LEGAL ENTITIES IN ORACLE FUSION FINANCIALS

Introduction

Before we dive into the details of Legal Entities let’s acknowledge a fact….when it comes to large organizations, one size doesn’t fit all. For example if a bank has three arms, i.e. Investment Banking, Home Loans & Retail Banking….and If the Home Loans division is not performing well but Investment Banking & Retail Banking is doing well, then the bank would want to shut down just the Home Loans division. The legal obligations to staff, any contractual obligations or law cases or tax implications of shutting down Home Loans division must not impact Investment Banking or Retail Banking, In such case, the bank will create three different Legal Entities, so that each operation has its own legal umbrella. Also, an organization can be present in different countries, with each country having its own legal responsibilities to government with different laws in different countries. In such case, you create separate legal entities.

CREATING LEGAL ENTITY AND JURISDICTION IN ORACLE FUSION FINANCIALS

By going through this Oracle Fusion Financials Training article, user will understand all about Legal Entity in Oracle Fusion General Ledger, so that you get to the grips of... Legal Jurisdictions, and Legal Authorities along with roles of individual legal entity. In the later part of this articles readers will be able to understand set up steps to define Legal Entity screen by screen with proper navigation.

Let us first understand different terms-

What is Legal Jurisdictions?

Legal jurisdiction is where a particular piece of legislation applies for a group of countries or state of particular legislation that apply to legal entities operating in different countries' jurisdictions. Legislation or statutory law is a law which has ability to regulate, authorise, sanction, grant, and declare or to restrict something. In some of the countries, the different jurisdictions are defined at the same geopolitical level and share the same legal authority.

While implementing Oracle Fusion Financials, for the purpose of tax calculation for Oracle Fusion Payables and Oracle Fusion Receivables, Legal Jurisdictions and Authorities are very relevant to define.When we create a legal entity, Oracle Fusion Legal Entity Configurator automatically creates a registration for the new legal entity as well as creating a main legal reporting unit along with its registration. 

Identifying JurisdictionAn identifying jurisdiction is the first jurisdiction we must register with to be allowed to do business in a country. For each legal entity, we need to select an identifying jurisdiction. If there is more than one jurisdiction that a legal entity needs to register with to commence business, select one as the identifying jurisdiction. Most commonly the identifying jurisdiction is the one we use to identify our legal entity.

Income Tax Jurisdiction is another type of jurisdiction which impose taxes on financial income generated by all entities within their jurisdiction. This is being created to properly report and remit income taxes to the legal authority.

What is a Legal Authorities?A legal authority is a government or legal body that is charged with powers to make laws, levy and collect fees and taxes, and remit financial appropriations for a given jurisdiction. For example, the Internal Revenue Service is the legal authority responsible for collecting taxes and the interpretation and enforcement of the Internal Revenue Code of the United States.
Legal authorities are defined in the Oracle Fusion Legal Entity Configurator and Tax authorities are a subset of legal authorities which are defined using the same setup flow.

Managing Legal Entities-A legal entity is a recognized party with rights and responsibilities given by legislation. A legal entity has the right to own property, the right to trade, the responsibility to repay debt, and the responsibility to account for themselves to regulators, taxation authorities, and owners according to rules specified in the relevant legislation. A legal entity's rights and responsibilities may be enforced through the judicial system. A legal entities for each registered companies is defined to record asset, liabilities, expenses and income, to pay taxes or to perform intercompany transactions. A legal entity must comply with the regulations of jurisdictions in which they register. To support local reporting requirements, legal reporting units are created and registered.

A Legal Entity helps to-

• Facilitating local compliance.
• Complying with corporate taxation within local jurisdictions.
• Preparing for acquisitions or disposals of parts of the enterprise.
• Isolating one area of the business from risks in another area. For example, your enterprise develops and leases properties. You can create separate legal entities for development and leasing. This would minimize cross-line of business risk.

The Role of Individual Legal Entities is to -

• Own the assets of the enterprise.
• Record sales and pay taxes on those sales.
• Make purchases and incur expenses.
• Perform other transactions.

Transactions between legal entities require accounting. Accounting for transactions between legal entities under common control is called intercompany accounting. Legal entities can be identified as legal employers. In Oracle Fusion Financials, the employees employed by the legal employer can be assigned as users.

Creating Legal Jurisdictions, Addresses and Authorities: Examples

Let us now see how to define legal jurisdictions and related legal authorities to support multiple legal entity registrations, which are used by Oracle Fusion Tax and Oracle Fusion Payroll.

To create a Legal Jurisdiction follows these steps:

1. Navigate to the Manage Legal Jurisdictions page from the Setup and Maintenance work area by querying on the Manage Legal Jurisdictions task and selecting Go to Task.
2. Select Create.
3. Enter a unique Name, A2F Income Tax.
4. Select a Territory, Argentina.
5. Select a Legislative Category, Income tax.
6. Select Identifying, Yes. Identifying indicates the first jurisdiction a legal entity must register with to do business in a country.
7. Enter a Start Date if desired. You can also add an End Date to indicate a date that the jurisdiction may no longer be used.
8. Select a Legal Entity Registration Code, EIN or TIN.
9. Select a Legal Reporting Unit Registration Code, Legal Reporting Unit Registration Number.
10. Optionally enter one or more Legal Functions.
11. Select Save and Close.

Legal Addresses for Legal Entities and Reporting Units 

To create a legal address for legal entities and reporting units, follows these steps:

1. Navigate to the Manage Legal Address page from the Setup and Maintenance work area by querying on the Manage Legal Address task and selecting Go to Task.
2. Select Create.
3. Select Country.
4. Enter Address Line 1, Parkview Street.
5. Optionally enter Address Line 2, and Address Line 3.
6. Enter or Select Zip Code, 123-456.
7. Select Geography
8. Optionally enter a Time Zone.
9. Select OK.
10. Select Save and Close.

Legal Authorities

Create a legal authority by following these steps:

1. Navigate to the Manage Legal Authorities page from the Setup and Maintenance work area by querying on the Manage Legal Authorities task and selecting Go to Task.
2. Enter the Name, Argentina Tax Authority.
3. Enter the Tax Authority Type, Reporting. Create an address for the legal authority.
4. Select Create.
5. The Site Number (in this example 2001) is automatically assigned.
6. Optionally enter a Mail Stop.
7. Select Country, Argentina
8. Enter Address Line 1
9. Optionally enter Address Line 2, and Address Line 3.
10. Enter or Select Zip Code, 123-456
11. Select Geography
12. Select OK.

Creating Legal Entity

 Let us create a legal entity by following these steps:

1. Navigate to an implementation project that contains the Define Legal Entities task list from the Setup and Maintenance work area.
2. Select Go to Task for the Define Legal Entities task list 
   Following message appears:
   You must first select a scope value to perform the task.
      Select and add an existing scope value to the implementation project.
      Create a new scope value and then add it to the implementation project. 

3. Select Create New.
4. From the Manage Legal Entities page select Create.
5. Accept the default Country, Argentina.
6. Enter Name, Apps2fusion Legal Entity
7. Enter Legal Entity Identifier, Argentina0011.
8. Optionally enter Start Date. When the start date is blank the legal entity is effective from the creation date.

11. Optionally, if your legal entity has employees, select the Legal employer check box.
12. Optionally, if this legal entity is not a payroll statutory unit, select an existing payroll statutory unit to report payroll tax and social instance on behalf of this legal entity.

13. Accept the default Identifying Jurisdiction, A2F Income Tax.
14. Search for and select a Legal Address, Parkview Street, SANTA CRUZ Argentina.

This complete creation of legal Entity “Apps2fusion Legal Entity”

15. In the Legal Entity choice list in the implementation project (just below the implementation project name and code), click Select and Add Legal Entity to choose the legal entity that you just created, and set the scope for the remainder of your setup.
16. Search for and select your legal entity from the Manage Legal Entities page.
17. Select Save and Close.

Legal Entity Registrations

A legal entity registration with the same name as that of the legal entity will be created by default. To verify this, locate the Manage Legal Entity Registrations task and then select Go to Task. To create another registration for the legal entity follow these steps:

1. Navigate to your implementation project from the Setup and Maintenance work area. Verify that the parent Legal Entity scope value is set correctly.
2. Expand the Define Legal Entities task list within the implementation project.
3. Select Manage Legal Entity Registrations Go to Task.
4. Select Create.
5. Enter Jurisdiction.
6. Enter Registered Address.
7. Enter Registered Name.
8. Optionally enter Alternate Name, Registration Number, Place of Registration, Issuing Legal Authority, and Issuing Legal Authority Address, Start Date, and End Date.
9. Save and Close.

Legal Reporting Unit

When a legal entity is created, a legal reporting unit with the same name as that of the entity is also automatically created. To create more legal reporting units or modify the settings follow these steps:

1. Navigate to your implementation project from the Setup and Maintenance work area. Verify that the parent Legal Entity scope value is set correctly.
2. Select Go to Task for the Define Legal Entities task list within the implementation project.
3. Select Create.
4. Enter Territory, Argentina
5. Enter Name.
6. Optionally enter a Start Date.
7. Enter Registration Information.
8. Search for and select Jurisdiction.

In the above screens as we see, we have successfully created Legal Entity name “Apps2fusion Legal Entity” with legal jurisdiction and other relevant details.

Readers, please leave your comments/suggestion if any. Thanks