Using tax codes

You use tax codes to specify the following for each type of tax:

• The tax rates in each country
• The way the tax must be calculated
• The tax authority to which the tax must be paid
• The ledger accounts to which the tax amounts must be posted
• The text that must be printed on invoices to which the tax applies

Each type of tax is represented by a tax code. For example, you can use the tax code VAT to indicate value-added tax and DST to indicate destination sales-tax. For each tax code, you must select the VAT Type, which defines the way in which LN handles the tax, and the Kind of Tax.

If you use a tax provider, the information about the tax rates is not used. The tax provider contains all the data required to calculate the tax amounts and returns the amounts to LN. You must still define tax codes to specify the ledger accounts to which the tax amounts must be posted.

Tax codes by country

For the home country of each financial company, you must link the tax codes that apply to the country. You link tax codes to countries in the Steuercodes nach Land (tcmcs0536m000) session.

Single tax rates

If a type of tax in a country consists of only one tax rate, you can define the tax code as a singular tax code. You specify the tax rate, the maximum amount, and other details, in the Einstufige Steuersätze (tcmcs0132m000) session.

Aggregate tax

The aggregate tax functionality is a method of setting up calculation methods for multiple tax codes grouped under one aggregate tax code in a grid-like user interface. The amounts to be calculated are dependent on the outcome of calculations for other tax codes, grouped under the aggregate tax code (cumulative), or are the result of independent calculations (parallel).

Multiple tax codes

If a type of tax in a country consists of several parts that must be paid to different tax authorities, you must define the tax as a multiple tax code for this country. For each part, you must create a multiple tax code line in the Mehrstufige Steuercodes (tcmcs0535m000) session. LN assigns a sequence number to each line.

The tax on the multiple tax code lines can be calculated in the following ways:

• Parallel

  Individually for each line

• Kumuliert

  Including the tax amounts of previous lines

Next, you specify the tax rates for each multiple tax code line in the Mehrstufige Steuercodes (tcmcs0535m000) session.

No-tax tax codes

LN cannot create, finalize, and post transactions if no tax code is available. Consequently, you must define a tax code for transactions that are not subject to taxation. To define the tax code for non-taxable transactions, select the Steuercode bei Steuerfreiheit check box in the Steuercode nach Land (tcmcs0136s000) session.

Zero rate tax codes

Taxable transactions on which no tax must be paid are considered as transactions with a zero tax rate rather than as non-taxable transactions. For such transactions, you must set up tax codes with zero rates.

Tax exemption can apply, for example, for the following reasons:

• The goods or services are not taxable.
• The goods transfer to or from specific countries is not taxable
• The transactions are related to service operations in specific situations.
• The business partner holds an exempt certificate.

Usually, if no tax is levied on a transaction, some additional information, such as a reference to the tax law that states the exception, or the business partner's tax exemption certificate number, must be printed on the invoice. Depending on the type of tax, you can use a reason code linked to the tax code or you can link a text to the tax code to contain this information.

Tax ledger accounts and dimensions

You must specify the ledger accounts to which LN must post the tax amounts, for each financial company. In each financial company of your system, use the following sessions:

• Kaufmännische Daten für einstufige USt-Code-Positionen (tfgld0571m000), for single tax codes.
• Kaufmännische Daten für mehrstufige USt-Code-Positionen (tfgld0570m000), for multiple tax codes.

If dimensions are linked to the tax ledger accounts, for invoices LN derives the dimensions from the financial business partner group control accounts. For journal vouchers, LN derives the dimensions from the ledger account of the journal.

If mandatory dimensions are linked to the tax accounts and no dimensions are defined for the transaction ledger account, LN uses the dimensions that you specify in the Kaufmännische Daten USt-Codes (tfgld0171s000) or the Kaufmännische Daten für mehrstufige USt-Code-Positionen (tfgld0170s000) session.

Shifted tax

The responsibility for the payment of value added tax can be shifted from the supplier to the customer. In such a situation, you can define a value added tax code of the Verlegt type. LN does not add the calculated tax amount to the invoice amount but posts the tax amount to a separate ledger account to be dealt with later.

The shifted tax amount is posted to the sales tax account or the purchase tax account. Simultaneously, a reverse entry is generated on a shifted tax contra-account. In the tax analysis the amount is included twice:

• As an entry on the purchase tax account or the sales tax account.
• As a reverse entry on the Shifted Purchase Tax or Shifted Sales Tax account.

Uses of shifted tax codes Among others, shifted tax is used as follows:

• Shifted tax is used in The Netherlands in relation to legislation concerning the responsibility for tax payment on the invoices from subcontractors to the main contractor.
• In the European Union, shifted tax can be used for purchase invoices from other EU countries. Such purchase invoices do not state any tax, but when you post them you must calculate a fictitious tax amount against the national tax rate. This tax amount is included on the tax report as both chargeable and payable.
• Direct pay sales tax codes for purchases must be of the Verlegt type.

Group tax codes

A group tax code is a method to link multiple individual tax codes to a transaction. If withholding tax and/or social contributions apply to an invoice as well as value added tax or sales tax, you can use a group tax code.

A group tax code must include:

• One tax code of the Umsatzsteuer kind of tax, set up either for value added tax tax or for sales tax.

• One of the following:

  • One or multiple tax codes of the following kinds, as required:
    • Einbehaltene Einkommensteuer
    • Einbehaltene Sozialabgaben
    • Sozialabgaben (Unternehmeranteil)
  • One or multiple Nicht einbehalten tax codes.

If the invoice-from business partner's tax classification indicates that payments of their invoices are subject to withholding tax and social contributions, LN can link a group tax code to the transaction.

LN verifies that the group tax code corresponds to the business partner's tax classification. For example, if the tax classification indicates that withholding income tax applies and withholding social contributions does not apply, the group tax code must contain a tax code of the Einbehaltene Einkommensteuer kind and cannot contain a tax code of the Einbehaltene Sozialabgaben and/or the Sozialabgaben (Unternehmeranteil) kind.

You can only use group tax codes for the following types of transactions:

• Purchase invoices for cost items and for service items. The invoices must not be self-billed.
• Purchase orders for cost items and service items.

Tax authorities

A tax authority is a government body with jurisdiction over the sales taxes in a specific area. For example, the state of California, the province of Ontario, the county of Dade, and the city of Atlanta.

LN uses tax-authority codes and tax-authority groups to identify the jurisdiction of a specific tax code or tax code level. You can optionally link a tax authority to a single tax code or to a line of a multiple tax code.

You can select and sort tax-analysis report data by tax-authority codes and by tax-authority groups, and you can update the tax rates at once for all the tax codes linked to a tax authority or a group of tax authorities.

Item tax codes

You can link default tax codes to items and to service orders, contracts, and so on from specific service departments, in the following sessions:

• For sales orders:

  Artikel - Voreinstellungen Verkauf (tdisa0102s000) and Artikel - Verkauf (tdisa0501m000)

• For purchase orders:

  Artikel - Voreinstellungen Einkauf (tdipu0102m000) and Artikel - Einkauf (tdipu0101m000)

• For service orders:

  Kundendienste (tsmdm1100m000)

For value added tax, in sessions and transactions in which a tax code is required, LN can display the default tax code. If you use the Standard search order, LN retrieves the tax codes from the following sessions, in the following order:

1. Steuerabwicklung (tctax0138m000)

   The tax code for the tax country and item combination, if you specify one.

2. Artikel - Verkauf (tdisa0501m000)

   The tax code for the item if you specify one.

3. Steuerabwicklung (tctax0138m000)

   The tax code you define for the tax country and an empty Artikel field.