How to Transfer Invoice Tax Variances in Average Costing Organization

Oracle Payables will calculate Invoice Tax Variances when there is a non-recoverable tax that has been calculated at AP invoice entry that was not included on the Purchase Order.    In an average costing organization this tax variance should be transferred to the inventory valuation to ensure that the correct item cost is calculated.     Please see attached video for a demonstration of this functionality in Oracle R12.

Oracle eBTax: Warning – your PO Line Type

From a tax perspective, the line type is critical yet in the majority of cases is overlooked and issues arise. Why?

The line type allows you to either have Quatity or an Amount based but often it is set as Goods by amount or Service by Quantity. The issue is that anything that is Amount based will always have a product type of SERVICE and anything with Quantity based will always have a Product Type of GOODS. This will severely affect your tax determination and compliance if you are not careful.

Oracle ebtax – Tax on Purchase orders or Requisitions for EU VAT

There are very few exceptions where I have had to leave VAT on for purchase orders for EU VAT setups. There are however several reasons why it is best practise to turn it off, including those listed below;
  • As you recover your VAT, VAT on purchases is immaterial to the actual purchase price of the goods as you will claim it back (for the majority of purchases). This can have issues with sign off limits and budgets if tax is included
  • When creating a purchase order for an item that is not in your inventory, you can never truly know whether that item is standard, reduced or exempt from VAT until the invoice arrives
  • VAT and any other type of transactional tax is always recalculated based on the AP invoice and not from the purchase order.
  • The supplier could be non registered for VAT and so none in due
  •  Offset tax cannot be calculated on Purchase Orders so you will in fact only see the positive tax amount and not the negative offset amount that can cause issues
  • No accounting is passed to the GL from purchasing with regards to the VAT calculated
  • If the purchase order VAT amount is different to the Supplier VAT amount then there can be matching issues with the invoice that comes in.
  • Legal Entity information is not added to a PO so any logic linked to the legal entity or legal entity establishment can not be used.

I would only consider Tax on Purchase orders if there are strict budgetary requirements or if tax is not recoverable, you need to pull in the Purchase orders for cash flow purposes or you do not recover VAT.

You can always turn the tax back on if you need it!

Oracle eBTax – do purchasing categories drive tax in eb tax

You can definitely use Purchasing categories to drive your tax in the form of tax rules that use the determining factor of ‘Product – Inventory Linked’

First you need to establish a Product Classification for the Purchasing Categories. Do this by going to;
tax manager–>products–>product classification

then create a new value where you link the ‘Inventory Category Set’ of ‘Purchasing Category’ to your own names ‘Fiscal Classification Type Code’. One you have done this, you can use your newly created Purchasing Category product classification where the determining factor class of ‘Product – Inventory Linked’ (no Class Qualifier) and the determining factor name is the value you just created.