered, tax is defaulted on the supplier invoice and the self-assessed flag is marked, and the
self-assessed tax treatment was applied after invoice validation. At the time of invoice validation, Oracle ERP Cloud
Payables generates both self-assessed tax lines and self-assessed tax distribution lines. Upon executing create
accounting, accounting entries are created for any self-assessed tax lines.

Transaction Simulation in the Procure-to-Pay Cycle

XYZ is located in CA and procured materials from ABC located in NY, and the GST1 tax applies to this purchase
transaction. ABC is an unregistered supplier.

Lin Item Unit Quantity Line Amount

e Price
1 A (Inventory Item) 1.83 USD 1,000 1,830.00
2 B (Inventory Item) 2.63 USD 1,000 2,630.00
Total in USD 4,460.00

The following table explains the Oracle ERP Cloud Procure-to-Pay flow from the perspective of the buyer XYZ.

Activity Explanation Accounting

Create a Purchase  The supplier ABC is defined with a tax registration record created No Accounting
Order (PO) having a registration status of Not Registered Using the Manage Impact
Tax Registrations page.

 Save the PO, which triggers the tax determination process and
displays tax lines with the GST1 tax applied to the PO. Assume
that the GST1 18% tax rate is applicable. The GST1 tax is $802.80
(4,460*18%)

36 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD
 Activity Explanation Accounting

Create a Payables  Enter payables invoice matching to the PO receipt and choose Dr. Payables
Invoice Matched to first party tax registration number. Tax determination process is Accrual
PO Receipt triggered with tax point basis as invoice and creates a tax line. 4,460.00
Dr. GST1
Recovery
802.80
Cr. Supplier
Liability
4,460.00
Cr. GST1 Tax
Liability 802.80

Tax Line

Tax Rate Rate Tax Tax Tax Tax Tax Self-

Line Name Amount Regime Name Status Jurisdiction Assessment
1 GST_18 18 802.80 GST GST1 Standard CA 

37 | CASE STUDY SPOTLIGHT: INTRODUCTION TO GOODS AND SERVICES TAX COMPLIANCE IN ORACLE ERP CLOUD