Manage Tax Calculation Codes

Introduction

The tax calculation code determines how withheld tax is calculated. Tax calculation codes are set up at division level. The code is used for setup of threshold values controlling the size of the tax and whether it will be applied for a certain invoice. The selection criteria that determine which tax calculation code is retrieved are set in 'Tax Calculation Code Selection. Open' (CMS237). The settings are divided into three parts, initial settings, settings related to calculation of the tax base, and settings related to the calculation of the actual tax amount.

Overview

During creation, a tax calculation code and a from date are entered. First, there are four initial settings, which includes 'Tax type' that is required.

Initial settings

You must specify the 'Currency' for limits and values for tax type 1 and 2. However, the local currency of the company or the currency on a customer order can differ from the currency specified on the tax calculation code. The necessary conversion is done during the calculation.

The 'Minimum invoice total value for calculation' field indicates the required invoice value, with or without VAT or sales tax, for a calculation to take place. This setting is only available for tax type 1 and 2. When an invoice is processed, and the invoice total amount, with or without VAT or sales tax, is less than the specified minimum invoice total value for calculation, no tax is calculated. Otherwise, the calculation of tax proceeds.

The last setting in the initial settings is the 'Calculation includes VAT and sales tax' field. The 'Calculation includes VAT and sales tax' check box is selected if VAT and sales tax are included in the amounts during the calculation. This setting affects the minimum invoice total value for calculation and the calculation of the base amount.

Settings for Calculation of Tax Base

Second, there are settings related to the calculation of tax base amount.

The 'Base factor' determines how much of the invoice total should constitute the base amount in the tax calculation.

The 'Base limit type' field allows the selection of limits, which affects the tax base amount. This setting is only available for tax type 1 and 2. The alternatives are 0='No limit on base amount', 1='Lower limit on base amount', and 2='Upper limit on base amount'. Selection of either a lower limit or an upper limit allows for specification of a limit amount. In the case of a lower limit, the base amount is adjusted up to the lower limit amount if the calculated tax base is less than the limit amount. In the case of an upper limit, the base amount is adjusted down to the upper limit amount if the calculated tax base exceeds the limit amount.

Settings for Calculation of Tax Amount

Third, there are two settings related to the calculation of the final tax amount.

The 'Calculation factor' indicates the factor to be multiplied by the base amount to calculate the tax amount.

The 'Lowest tax amount' indicates the minimum tax amount. This setting is only available for tax type 1 and 2. The tax is set to this amount if the calculated tax is less than this amount.

Example of Calculation of Tax Amount

First, a tax base is calculated:

'Calcn incl VAT' is checked, total invoice amount including VAT = 100, 'Base factor' = 0.145220, 'Base limit type' = 1='Lower limit on base amount', 'Lower limit base amount' = 15.

Base amount = 100 * 0.14522 = 14.522 = 14.52.

Lower limit base adjustment: 14.52 < 15, thus base amount is adjusted to 15.

Secondly, the actual tax amount is calculated:

Base amount = 15, 'Calculation factor' = 0.200000, 'Lowest tax amount' = 4.

Tax amount = 15 * 0.200000 = 3.

Lowest tax adjustment: 3 < 4, thus tax amount is adjusted to 4.