Skip links

Tax codes – the motor of VAT determination

How tax codes help ERP’s and tax engines get global VAT calculations and reporting right

Tax codes provide the information tax engines, ERP’s or accounting systems need to correctly identify the right VAT, GST or sales tax rates and reporting for any transaction. Whilst there is no standard format, they are typically made-up of a collection of alpha and numerical figures. These capture the key treatments and rules needed to breakdown the VAT rates, calculations and reporting requirements for any transaction.

Information included within common tax codes:

  • Country where the transaction will be taxed
  • Is it a sale, purchase, credit note of other type of transaction
  • Is it a domestic, EU intra-community, exempt, export, import transaction
  • The VAT rate to be used
  • Ship from country if goods

Tax engines or ERP’s use this data for calculating the VAT rate on a transaction, preparing an invoice and generating any necessary VAT invoices and filings. They enable the tax engine to handle the complexities of VAT rules and regulations across different countries or regions, including reverse charge mechanisms and import/export procedures.

However, many systems have rudimentary tax codes – such as SAP – or none at all (the smallest accounting package. This means large-scale  digitally calculating or reporting transactions can be inhibited. This is becoming a major challenge as countries move to live VAT e-invoicing regimes, including the EU’s VAT in the Digital Age digital reporting requirements.

VATCalc can generate or use your tax code for full determination audit

At VATCalc, we can uniquely generate a tax code for your transactions, to be returned to your EPR. Or, via our VAT Auditor product, perform a legislative review of your transaction VAT code against the transaction data to verify any missing data, irregularities or errors that the tax authorities may pick-up on. This helps ensure the correct tax code has been applied.

Or you can consider a full tax engine implementation with our VAT Calculator product. And whether you are using VAT Auditor or VAT Calculator, both can deliver the transaction directly to our returns and e-invoicing product, VAT Filer.


Get our latest news right in your mailbox