Get started with Tax Calculation

This article provides information about how to get started with Tax Calculation. The sections in this article guide you through the high-level design and configuration steps in Microsoft Dynamics Lifecycle Services, Regulatory Configuration Service (RCS), Dynamics 365 Finance, and Dynamics 365 Supply Chain Management.

The setup consists of three main steps.

1. In Lifecycle Services, install the Tax Calculation add-in in your Lifecycle Services project.
2. Set up the Tax Calculation feature. This setup isn't specific to a legal entity. It can be shared across legal entities in Finance and Supply Chain Management.
3. In Finance and Supply Chain Management, set up the Tax Calculation parameters by legal entity.

High-level design

Runtime design

The following illustration shows the high-level runtime design of Tax Calculation.

1. A transaction, such as a sales order or purchase order, is created in Finance.

2. Finance automatically uses the default values of the sales tax group and the item sales tax group.

3. When the Sales tax button is selected on the transaction, the tax calculation is triggered. Finance then sends the transaction information to Tax Calculation.

4. Tax Calculation matches the transaction information with predefined rules in the tax feature to find a more accurate sales tax group and item sales tax group simultaneously.

   • If the transaction information can be matched with the Tax Group Applicability matrix, it overrides the sales tax group value with the matched tax group value in the applicability rule. Otherwise, it continues to use the sales tax group value from the transaction information.
   • If the transaction information can be matched with the Item Tax Group Applicability matrix, it overrides the item sales tax group value with the matched item tax group value in the applicability rule. Otherwise, it continues to use the item sales tax group value from the transaction information.

5. Tax Calculation determines the final tax codes by using the intersection of the sales tax group and the item sales tax group.

6. Tax Calculation calculates tax, based on the final tax codes that it determined.

7. Tax Calculation returns the tax calculation result. The Sales tax page shows the tax calculation result.

High-level configuration

The following steps provide a high-level overview of the configuration process for Tax Calculation.

1. In RCS, create the Tax Calculation feature. If you're using version 10.0.39 or later, use the Globalization Studio workspace in Finance instead of RCS.

2. Set up the Tax Calculation feature:

   1. Select the tax configuration version.
   2. Create tax codes.
   3. Create a tax group.
   4. Create an item tax group.
   5. Optional: Create tax group applicability if you want to override the default sales tax group that is entered from customer or vendor master data.
   6. Optional: Create item group applicability if you want to override the default item sales tax group that is entered from the item master data.

3. Complete the Tax Calculation feature. If you configure your tax feature in RCS, you must publish it.

4. In Finance, select the Tax Calculation feature.

After you complete these steps, the following setups are automatically synced from the Tax feature setup to Finance:

• Sales tax codes
• Sales tax groups
• Item sales tax groups

The remaining sections in this article provide more detailed configuration steps.

Prerequisites

Before you can complete the remaining procedures in this article, the following prerequisites must be met:

• You must have access to your Lifecycle Services account, and you must have a deployed Lifecycle Services project that has a Tier 2 or above environment that runs Dynamics 365 version 10.0.21 or later.

• You must create an RCS environment for your organization, and you must have access to your account. For more information about how to create a RCS environment, see Regulatory Configuration Service Overview.

• The following features must be turned on in the Feature management workspace of your deployed Finance or Supply Chain Management environment, based on your business needs:

  • Tax Calculation Service
  • Support multiple VAT registration numbers (In the 10.0.39 update, this feature can no longer be enabled through Feature management. It's now controlled by the Support multiple VAT registration numbers parameter on the Tax calculation parameters page.)
  • Tax in transfer order

  If you're using version 10.0.39 or later, enable the following additional features in the Feature management workspace:

  • Globalization features
  • Enable Globalization feature setup for Tax Calculation Service
  • Enable applicability rules value lookup for Tax Calculation Service (optional)

• The following features must be turned on in the Feature management workspace of your deployed RCS environment.

  • Globalization features
  • Prevent Tax calculation feature publishing in Regulatory Configuration Service (For details, see Changes in Tax calculation feature publishing in RCS.)

• The following roles should be assigned as appropriate to the users in your RCS environment:

  • Electronic reporting developer
  • Globalization feature developer
  • Tax engine developer
  • Tax engine functional consultant
  • Tax service developer

Set up Tax Calculation in Lifecycle Services

1. Sign in to Lifecycle Services.
2. Complete the setup for Microsoft Power Platform integration. For more information, see Add-ins overview.
3. Select one of your deployed environments, and then select Install a new add-in.
4. Select Tax Calculation.
5. Read and agree to the terms and conditions, and then select Install.

Configure the Tax Calculation feature

The steps in this section aren't related to a specific legal entity. You must complete this procedure only one time. You can complete it in any legal entity in RCS (if you're using version 10.0.38 or earlier) or in the Globalization Studio workspace in Finance (if you're using version 10.0.39 or later).

Import the correct tax configuration version, based on your Finance version. Follow the steps in Import Electronic reporting (ER) configurations from Dataverse.

1. Follow one of these steps, depending on where you're completing the procedure:

   • In RCS, open the Globalization features workspace, select Features, and then select the Tax Calculation tile.
   • In Finance, open the Globalization Studio workspace, select Globalization services, and then select the Tax Calculation tile.

2. On the Tax calculation features page, select the Add button, and select one of the following feature types:

   • New feature – Create a feature setup that has blank content.
   • Based on existing feature – Create a feature from an existing feature, and copy the content from the existing feature setup.

   Note

   In version 10.0.26 and later, you can import a demo feature for the DEMF demo legal entity. For more information, see Import feature demo data.

3. Enter a name and description for the feature, and then select Create feature.

   After the feature is created, a draft version of it is automatically created. You can select Get this version to rebase the draft version on any completed version.

4. Select the draft version of the feature, and then select Edit. The Tax Calculation setup page is filled in.

5. Select Configuration version. You should see the configuration version that you imported.

   Microsoft provides a default tax configuration for tax calculation. This configuration covers most of the requirements for tax calculation behaviors. It will be updated based on market feedback. If you must extend the configuration to meet specific requirements, see How to build extension in tax service for information about how to generate and select your own tax configuration.

6. After you select Configuration version, several additional tabs appear. Follow the order that is shown here to complete the mandatory tab setup.

   Mandatory setup

   • Tax codes – Maintain master data for tax codes. All tax codes that are created on this tab are automatically synchronized to Finance when you enable the current version.
   • Tax group – Define the tax group master data and the tax codes under the group.
   • Item tax group – Define the item tax group master data and the tax codes under the group.

   Optional setup

   • Tax group applicability – Define a matrix that determines the tax group. If no applicability rules in this matrix match the taxable document from Dynamics 365, Tax Calculation uses the default value on the taxable document line.
   • Item tax group applicability – Define a matrix that determines the item tax group. If no applicability rules in this matrix match the taxable document from Dynamics 365, Tax Calculation uses the default value on the taxable document line.
   • Customer tax registration number applicability – If you have multiple tax registration numbers for one customer, Tax Calculation can automatically determine the correct tax registration number. In the matrix on this tab, define the rules that should be used to make the determination. Otherwise, Finance and Supply Chain Management will continue to use the default tax registration number on taxable documents for sales transactions.
   • Vendor tax registration number applicability – If you have multiple tax registration numbers for one vendor, Tax Calculation can automatically determine the correct tax registration number. In the matrix on this tab, define the rules that should be used to make the determination. Otherwise, Finance and Supply Chain Management will continue to use the default tax registration number on taxable documents for purchase transactions.
   • List code applicability – Automatically determine the value of the List code field through more flexible and configurable rules. In the matrix on this tab, define the rules that should be used to make the determination. Otherwise, Finance and Supply Chain Management will continue to use the default code on taxable documents.

7. On the Tax codes tab, select Add, and enter the tax code and a description.

8. Select Tax component. The tax component is a group of methods that were defined in the previous version of the selected tax configuration. The following tax components are available:

   • By net amount
   • By gross amount
   • By quantity
   • By margin
   • Tax on tax

9. Select Save. More fields become available, based on the tax component that you selected.

10. Use the following options to identify the nature of the tax code:

    • Is exempt
    • Is use tax
    • Is reverse charge
    • Exclude from base amount calculation

    For a use tax scenario, set up a single tax code that has a positive tax rate, and mark it as Is use tax.

    For a reverse charge scenario, set up two tax codes, one of which has a positive tax rate, and the other of which has a negative tax rate but the same rate value. Mark the negative tax code as Is reverse charge. For more information about the reverse charge solution in Finance, see Reverse charge mechanism for VAT/GST scheme.

    For some tax types that should be excluded from the calculation of the tax base amount for price-inclusive transactions (for example, custom duty in some countries or regions), select the Exclude from Base Amount Calculation checkbox. For more information about this parameter, see Calculating tax on top of price when Prices include taxes is enabled.

    Maintain tax rates and the tax amount limits for this tax code.

11. Repeat steps 7 through 10 to add all other tax codes that are required.

12. On the Tax group tab, select the Tax group column, add it to the matrix as the input condition, and then add lines to maintain the tax group master data.

    Here is an example.

    Tax group	Tax codes
    DEU_Dom	DEU_VAT19; DEU_VAT7
    DEU_EU	DEU_Exempt
    BEL_Dom	BEL_VAT21; BEL_VAT6
    BEL_EU	BEL_Exempt

13. On the Item tax group tab, select Item tax group column, add it to the matrix as the input condition, and then add lines to maintain the item tax group master data.

    Here is an example.

    Item tax group	Tax codes
    Full	DEU_VAT19; BEL_VAT21; DEU_Exempt; BEL_Exempt
    Reduced	DEU_VAT7; BEL_VAT6; DEU_Exempt; BEL_Exempt

14. On the Tax group applicability tab, select the columns that are required to determine the correct tax group, and then select Add. Enter or select values for each column. The Tax group field will be the output of this matrix. If this tab isn't configured, the sales tax group on the transaction line will be used.

    Here is an example.

    Business process	Ship from	Ship to	Tax group
    Sales	DEU	DEU	DEU_Dom
    Sales	DEU	FRA	DEU_EU
    Sales	BEL	BEL	BEL_Dom
    Sales	BEL	FRA	BEL_EU

    Note

    If the default sales tax group on your taxable document lines is correct, leave this matrix blank. For more information, see the Runtime design section in this article.

15. On the Item tax group applicability tab, select the columns that are required to determine the correct tax code, and then select Add. Enter or select values for each column. The Item tax group field will be the output of this matrix. If this tab isn't configured, the item sales tax group on the transaction line will be used.

    Here is an example.

    Item code	Item tax group
    D0001	Full
    D0003	Reduced

    Note

    If the default item sales tax group on your taxable document lines is correct, leave this matrix blank. For more information, see the Runtime design section in this article.

    For more information about how tax codes are determined in Tax Calculation, see Sales tax group and item sales tax group determination logic.

16. Set up the applicability of customer tax registration numbers, vendor tax registration numbers, and list codes, based on the business needs.

17. Select Save, and then close the page.

18. Select Change status > Complete. After the status is changed to Complete, the version can no longer be edited.

    • If you configure your tax feature in Finance, this version of the tax feature setup will be visible to each legal entity in Finance.
    • If you configure your tax feature in RCS, you must publish it.

19. In RCS, select Change status > Publish. This version of the tax feature setup will be pushed to the repository and will be visible to each legal entity in Finance.

Changes in Tax calculation feature publishing in RCS

As of version 10.0.39, Tax calculation features can no longer be published in RCS. Instead, you can configure features in the Globalization Studio workspace in Dynamics 365 finance and operations apps. If your finance and operations apps version is earlier than 10.0.39, you can restore the capability to publish in RCS by disabling the Prevent Tax calculation feature publishing in Regulatory Configuration Service feature in the Feature management workspace in RCS.

Set up Tax Calculation in Finance

After you complete the setup in the Configure the Tax Calculation feature section, follow these steps to set up Tax Calculation in Finance.

The setup in this section is done by legal entity. You must configure it for each legal entity that you want to enable Tax Calculation for in Finance.

1. In Finance, go to Tax > Setup > Tax configuration > Tax calculation parameters.

2. On the General tab, set the following fields:

   • Enable advanced tax calculation – Select this checkbox to enable Tax Calculation for the legal entity. If it isn't enabled for the current legal entity, the legal entity will continue to use the existing tax engine to determine and calculate tax.
   • Feature setup – Select a published tax feature setup and version for the legal entity. For more information about how to set up and complete a published tax feature, see the previous section of this article.
   • Business Process – Select the business processes to enable.

3. On the Calculation tab, define the expected rounding rule for the legal entity. For more information about the rounding logic, see Tax calculation rounding rules.

4. On the Error handling tab, define the expected error handling method for the legal entity. Three options are available:

   • No
   • Warning
   • Error

   You can set up an error handling method for each result code in the Details section. Alternatively, if some result codes aren't synchronized from the tax calculation service, you can set up a default method in the General section.

5. On the Multiple VAT registration tab, you can turn on VAT declaration, EU Sales List, and Intrastat separately to work under a multiple VAT registrations scenario. For more information about tax reporting for multiple VAT registrations, see Reporting for multiple VAT registrations.

6. Save the setup, and repeat the previous steps for each additional legal entity. When a new version is published, and you want it to be applied, set the Feature setup field on the General tab of the Tax calculation parameters page (see step 2).