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Oracle Applications White Paper Oracle Financials Release 12 Setups for 2010 EU VAT Package Solution Based on Tax

Rates

Author: Contributors: Version: Create Date Update Date

Anand Naik Desh Deepak, Amit Jain, and Nigel Chapman 1.2 07-Dec-2009 27-May-2010

Contents

1. INTRODUCTION ......................................................................................................................................................3 1.1 Scope ............................................................................................................................................................3 2. SUMMARY OF CHANGES IN EU VAT PACKAGE EFFECTIVE JANUARY 1, 2010 ...........................................................4 2.1 Changes Addressed in this Note...................................................................................................................4 3. SOLUTION SUMMARY .............................................................................................................................................6 4. SAMPLE SCENARIO................................................................................................................................................7 5. SETUP IN E-BUSINESS TAX AND BILL PRESENTMENT ARCHITECTURE (BPA) ............................................................8 5.1 Setup in E-Business Tax for Order-to-Cash Transactions ............................................................................8 5.2 Setup in E-Business Tax for Payables ........................................................................................................11 5.3 Setup in Bill Presentment Architecture (BPA) .............................................................................................12 6. TRANSACTION PROCESSING IN RECEIVABLES AND PAYABLES FOR INTRA EU SERVICES .........................................14 6.1 Receivables (Order to Cash Flow) ..............................................................................................................14 6.2 Payables (Procure to Pay Flow)..................................................................................................................14 7. EUROPEAN SALES LIST (ESL) REPORT ................................................................................................................15 8. IMPORTANT POINTS AND PATCH DETAILS..............................................................................................................18

Oracle Financials Release 12 Setups for 2010 EU VAT Package My Oracle Support Doc ID 974979.1

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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 o Doc ID: 974979.1 offers a solution based on Tax Rates Doc ID: 1107453.1 offers a solution based on Tax Rules

2. 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


COUNCIL REGULATION (EC) No 143 2008 of 12 February 2008 COUNCIL DIRECTIVE 2008 8 EC of 12 February 2008 COUNCIL DIRECTIVE 2008 9 EC of 12 February 2008

Author
EU Commission

Link
http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:044:0001:0006:EN:PD F http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:044:0011:0022:EN:PD F http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:044:0023:0028:EN:PD F

EU Commission

EU Commission

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.

2.1 Changes Addressed in this Note


2.1.1 Place of Supply 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). Hence, if services are supplied in another EU Member State, they are taxable in the recipients country. 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. There are exceptions to the new rule described above for certain types of services. Examples include: services provided for immovable property, passenger transport services, cultural, educational events, and so on. It also includes ancillary services, short term hiring of means of transport, restaurant and catering services carried out on board a ship, aircraft or trains within the EU.

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

2.1.3 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 customers 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.

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2.1.4 Tax Point Date The tax point date is deemed to be earlier than when the service was completed or 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.

2.2 Changes Not Addressed in this Note


2.2.1 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.

2.2.2 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

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3. Solution Summary
Requirement Setup Summary Explained in Sections

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

Receivables Flow Create Tax Reporting Code for Intra EU services and associate it to a zero-rated Tax Rate Code. Ensure this Tax Rate Code is determined for the Intra EU services invoice lines. Specify this Reporting Code as a selection parameter for ESL report to display the Intra EU services invoice lines. Create Tax Reporting Code for legal message and associate it to a zero-rated Tax Rate Code. Ensure this Tax Rate Code is determined for the Intra EU services invoice lines. Create a template in BPA to print the legal message on Receivables invoice/lines.

5.1.1, 5.1.3, 6.1.1 and 7

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

5.1.2, 5.1.3 5.3 and 6.1.1

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.

5.3 and 6.1.2

Create reverse charge on Intra EU services Payables invoice.

Payables Flow Create or use upgraded/existing Regime to Rate flow set up of the applicable Tax and associated Offset Tax. Ensure applicable Tax is calculated for Intra EU services invoice line. Associated Offset Tax gets automatically calculated. Alternatively, Self Assessed Tax can be configured instead of Offset Tax.

5.2 and 6.2

Oracle Financials Release 12 Setups for 2010 EU VAT Package My Oracle Support Doc ID 974979.1

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

Oracle Financials Release 12 Setups for 2010 EU VAT Package My Oracle Support Doc ID 974979.1

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


5.1 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:

5.1.1 Create Intra EU Transaction Type Tax Reporting Codes i) ii) iii) iv) v) vi) vii) viii) ix) Navigate to E-Business Tax > Defaults and Controls > Tax Reporting Types > Create. Enter appropriate Tax Reporting Type Code and Name. Select Tax Reporting Type in the Reporting Type Purpose drop down. Select Define List of Reporting Codes checkbox. Enable Reporting Type Use for Tax Rate. Any other Reporting Type Use should not be selected for Intra EU Transaction Type. Specify Minimum and Maximum Length of Reporting Codes. Regime and Tax are not mandatory parameters. If entered, Reporting codes would be specific to that Regime and Tax. Enter appropriate Tax Reporting Codes and as per users requirements. These codes are available as selection parameters for filtering transactions in the ESL report. Value entered in Description column is printed on the 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.

The following is a screenshot for creating sample Intra EU Transaction Type Reporting Codesi.e., Services and Triangulation Reporting Codes for United Kingdom

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5.1.2 Create Legal Justification Tax Reporting Codes i) ii) iii) iv) v) vi) vii) Navigate to E-Business Tax > Defaults and Controls > Tax Reporting Types > Create. Enter appropriate Tax Reporting Type Code and Name. Select Legal Justification Message Type in the Reporting Type Purpose dropdown. Date Type should be Text and Define List of Reporting Codes checkbox are automatically selected. Regime and Tax are not mandatory parameters. If entered, Reporting codes would be specific to that Regime and Tax. Reporting Type Use is automatically enabled only for Tax Rate. No other reporting type use should be selected. 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.

Here are the screenshots for creating Legal Justification Reporting Type and Code.

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5.1.3 Associate Intra EU Transaction Type and Legal Justification Reporting Codes to Tax Rate Code i) ii) iii) iv) v) vi) Navigate to E-Business Tax > Tax Configuration > Tax Rates. Enter the appropriate Regime, Configuration Owner, Tax and Status information. Specify Tax Rate Code and Percentage Rate as zero (existing/upgraded Tax Rate Code can also be updated). Navigate to Rate Details -> Tax Reporting Codes -> Specify the Tax Reporting Type Code and Reporting Codes created for Intra EU Transaction Type in 5.1.1 above (UK-INTRA-EU-SERVICES). Navigate to Rate Details -> Legal Justification Message Reporting Codes -> Specify the Legal Justification Reporting Type Code and Reporting Codes created Section 5.1.2 above (UK-INTRA-EU-SERVICES). Only one effective Legal Justification Reporting Type can be associated to a tax rate.

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Heres a screenshot showing the association of the Intra EU Transaction and Legal Justification Reporting codes to Zero-Rated Tax Rate Code.

This is a screenshot of the association of Intra EU Transaction and Legal Justification Reporting codes to Zero-Rated Tax Rate Code.

5.2 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. Steps for Creating Input Tax Rate Code i) Configure Regime to Rate flow for the applicable tax in supplier (Germany) country (existing/updated Regime to Rate can also be used). Page 11 of 18

Oracle Financials Release 12 Setups for 2010 EU VAT Package My Oracle Support Doc ID 974979.1

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.

5.3 Setup in Bill Presentment Architecture (BPA)


Appropriate legal 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 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 Message at the Footer region (and if required on the Lines).

Heres a screenshot of a Sample Template to Print the Tax Invoice Date on the Invoice Header.

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This is a screenshot of a Sample Template to Print the Legal Message on the Invoice Footer.

If required, users can create a similar template for printing legal message at the line level. Note: If an invoice has multiple lines with the same Tax Rate Code that has an associated Legal Justification Text, the message is only printed once.

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


6.1 Receivables (Order to Cash Flow)
6.1.1 Calculate Zero-Rated Tax Rate Code on Intra EU Services Invoice lines Users must ensure that the zero-rated Tax Rate Code (created in 5.1.3 above, to which Intra EU Transaction and Legal Justification Reporting Codes are attached) is determined for Intra EU services invoice lines during tax calculation. 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. 6.1.2 Enter Tax Date on Intra EU Services Invoice On the Receivable invoice, users must manually enter the Tax Invoice Date by navigating to the Tax Information. 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.

This is a screenshot of the Additional Tax Determining Factors UI. This is where you will enter the Tax Date

6.2 Payables (Procure to Pay Flow)


Users must ensure that the applicable Tax (created in 5.2 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.

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7. 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 customers 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 the 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) After entering the mandatory parameters, specify the Intra EU Tax Reporting Type Code and Reporting Code (UK-INTRA-EU-SERVICES - Created in Section 5.1.1 above). 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.

This is a screenshot of the ESL Report Parameters

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Report Parameter Trader VAT No.

Detail/Summary/Both Tax Date From Tax Date To Default for Tax Date (if Null) Site Reported

Show Out of Period Adjustments and Credit Memos

Rounding Rule

Minimum Accountable Unit Tax Reporting Type

Reporting Code-Intra EU Goods

Reporting Code-Intra EU Services Reporting CodeAdditional 1 Reporting CodeAdditional 2

Description 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. 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. Select start tax date for the report. Select end tax date for the report. 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. 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. 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. 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. Enter a minimum accountable unit. This is the smallest unit used for the functional currency amounts. List contains all Tax Reporting Type Codes defined in E-Business Tax. Select the appropriate Intra EU Transaction Tax Reporting Type created in 5.1.1 above. List contains all Reporting Codes 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. List contains all Reporting Codes defined under the Tax Reporting Type Code selected above. Users should specify the Reporting Code created for services here. 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. 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.

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This is a screenshot of the Detail ESL Report

This is a 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. Oracle Financials Release 12 Setups for 2010 EU VAT Package My Oracle Support Doc ID 974979.1

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8. 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 1107453.1, which offers a solution based on Tax Rules. The details given in this document offers another way of configuring the setup for EUVAT 2010 changes with an emphasis on Tax Rates. It is recommended that customers exercise due diligence before making any changes to their existing setups. ii) The Setup described is mainly for identifying and reporting transactions related to Intra EU Services. For Intra EU Goods or Triangulation, customers can refer to this Note and create appropriate setups accordingly. iii) Note: There is a separate Note addressing the setups in Release 11.5.10 (Refer to Note 961600.1) iv) APPLY R12 PATCHES Users should apply the following Oracle patches for their releases:

R12.0: 9031051:R12.ZX.A and 9123675:R12.BPA.A R12.1: 9031051: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 Receivables invoice, Create template in BPA to print Legal Message at footer/ line region of Receivables invoice, Extract Summary and Detailed ESL report in the format explained above. Customers are advised to leverage the solution explained in this note to meet legislative obligations, beginning January 1, 2010.

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