Oracle Financials for India (OFI)

OFI: Intercompany Invoicing & IRISO & Inter Organization

Transfer Flow with Goods & Service Tax Act (GST)

Author: Sumit Dhariwal, Srikanth Reddy

Creation Date: 24-MAR-2016
Last Updated: 23-Nov-2017
Document Ref:
Version: 2.0

Organization: Oracle India Private Limited.

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Document Control

Change Record

Date Author Version Change Reference

24-Mar-2016 Sumit Dhariwal 1A Initial Document
05-Mar-2017 Srikanth Reddy 2.0 Frozen Document
05-Mar-2017 Srikanth Reddy 1A Initial Do

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Reviewers

Name Position
Rajnish Kumar Director, Tax Development
V S Baburaj Product Strategy Director

Audience

Name Position
12.1.X Implementation team
12.1.X Customers
12.2.X Implementation team
12.2.X Customers

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Contents
Document Control ..................................................................................................................................................................................................................... 2
1 - Introduction .............................................................................................................................................................................................................................. 4
2 - Scope ......................................................................................................................................................................................................................................... 4
3 - Setup .......................................................................................................................................................................................................................................... 5
4 – Transaction Flow of Intercompany & IRISO......................................................................................................................................................................... 9
4.1 Flow Diagram for Internal Requisition-Internal Sales Order (IR-ISO) Transaction .................................................................................................................... 9
4.2 Transaction Flow of Inter Organization Transfer (IOT) .......................................................................................................................................................... 19
5 – Accounting Entries ............................................................................................................................................................................................................... 24

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1 - Introduction
Internal Requisition – Internal Sales Order (IR-ISO) or Inter Organization (Inter Org) transfer refers to the business process where in there will be requirement of
material from one department/division of an enterprise from another department/division for either using the material in further manufacturing or trading of material.
In this business process, the division, which dispatches the goods, will be called a “Source Organization” and the one, which receives, will be called “Destination
Organization”.

An enterprise may have multiple business divisions. There are scenarios where in one-division uses the material produced in another division. The usage could be
further production of goods or trading of the goods manufactured.

Intercompany invoicing - is done when one organization offers products / services to another operating unit. For example, when a customer order is processed
through the order cycle and then invoiced, the selling organization records journal entries to accounts receivable, revenue, and as applicable tax and freight. The
shipping warehouse records journal entries to its inventory asset and cost of goods sold accounts. When this scenario involves a selling organization in one business
unit but a shipping warehouse in a different business unit, additional accounting must take place. The shipping organization needs to bill the selling organization at
transfer price, and the selling organization needs to make the corresponding payment.

Note that intercompany invoicing is possible only between two operating units. You cannot invoice between two inventory orgs if they belong to the
same operating unit.

The intercompany AR invoice is the transaction used to record intercompany receivable accounting for the shipping organization: debiting intercompany AR (at
transfer price), tax, and freight and crediting intercompany revenue.

The intercompany AP invoice is the transaction used by Oracle to record the payable accounting for the selling organization: debiting intercompany COGS (at transfer
price) and freight and crediting the intercompany payable account. Ideally, these transactions should happen automatically and as soon as possible after the shipment
takes place. This can be done using the intercompany invoicing process within Oracle applications.

Oracle supports intercompany invoicing when:

• Shipping operating unit is different from selling operating unit and

• Receiving operating unit is different from procuring operating unit

2 - Scope
Goods & Service Tax Act Scope in IR-ISO & Inter Org transfers

Post GST there will be impact on existing IR-ISO and Inter Org transfers. In the current regimes whenever material is moved out one must need to issue a Document
sequencing number and charge the tax liability. Like in case of Excise & VAT at the time of shipment, there is requirement to update respective liability in case of
transfers also.

However, with the implementation of GST the same is simplified. Now whenever there is transfer between 2 different registration numbers only then the taxes are
applicable.

As per the current GST rules each state will have one GST Registration number. Hence, whenever there is transfer across states the GST will be applicable.

IR-ISO can be performed across operating units.

Inter Org will always be within the operating units.

Before exploring further, first we also need to understand the type of taxes applicable under GST Regime. Following will be the taxes, which will be applicable under
GST:

Central GST (CGST): This will be applicable for all the transactions.

State GST (SGST): This will be applicable on all the transactions within state except interstate transactions. This will be charged along with CGST.

Inter State GST (IGST): This will be for stock transfers across state. This will be charged along with CGST.

So based on the above following will be tax combinations under GST Regime:

Normal Sales > CGST + SGST

Stock Transfer > CGST + IGST

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 Vision India Limited (Legal
Entity)

Vision India Vision India

Operating Unit 1. Operating Unit 2

Bhopal Inventory (IL

Gwalior Inventory Mumbai Inventory Indore Inventory (IL Nagpur Inventory
Manufacturing with Standard
Organization Organization Average_Costing_Inventory ) Organization
Cost)

Madhya Pradesh(MP) Maharashtra(MH)

((MP)

Based on the above there can be following combinations is possible:

Flow Example Tax Applicable

Transfer between Bhopal & No Tax
Intra State Transfer between 2 IO’s of same OU. Gwalior
(Within MP)
Transfer between Bhopal & CGST+SGST
Transfer between 2 IO’s across OU’s. Indore

Transfer between Bhopal & CGST + IGST

Inter State Transfer between 2 IO’s same OU across Registration No. Mumbai
(MP to MH) Transfer between Bhopal & CGST + IGST
Transfer between 2 IO’s across OU’s across Registration No. Nagpur

3 - Setup

A. Core Module setups

B. OFI GST setups

A. Following is the check list for core module setups:

Sl No Setup Name Module Source Organization Destination Organization

1 Define Inventory Organization Oracle Inventory Required Required

2 Define Location Oracle Inventory Required Required

3 Define Organization Parameter Oracle Inventory Required Required

4 Define Receiving Parameters Oracle Inventory Optional Required

5 Define Sub Inventory Oracle Inventory Required Required

6 Define Item Oracle Inventory Required Required

7 Define Item cost in both Org Oracle Inventory Required Required

7 Define Shipping Network Oracle Inventory Required Required

8 Define Intercompany Relation Oracle Inventory Required Required

9 Define Customer (Internal) Oracle Receivable Required Optional

Define AR Transaction Type & Import Source Oracle Receivable Required Optional

10 Define Supplier (Internal) Oracle Purchasing Optional Required

11 Define Price List Oracle Order Management Required Required

10 Define Shipping Parameter Oracle Order Management Required Optional

(Raise Business event)
11 Define Global Parameter Oracle Order Management Required Optional
(Raise Business event)
**Please refer respective module user reference manual for detailed guidance.

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 B. Following is the check list for OFI-GST setups:
Sl No Setup Name Source Destination
Organization Organization

1 Define Regime Required Required

2 Define Tax Type Required Required

3 Define Tax Rate Required Required

4 Define Tax Category Optional Required

5 Define Tax Rules Required Required

6 Define Item Classification Required Required

7 Define Document Sequencing Required Optional

Setup
8 Define Claim Term Definition Optional Required

9 Define First Party Registrations Required Required

10 Define Third Party Registrations Required Optional

(For Internal Customers)
* Please refer white paper on GST setup for detailed guidance.

** For IR-ISO & Inter Org Transfer Transactions the Tax type will always have Tax Point Basis (TPB) as “Delivery”.

Profile Options:

INV: Intercompany Invoice for Internal Orders is set to ‘Yes’

Setup flow specific to Intercompany Invoicing:

Start/Receiving> OU1: Vision India Operating Unit

End/Shipping > OU2: Vision India Operating unit2

 Receiving Inventory Org: IL2 - IL Manufacturing with Standard Cost (OU1: Vision India Operating Unit)

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 Shipping Inventory-Org: IN6 - IL Average_Costing_Inventory - OU2 (OU2: Vision India Operating unit2)

 Intercompany Relations

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 Click on Intercompany Relations

 Here we need to associate Internal customer and Internal supplier

 Based on this setup Intercompany AR invoice and Intercompany AP invoice will get generate
 Shipping Networks

 At Shipping network we need to do setup for transaction held between which inventory organizations

 Here we can associate which is receiving org(To) and which is shipping org(From)

 Also we need to mention the FOB point whether it can SHIPMENT or RECEIPT

 And we have the provision to mention the receipt routing method

 For IRISO/Inter-company transactions transfer type would be INTRANSIT always

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  Here we need to define the default accounting code combination for inter-company/IRISO/Inter-Org transfer transactions

 These account will get generate when the intercompany/IRISO transactions happened

4 – Transaction Flow of Intercompany & IRISO

4.1 Flow Diagram for Internal Requisition-Internal Sales Order (IR-ISO) Transaction

 Create Internal Requisition and approve the same in Receiving Organization

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 At requisition need to mention the source organization as shipping organization based on location tag

 Submit Concurrent: Create Internal Orders at Receiving Organization

 Run Order Import in Shipping Organization to create Sale Order:

 Order Management Import OrdersOrder Import Request

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 View log

 Query internal sale order with sale order number

 Tools > India Tax Details

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 Shipping Transaction/Pick Release in Sending Organization

 Query the Order # in the shipping transaction form

 Launch pick Release

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 Post pick release and before ship confirm we can verify the tax details and amount from India Tax Details form

 After Pick release, ship the transaction:

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 Create Internal Receipt at Receiving Organization

 Tools > India Tax Details

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  Close the form and click on Header button to get the Receipt Number

 Run concurrent: Create Intercompany AR Invoices

Note: We can create Intercompany AR invoice at shipping organization once the material received/delivered into receiving organization

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 Navigate to India Local Receivables

 Run program: Auto Invoice Import Program

 Query the Intercompany AR transaction

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 Distributions

 Navigate to India Local Inventory

 Run program: Create Intercompany AP invoices

Note: Intercompany AP invoice will be eligible to create after intercompany AR invoice created

 Run concurrent: Payable Open Interface Import

 View Output

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 Distributions

 Check the tax details at Tools > India Tax Details

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4.2 Transaction Flow of Inter Organization Transfer (IOT)

Flow Diagram for Inter Organization Transfer (Inter Org) Transaction:

Create Inter Org

Transfer

Navigate to Tools > India Tax Details. Review defaulted

taxes or Add taxes if defaulting mechanism is not used

Save to complete the

transfer

Create Receipt in the

Destination Organization

Navigate to Tools > India Tax Details. Review defaulted

taxes & Confirm.

 Navigate to Inter –Organization Transfer form

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 Click on Transaction Lines

 Navigate to Tools > India Tax Details

 Here we can apply the GST taxes based on transaction behavior

 Change the organization to Receiving Organization

 Create Receipt in receiving Organization with reference of shipment number from Inter-Org Transfer form

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 Select the record and enter the Location where you are receiving the material

 Navigate to Tools > India Tax Details and verify the tax details and amount

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 Close the form
 Click on Header button to get the Receipt Number

 Delivery the material into sub-Inventory

 Navigate to receipt > Receiving transaction

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5 – Accounting Entries

Intercompany Invoicing, IR-ISO and Inter- Org Transfer(IOT) accounting depends on the FOB point selected in the shipping network. There are 2 type of FOB:

- Shipping
- Receipt

Accounting entry of IR-ISO when FOB is selected as “Shipment”:

Event Account Sending/Receiving Amount Amount

Intercompany Receivable Account Sending Org Debit
CGST/SGST/IGST Liability Account Sending Org Credit
Ship Confirm
Intransit Inventory Receiving Org Debit
Intercompany Payable Account Receiving Org Credit

Intercompany Account Receivable Account Sending Org Debit

AR Invoice Intercompany Receivable Account Sending Org Credit

CGST/SGST/IGST Tax Interim

Recovery Account

ISO Receipt
Receiving Inventory Account (Non
Recoverable Tax) Receiving Org Debit
Intransit Inventory Account Receiving Org Credit

Intercompany Intercompany Payable Account Receiving Org Debit

AP Invoice Supplier Liability Account Receiving Org Credit

Tax Recovery Account Debit Receiving Org Debit

Claim
Tax Interim Recovery Account Receiving Org Credit

Accounting entry of IR-ISO when FOB is selected as “Receipt”:

Event Account Sending/Receiving Amount Amount

Intransit Inventory Sending Org Debit
Ship Confirm
CGST/SGST/IGST Liability Account Sending Org Credit

Intercompany Account Receivable Account Sending Org Debit

AR Invoice Intercompany Receivable Account Sending Org Credit

Intercompany Receivable Account Sending Org Debit

Intransit Inventory Account Sending Org Credit
CGST/SGST/IGST Tax Interim
Recovery Account
ISO Receipt

Receiving Inventory Account (Non

Recoverable Tax) Receiving Org Debit
Intercompany Payable Account Receiving Org Credit

Intercompany Intercompany Payable Account Receiving Org Debit

AP Invoice Supplier Liability Account Receiving Org Credit

Tax Recovery Account Debit Receiving Org Debit

Claim
Tax Interim Recovery Account Receiving Org Credit

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