Oracle E-Business Tax and Brexit

As the United Kingdom (UK) leaves the EU from the 1/1-2021; E-Business Tax (ZX/EBTax) setup will require changes.

Disclaimer and warning:

EBTax setup is complex and flexible therefore the example below is unlikely to work with your instance, so please do use a skilled consultant for the changes and test carefully.

All the examples below are from a R12.2.9 Vision instance using:

User: UK User

Responsibility: Tax Managers Vision UK

The examples are from an upgrade so not typical for a greenfield implementation but the principle is the same.

Assumptions after 01-Jan-2021:

  • UK will not be part of the EU customs union
  • UK will treat any EU transaction as pure import/export as it was outside the EU

We will look at two scenarios:

  1. EU-based company: A company and legal entity based in one of the remaining the EU countries
  2. UK-based company: A company and legal entity based in the UK only

There are many combinations of the above like if the UK based company have a registered office in the EU it may be necessary to account for both UK and EU VAT.

EU-Based Company

After Brexit, an EU-based company should treat trade with a company in the UK as outside the EU.

To do this, simply end-date the UK in the EU zone definition.

It is important to end-date in case of back dated transactions.

Also ensure to use 01-Jan-2021 as end-date as this is 01-JAN-2021 00:00 so just after midnight of 31-DEC-2020.

Technically it is 31-DEC-2020 23:00 but time cannot be entered into the End Date field; so avoid entering transactions between 11pm and midnight.

Responsibility: E-Business Tax Managers

Menu: Advanced Setup Options > Tax Zone Types

Click: View Existing Zones

Click: Update

End Date the United Kingdom entry: 01-Jan-2021

Click: Apply

All done; now test!

UK-Based Company

After Brexit, a UK-based company should regard trade with an EU company as normal export/import without respect to VAT registration etc. This means tax rules needs to be changed.

We need two steps in this case:

  1. End-date existing tax rules
  2. Create new tax rules

End-date Existing Tax Rules

Menu: Tax Configuration > Tax Rules

Configuration Owner: Global Configuration Owner

Tax Regime Code: GB-Tax

Tax: GB-VAT

In this case we need to end-date rules with EU related tax rules.

We may normally have EU related tax rules in:

  • Determine Place of Supply
  • Determine Tax Registration
  • Determine Tax Status
  • Determine Tax Rate

Direct Tax Rate Determination: this is normally only used for upgrades and should not contain any EU related rules.

In the Vision example it looks like this:

The tax rules of interest in the above are:

  • GB VAT PLACE OF SUPPLY
  • GB VAT REGISTRATION
  • GB VAT STATUS

There are no “Determine Tax Rate” tax rules in this case. This is because you can pick the tax rate either in “Determine Tax Status” or “Determine Tax Rate” for the same result.

For the purpose of the example the approach is the same for both types of rules.

Again, ensure to use 01-Jan-2021 as end-date as this is 01-JAN-2021 00:00 so just after midnight of 31-DEC-2020.

End-date rule GB VAT PLACE OF SUPPLY

For GB VAT PLACE OF SUPPLY click: Expert Rule Entry

Effective To: 01-Jan-2021

To review the condition sets, click: Next

This rule has the following active condition sets:

  • GB INTRA EU GDS PURCH: Not needed after Brexit as related to EU only
  • GB POS PURCHASE INTRA-EU SERVICES: Not needed after Brexit as related to EU only

As the above condition sets will not be needed after Brexit; no need to create new rules.

After the review, to save click: Next and Finish

End-date rule GB VAT REGISTRATION

For GB VAT REGISTRATION click: Expert Rule Entry

Effective To: 01-Jan-2021

To review the condition sets, click: Next

This rule has the following active condition sets:

  • GB GDS PURCH REV CHG: Not needed after Brexit as related to EU only
  • GB VAT PURCHASE INTRA-EU SERVICES: Not needed after Brexit as related to EU only

As the above condition sets will not be needed after Brexit; no need to create new rules.

After the review, to save click: Next and Finish

End-date Rule GB VAT STATUS

For GB VAT STATUS click: Expert Rule Entry

Effective To: 01-Jan-2021

This rule has the following active condition sets in priority order:

NameResultPurpose
GB EXPORT SALESGB VAT ZEROChecks if goods sale is outside the EU
GB INTRA EU GDS SALE ZERO RATEDGB VAT INTRA EU ZEROChecks if registered inside the EU
GB VAT INTRA-EU SERVICESGB VAT INTRA EU ZEROChecks if registered inside the EU
GB GOODS EXEMPT RATEGB VAT EXEMPTInventory classification of GB Exempt Goods
GB GOODS REDUCED RATEGB VAT REDUCEDInventory classification of GB Reduced Rate Goods
GB GOODS ZERO RATEGB VAT ZEROInventory classification of GB Zero Rated Goods
GB SERVICES ZERO RATEGB VAT ZEROInventory classification of GB Zero Rated Services
GB SERVICES EXEMPT RATEGB VAT EXEMPTInventory classification of GB Exempt Services
GB SERVICES REDUCED RATEGB VAT REDUCEDInventory classification of GB Reduced Rate Services

Most of the above rules will be needed after Brexit except for:

  • GB INTRA EU GDS SALE ZERO RATED
  • GB VAT INTRA-EU SERVICES

One rule needs to be altered to exclude EU conditions:

  • GB EXPORT SALES

After the review, to save click: Next and Finish

Create New Tax Rules

The old end-dated rules we based on the Determining Factor Sets:

  • GB VAT PLACE OF SUPPLY: No new rule needed
  • GB VAT REGISTRATION: No new rule needed
  • GB VAT STATUS: Rules for manual classification and export sales needed

As we cannot reuse the Tax Determining Factor Set used in the end-dated rule sets; we need to create a new one.

Best practise is to split manual/inventory-based classification rules from other rules but in this case, we will just use a single rule set as an example.

So for GB VAT STATUS we need to:

  1. Create one new Tax Determining Factor Set
  2. Create 7 new Tax Conditions Sets using the Tax Determining Factor Set
  3. Create one new Tax Rule using the Tax Condition Sets

Tax Determining Factor Set

The old Tax Determining Factor Set was:

Determining Factor ClassClass QualifierDetermining Factor NameRequiredNeeded
Transaction Generic Classification Transaction Business CategoryNoYes
RegistrationBill From PartyRegistration StatusNo 
RegistrationBill To PartyRegistration StatusNo 
Transaction Input Factor Product TypeNoYes
User Defined GeographyShip FromEU_TAX_ZONENo 
User Defined GeographyShip ToEU_TAX_ZONENo 
GeographyShip FromCountryNoYes
GeographyShip ToCountryNoYes
Product – Inventory Linked GB Product Classification Level 2NoYes

After Brexit we will only need the Determining Factor Classes as per column Needed = Yes

Transaction Generic Classification is not really needed either in the example.

However after Brexit; Registration Status and EU_TAX_ZONE is not relevant any more.

Menu: Advanced Setup Options > Tax Determining Factor Sets

Tax Determining Factor Set/Name: GB VAT BREXIT

Set Usage: Tax Rules

Regime Code: GB-Tax

Associate Tax Determining Factors:

Determining Factor ClassClass QualifierDetermining Factor NameRequired
Transaction Generic Classification Transaction Business CategoryNo
Transaction Input Factor Product TypeNo
GeographyShip FromCountryNo
GeographyShip ToCountryNo
Product – Inventory Linked GB Product Classification Level 2No

Tax Condition Sets

We will need the following condition sets:

Tax Condition Code/NamePurpose
GB VAT BREXIT EXPORTExports
GB VAT BREXIT GOO EXEInventory classification of GB Exempt Goods
GB VAT BREXIT GOO REDInventory classification of GB Reduced Rate Goods
GB VAT BREXIT GOO ZERInventory classification of GB Zero Rated Goods
GB VAT BREXIT SER EXEInventory classification of GB Zero Rated Services
GB VAT BREXIT SER REDInventory classification of GB Exempt Services
GB VAT BREXIT SER ZERInventory classification of GB Reduced Rate Services

Menu: Advanced Setup Options > Tax Condition Sets

Click: Create

Tax Condition Set/Name: GB VAT BREXIT EXPORT

Determining Factor Set Name: GB VAT BREXIT

Click: Continue

Determining Factor ClassClass QualifierDetermining Factor NameOperatorValueIgnore Condition
Transaction Generic Classification Transaction Business Category  Yes
Transaction Input Factor Product Type  Yes
GeographyShip FromCountry  Yes
GeographyShip ToCountryNo Equal ToUnited KingdomNo
Product – Inventory Linked GB Product Classification Level 2  Yes

Click: Create

Tax Condition Set/Name: GB VAT BREXIT GOO EXE

Determining Factor Set Name: GB VAT BREXIT

Click: Continue

Determining Factor ClassClass QualifierDetermining Factor NameOperatorValueIgnore Condition
Transaction Generic Classification Transaction Business Category GB Exempt GoodsNo
Transaction Input Factor Product Type  Yes
GeographyShip FromCountry  Yes
GeographyShip ToCountry  Yes
Product – Inventory Linked GB Product Classification Level 2  Yes

Same procedure for:

  • GB VAT BREXIT GOO RED: GB Reduced Rate Goods
  • GB VAT BREXIT GOO ZER: GB Zero Rated Goods
  • GB VAT BREXIT SER EXE: GB Exempt Services
  • GB VAT BREXIT SER RED: GB Reduced Rate Services
  • GB VAT BREXIT SER ZER: GB Zero Rated Services

Tax Rules

Menu: Tax Configuration > Tax Rules

Configuration Owner: Global Configuration Owner

Tax Regime Code: GB-Tax

Tax: GB-VAT

Select Determine Tax Status and click: Expert Rule Entry

Rule Code/Name: GB VAT BREXIT

Effective From: 01-Jan-2021

Determining Factor Set Code: GB VAT BREXIT

Click: Next

Condition Set Code: GB VAT BREXIT EXPORT

Click:

Pick Condition Set Name: GB VAT BREXIT EXPORT

The above is a long standing “feature”; entering a unique Condition Set Code does not automatically select the name.

Order: 10

Result: GB VAT ZERO

Click: Add or

Condition Set Code: GB VAT BREXIT GOO EXE

Click:

Pick Condition Set Name: GB VAT BREXIT GOO EXE

Order: 20

Result: GB VAT EXEMPT

Do same for remaining order 30-70:

Tax Condition Code/NameOrderResult
GB VAT BREXIT EXPORT10GB VAT ZERO
GB VAT BREXIT GOO EXE20GB VAT EXEMPT
GB VAT BREXIT GOO RED30GB VAT REDUCED
GB VAT BREXIT GOO ZER40GB VAT ZERO
GB VAT BREXIT SER EXE50GB VAT ZERO
GB VAT BREXIT SER RED60GB VAT EXEMPT
GB VAT BREXIT SER ZER70GB VAT REDUCED

Click: Next

Rule Order: 5

Enable: Yes

Click: Finish

All done; now test!

Technical Appendix

Tables:

  • Tax zone type: HZ_GEOGRAPHY_TYPES_B
  • Tax zones: HZ_GEOGRAPHIES
  • Tax zone members: HZ_RELATIONSHIPS
select *
from HZ_GEOGRAPHY_TYPES_B
where GEOGRAPHY_TYPE like 'EU%'
;
GEOGRAPHY_TYPEGEOGRAPHY_USE
EU_TAX_ZONETAX
select *
from HZ_GEOGRAPHIES
where GEOGRAPHY_TYPE='EU_TAX_ZONE'
;
GEOGRAPHY_NAMEGEOGRAPHY_USEGEOGRAPHY_CODE
European Economic CommunityTAXEEC
select
  g.geography_name "Geography Name",
  to_char(r.start_date,'dd-mon-yyyy hh24:mi') "Start Date",
  to_char(r.end_date,'dd-mon-yyyy hh24:mi') "End Date"
from
  ar.HZ_RELATIONSHIPS r,
  ar.HZ_GEOGRAPHIES g
where 1=1 
and r.subject_id=g.geography_id
and r.object_type like 'EU%'
and r.relationship_type='TAX'
and g.geography_name='United Kingdom' 
;
Geography NameStart DateEnd Date
United Kingdom01-jan-1974 00:0001-jan-2021 00:00

Notice the default time for the date is 00:00 at midnight.