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An Introduction to eTax – Part 1

Why is eTax important?

Before Oracle released R12, tax handling in Oracle was a fairly simple affair. Define a few rates, set a priority hierarchy, set some exemptions but not much functionality beyond that. The result was that for the most part, organisations relied on employees selecting the correct VAT rate, and consequently mistakes were made, potentially leading to financial loss, poor compliance and loss of goodwill from customers and suppliers.

With the release of R12 came eBusiness Tax, or eTax for short. eTax centralises all your tax handling and gives you extensive control over automating your tax calculations, thus reducing the chances of errors. eTax is not a module in its own right, rather it is a rules based engine providing tax calculation services to other modules such as Payables and Receivables. When a transaction is performed in one of the sub-ledger modules, the details are passed to the eTax engine which then determines the applicable tax rate, calculates the tax amount and returns it to the sub-ledger.

In addition to servicing the sub-ledgers, eTax also records all the tax transactions in a central repository to facilitate tax reporting and reconciliation requirements.

Sounds complicated, do I actually need to use it?

eTax is as simple or complex as you need it to be and how you use it will depend on your company and the nature of your business and your transactions. Some companies will not need anything beyond defining some default rates; others may simply need to accommodate Intra EU transactions whilst others may have more complex requirements.

Let’s consider a scenario where your company has a head office located in the UK, but also a number of globally distributed offices supplying both within their own countries and also to other countries (for example a regional office in Germany providing goods or services to Poland). You supply various product types, some of which are subject VAT and some of which are zero rated or exempt, depending on localised tax laws. Now if your invoicing operation is centralised in the UK, for every sales invoice you raise you would have to consider where the office proving the goods or service was registered, where they were selling to, the registration status of the company they were selling to and whether or not the goods or services where subject to VAT. With so many variables it is not surprising if mistakes are made.

eTax can cater for complex scenarios like these and eliminate manual errors, but it does require some configuration to leverage these benefits.

Conclusion

eTax represents a big step forward for managing and reporting your tax requirements. It allows you to automate complex scenarios to improve speed and accuracy.

This is the first in a series of weekly blogs in which I will be covering some of the eTax fundamentals, from defining the Tax Regime and Rates through to defining Tax Rules and how to make them work for your business.

 I hope you find this useful, if you have any questions please reply to this post.

13 Nov, 2012 by

E-Business Suite

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