Tax engine applicability

The Tax engine (also referred to as GTE) lets you configure tax rules that determine tax applicability, calculation, posting, and settlement, based on legal and business requirements. This article walks you through a tax engine configuration to help you understand how GTE handles tax applicability.

Prerequisites

This document uses India Goods and Services Tax configuration to explain the tax applicability. For more information, see India Goods and Services Tax (GST) overview.

Overview

Tax applicability is the condition under which tax type, tax component, or tax rate are applicable. For example, for India GST, if you sell goods from one state to another state, you need to charge IGST, and the goods you are selling will determine the tax rate. The tax engine provides two ways to handle the tax applicability, lookup and condition. A lookup is mainly used to handle the dynamic applicability rules, and a condition is used to handle the static applicability rules.

The following GTE components are relevant to tax applicability.

Condition

If the applicability rule is always static, use a condition. For example, GST doesn't apply to intra-state inventory transfer in India.

Open Tax (India GST) by selecting the Designer button.

Select the tax component CGST, and select the pencil icon to check the detailed condition.

The condition is actually an Electronic Reporting expression. It comprises the fields on the left in Data source, and Functions on the right. For a list of supported functions, see Formula designer in Electronic reporting (ER).

The following condition means that Taxable Document Type can't be "Invent transfer order receive", "Invent transfer order shipment", or "Invent transfer order". This condition also means that you must specify either HSN Code or SAC.

AND(Header.'Taxable Document Type'<>"Invent transfer order receive",
    Header.'Taxable Document Type'<>"Invent transfer order shipment",
    Header.'Taxable Document Type'<>"Invent transfer order", 
    OR(NOT(Header.Lines.'HSN Code'=""), NOT(Header.Lines.SAC=""))
   )

Enable GST for intra-state inventory transfer order

In this scenario, suppose that the Indian government requires you to calculate GST for intra-state inventory transfer orders if the GST registration numbers are different between the ship from and ship to warehouse.

Structure of the Data source in the formula designer

On the leftmost side of the formula designer, you can find all the fields that are defined in the taxable document and tax document, and the reference model that is defined in the taxable document.

Header
└───Header fields
└───Lines
|   └───Lines field
|       └───Tax types
|           └───Tax components
|               └───Tax measures
Reference models

Change the applicability condition

To change the applicability condition, go to Header > Lines > GST Registration number and Header > Lines > Party GST Registration number. These fields represent the GST registration numbers for the ship from and ship to warehouse. Change the condition to the following.

AND(
    OR(
       AND(
           OR(
              Header.'Taxable Document Type'="Invent transfer order receive",
              Header.'Taxable Document Type'="Invent transfer order shipment",
              Header.'Taxable Document Type'="Invent transfer order"
             ),
             'GST Registration Number'<>'Party GST Registration Number'
           ),
       AND(
           Header.'Taxable Document Type'<>"Invent transfer order receive",
           Header.'Taxable Document Type'<>"Invent transfer order shipment",
           Header.'Taxable Document Type'<>"Invent transfer order"
          )
      ), 
    OR(NOT(Header.Lines.'HSN Code'=""), NOT(Header.Lines.SAC=""))
   )

Select the field from the data source, and use Add data source to add the field into the formula. Make sure to use single quotes for the data source field if there's an empty space in the name, like 'Taxable Document Type'. Use a double quote for the value if there's an empty space, like "Inventory transfer order".

Click Test to test your formula after you finish editing.

Lookup

If the static applicability rules are complex, or it is a dynamic applicability rule, you need to use a lookup.

Lookup for static applicability rules

Select GST, and then select Lookups.

Because a lookup can handle both static applicability rules and dynamic applicability rules, the Source type dropdown list is for this purpose. Use Configuration for the static applicability rule, which means that the data used in the lookup comes from the configuration. Use User data for the dynamic applicability rule, which means that the data used in the lookup comes from the runtime environment.

A lookup is a matrix. The relation of each line is OR, and the relation of each column within the line is AND. If the value of the cell is empty, it means that all of the values satisfy the condition.

In the preceding screenshot, all the data for the lookup of tax type GST comes from the configuration, so the Source type is Configuration.

If you convert the lookup of GST into a condition, it looks like the following code.

OR(
    AND(Exempt=Exempt.No,
        AND('Tax Direction' = "Sales tax receivable",
            'GST Composition Scheme' = NoYes.No,
            'Party GST Registration Number' <> ""
        ),
        AND('Tax Direction' = "Sales tax payable",
            'Export Order' = NoYes.No,
            'GST Registration Number' <> ""
        ),
        AND('Tax Direction' = "Sales tax receivable",
            'GST Composition Scheme' = NoYes.No,
            'GST Registration Number' <> ""
        )
    )
)

Lookup for dynamic applicability rules

Many applicability rules depend on the runtime data. For example, some tax components apply only to certain goods or services, so a different type of tax transaction results in a different tax rate.

Select CESS, and then select Lookups.

In India, CESS is applicable for certain goods and services. In Dynamics 365 Finance, HSN represents goods, and SAC represents services, so the HSN Code and SAC are used in the lookup. The Source type is User data, because the real value of the HSN Code and SAC comes from Finance.

Now, check how the CGST rate is determined. Select CGST > Rate, and then select Lookups.

Runtime data is required to determine the tax rate, so the system hides the Source type and the User data value.

Different goods and services result in different tax rates, so there are HSN Code and SAC. Party GST Registration Number and Tax Direction are used to handle the scenario of purchasing from an unregistered GST supplier. Transaction Date from and Transaction Date to are used to handle different tax rate per periods.

Enable different tax rate for different goods

Different goods can share one HSN code, so the lookup can't satisfy this scenario. You need a different lookup column to handle this scenario.

Select Columns. On the left side, you can find all of the Available columns. The structure is the same as the Data source in the formula designer, except that there are no reference models.

Select Item ID in Available columns to uniquely determine the goods. Select the right-arrow icon to add it to the Selected columns side. If HSN isn't needed, you can select HSN Code in Selected columns, and select the left-arrow icon to remove it.