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Dynamics 365 Community / Forums / Microsoft Dynamics AX (Archived) / Sales tax and rounding...
Microsoft Dynamics AX (Archived)

Sales tax and rounding due to exchange rates

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Posted on by André Arnaud de Cal... 291,280 Super User 2024 Season 2

Dear all,

Please share your opinion/experience with the next situation. Probably the regulation is the same or different per country. I would like to hear about all scenarios/local regulations and what is correct or not.

Image you have setup your sales tax and needs to issue invoices in a foreign currency. Due to rounding the sales tax in your company currency can be different compared when you had posted the invoice in your own currency.

Example1:

Imagine you have a legal entity with BGN as accounting currency. If you have the base amount 27.293,04 with 20% Sales tax, the sales tax amount in BGN is 5.458,61.

When you post an equivalent in EUR, the base amount in EUR is 13.954,71 (exch rate: 1,95583). Sales tax in EUR is 2.790,94. When you look at posted sales tax, the amount origin in company currency is indeed 27.293,04, but the sales tax is now BGN 5.458,60 (due to rounding).

This looks innocent for just one cent. Now go to the next example.

Example2:

Imagine you have a legal entity with RSD as accounting currency. If you have the base amount 104.980,44 with 20% Sales tax, the sales tax amount in RSD is 20.996,09.

When you post an equivalent in EUR, the base amount in EUR is 876,67 (exch rate: 119,7491). Sales tax in EUR is 175,33. When you look at posted sales tax, the amount origin in company currency is indeed 104.980,44, but the sales tax is now RSD 20.995,61 (due to rounding).

So here we have a difference of 0,48 RSD.

Now suppose you print or have a regulation to print both currencies on the invoice, the customer will take its home currency and calculates if the Sales Tax is correct. He will find the difference.

What is correct? Is it allowed (per country) that AX will use rounded amount and then calculate the local amounts using an exchange rate? In example 2 the not rounded sales tax amount in EUR is 175,334. When applying the exchange rate on this rounded amount, the correct RSD amount is calculated.

Please provide your insights and local requirements on this.

*This post is locked for comments

  • André Arnaud de Calavon Profile Picture
    André Arnaud de Cal... 291,280 Super User 2024 Season 2 on at
    RE: Sales tax and rounding due to exchange rates

    Fully agree, Victor! The first question cannot be answered by you or me. The answer on the second question is indeed correct AX logic.

  • VictorWien Profile Picture
    VictorWien on at
    RE: Sales tax and rounding due to exchange rates

    I don't have an answer to the first questions.

    For the second one the answer is that in the given example for AX the invoice is treated in transaction currency EUR and converted into accounting currency RSD.

  • André Arnaud de Calavon Profile Picture
    André Arnaud de Cal... 291,280 Super User 2024 Season 2 on at
    RE: Sales tax and rounding due to exchange rates

    Hi Victor,

    Thanks for your comments. I do agree with you referring to my own experiences. As I'm not personally involved in the roll out to Eastern Europe countries, I'm not sure how they use it and should use it.

    Price agreements are created and maintained in EUR, but the payment is done in local currency. The invoice contains both currencies and also the exchange rate. So now the questions are:

    - Is their requirement their way of working or is it a regulation?

    - Is the invoice now in EUR or e.g. RSD? It contains both currencies. The customer is recalculating the TAX based on the local currency not EUR.

  • VictorWien Profile Picture
    VictorWien on at
    RE: Sales tax and rounding due to exchange rates

    For tax calculation in AX the transaction currency is the leading currency. In this example calculation is done in EUR and then converted to the accounting currency RSD. If you send the customer an invoice stated in EUR it is assumed he will pay the invoice and tax in EUR. So he will pay you 175.33 EUR sales tax which is 20,995.61 RSD. If the authorities require to pay sales tax calculated based on GL account balances you need to post the difference in a GL journal directly to the tax code you need to adjust for.

  • Ludwig Reinhard Profile Picture
    Ludwig Reinhard Microsoft Employee on at
    RE: Sales tax and rounding due to exchange rates

    Hello Andre,

    Interesting question :-)

    From a legal tax perspective I am not aware of any specific law/regulation within the European Union that determines how to deal with those rounding differences.

    Yet, I once experienced a similar case where a tax auditor insisted - and ask us to recalculate & pay - taxes based on the EUR amounts; that is the accounting currency amounts, as the company had to file their tax reports in EUR.

    What the tax auditors did was very simple, they took the EUR tax amount and divided it by the tax rate to check the tax base.

    In case there was a difference - even a small penny difference - they asked for an explanation, recalcuated the tax amount based on the calculated tax base and asked the difference to be paid :-(

    Yet, this was the only situation where I experienced something like that and I believe much of the whole issue was caused by a long-term personal "fight" between the tax auditor and the accounting manager.

    To come back to your question:

    In my opinion the base amounts and tax amounts in accounting currency must be correct and the rounding should be done on the foreign currency.

    Hope it helps,

    Ludwig

  • André Arnaud de Calavon Profile Picture
    André Arnaud de Cal... 291,280 Super User 2024 Season 2 on at
    RE: Sales tax and rounding due to exchange rates

    Are there any persons who are able to share there experiences? Please don't be shy... ;)

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