Microsoft Dynamics AX 2012 CU5

Posting sales tax amounts for

intercompany transactions
White Paper

When you post an intercompany transaction, you can select to

post sales tax amounts to the destination legal entity or the
source legal entity.

Author: Leslie Wagner

April 2013
http://go.microsoft.com/fwlink/?LinkID=280023&clcid=0x409
Table of Contents
Overview and definitions ............................................................................ 3

Select which legal entity to post sales tax amounts to for intercompany
transactions ................................................................................................ 3

Modify or view the legal entity for intercompany tax posting on journals ... 4

Reports that can be printed across legal entities ........................................ 4

Example: Posting sales tax to the destination legal entity .......................... 4

Example: Posting sales tax to the source legal entity ................................. 5

Example: Posting sales tax when a sales tax code contains a

nonrecoverable VAT amount ....................................................................... 6

Example: Posting sales tax when a settlement contains a cash discount and
a nonrecoverable VAT amount .................................................................... 7

Example: Posting sales tax amounts when underpayments or

overpayments ............................................................................................. 8

POSTING SALES TAX AMOUNTS FOR INTERCOMPANY TRANSACTIONS

Overview and definitions
In Microsoft Dynamics AX, you can create intercompany transactions, which are transactions between
legal entities of the same organization. Those transactions are posted to general ledger accounts that
are consolidated, or combined, into accounts for a single, consolidated legal entity.
For specific journals, when you post an intercompany transaction that includes sales tax amounts, you
can select to post the sales tax amount to either the source legal entity or the destination legal entity.
Those journals include the General journal, the Accounts payable Invoice journal, and the Accounts
payable Invoice approval journal. Sales tax amounts for intercompany transactions on all other
journals will be posted to the destination legal entity.
To select the legal entity to post sales tax amounts to, use the Legal entity for intercompany tax
posting field in the General ledger parameters form. You also can change the option in the Legal
entity for intercompany tax posting field in the General journal form, the Accounts payable
Invoice journal form, and the Accounts payable Invoice approval journal form.
Before you select to post sales taxes to the source or destination legal entity, you should become
familiar with the following terms.

Term Definition
Intercompany transaction A transaction between legal entities that are part of the same organization
that consolidates the accounts of the legal entities.

Destination legal entity The legal entity that the expense or revenue is being distributed to, or a bank
account.

Source legal entity The legal entity where the payable to the vendor or the receivable to the
customer is recorded.

Select which legal entity to post sales tax amounts to for

intercompany transactions
You can select which legal entity sales tax amounts should be posted to when the taxes are part of an
intercompany transaction. Use the General ledger parameters form to select the option.
1. Click General ledger > Setup > General ledger parameters.
2. Click the Sales tax link.
3. In the Legal entity for intercompany tax posting field, select one of the following options:
 Destination –Post the sales tax amounts for intercompany transactions to the legal entity
that the expense or revenue is being distributed to.
 Source –Post the sales tax amounts for intercompany transactions to the legal entity where
the payable to the vendor, the receivable to the customer, or a bank account is recorded.
Note: If the Apply US Sales and Use tax option is selected in the General ledger
parameters form, you cannot select this option.
Note: The Legal entity for intercompany tax posting field is available only when the
Intercompany configuration key is selected.

POSTING SALES TAX AMOUNTS FOR INTERCOMPANY TRANSACTIONS

Modify or view the legal entity for intercompany tax
posting on journals
The option that you selected in the Legal entity for intercompany tax posting field in the General
ledger parameters form will be displayed in the journal form when you create an intercompany
transaction.
You can change the option in the Legal entity for intercompany tax posting field in the General
journal form, the Accounts payable Invoice journal form, and the Accounts payable Invoice
approval journal form.
All other journal forms will work as if the tax obligation is set to Destination.
1. Open one of the journal forms.
 General journal form – Click General ledger > Journals > General journal.
 Invoice journal form – Click Accounts payable > Journals > Invoices > Invoice
journal.
 Invoice approval journal form – Click Accounts payable > Journals > Invoices >
Invoice approval journal.
2. On the Setup tab, you can view and change the selection in the Legal entity for intercompany
tax posting field.

Reports that can be printed across legal entities

If Source is selected in the Legal entity for intercompany tax posting field in a journal, the
following reports can be printed across legal entities:
 Ledger statement by Ledger Account (LedgerTransStatement)
 Ledger transaction list (LedgerTransListAccount)
 Sales tax specification (TaxTransCode)
 Sales tax specification by ledger transaction (TaxSpecPerLedgerTrans)
 Sales tax transactions – Detail (TaxTransDetail)
 Transaction list by date (LedgerTransListDate)
If you print the reports from the source legal entity, the expense or revenue account from the
destination legal entity will be printed on the reports. If you print the reports from the destination
legal entity, the transaction will not be printed on the reports.

Example: Posting sales tax to the destination legal entity

When you select Destination in the Legal entity for intercompany tax posting field in the
General ledger parameters form, the sales tax amount will be posted to the destination legal entity.
This example assumes that the Amounts include sales tax check box is cleared in the journal form.
Therefore, the amount that is entered in the journal line excludes sales tax.
Assumptions
100.00 invoice
5 percent tax
Source legal entity = A
Account type = Vendor

POSTING SALES TAX AMOUNTS FOR INTERCOMPANY TRANSACTIONS

Account = Contoso, Ltd.
Destination (offset) legal entity = B
Offset account type = Ledger
Offset account = 605120 – Electricity expenses
Accounting entry in Legal entity A

Main account DR CR
Due from Legal entity B 105.00

Accounts payable 105.00

Accounting entry in Legal entity B

Main account DR
605120 – Electricity expenses 100.00

Tax receivable* 5.00

Due to Legal entity A 105.00

*If the Apply U.S. taxation rules check box in the General ledger parameters form is selected,
this amount is included in the expense account.

Example: Posting sales tax to the source legal entity

When you select Source in the Legal entity for intercompany tax posting field in the General
ledger parameters form, the sales tax amount will be posted to the source legal entity, which is the
legal entity that records the invoice.
This example assumes that the Amounts include sales tax check box is cleared in the journal form.
Therefore, the amount that is entered in the journal line excludes sales tax.
Assumptions
100.00 invoice
5 percent tax
Source legal entity = A
Account type = Vendor
Account = Contoso, Ltd.
Destination (offset) legal entity = B
Offset account type = Ledger
Offset account = 605120 – Electricity expenses
Accounting entry in Legal entity A

Main account DR CR
Due from Legal entity B 100.00

Tax receivable 5.00

Accounts payable 105.00

POSTING SALES TAX AMOUNTS FOR INTERCOMPANY TRANSACTIONS

Accounting entry in Legal entity B

Main account DR
605120 – Electricity expenses 100.00

Due to Legal entity A 100.00

Example: Posting sales tax when a sales tax code contains

a nonrecoverable VAT amount
When the sales tax code that is used in an intercompany transaction contains a sales tax amount that
is non-recoverable, the amount that is not recoverable will be posted with the revenue account or
expense account, or to the source or destination legal entity’s expense account.
Nonrecoverable VAT (Value-added tax) is percentage of the tax that a legal entity cannot recover from
the government. In Microsoft Dynamics AX, this amount can be entered in the Pct. exempt from
sales tax field in the in the Values of sales tax codes form. (Click General ledger > Setup >
Sales tax > Sales tax codes. Click Values)
Assumptions
100.00 invoice
20 percent tax
5 percent non-recoverable VAT
Source legal entity = A
Account type = Vendor
Account = Contoso, Ltd.
Destination (offset) legal entity = B
Offset account type = Ledger
Offset account = 605120 – Electricity expenses
Accounting entry in Legal entity A

Main account DR CR
Due from Legal entity B 101.00

Tax receivable 19.00

Accounts payable 120.00

Accounting entry in Legal entity B

Main account DR CR
605120 – Electricity expenses 100.00

605120 – Electricity expenses 1.00

Due to Legal entity A 101.00

POSTING SALES TAX AMOUNTS FOR INTERCOMPANY TRANSACTIONS

Example: Posting sales tax when a settlement contains a
cash discount and a nonrecoverable VAT amount
When an invoice includes a cash discount, and the following conditions are met, the sales tax and
expense amounts will be reduced to reflect the reduced invoice amount:
 The Reverse sales tax on cash discount check box is selected in the Sales tax group form.
 Both of the Cash discount is calculated on amount including sales tax check boxes are
selected in the General ledger parameters form.
 The customer or vendor invoice contains a cash discount.
 The cash discount is granted upon settling a payment to the invoice.
Non-recoverable VAT (Value-added tax) is percentage of the tax that a legal entity cannot recover
from the government. In Microsoft Dynamics AX, this amount can be entered in the Pct. exempt
from sales tax field in the in the Values of sales tax codes form. (Click General ledger > Setup
> Sales tax > Sales tax codes. Click Values)
Assumptions
100.00 Invoice
98.00 Payment
20 percent sales tax
5 percent non-recoverable VAT
2 percent cash discount
Source legal entity = A
Account type = Vendor
Account = Contoso, Ltd.
Destination (offset) legal entity = B
Offset account type = Ledger
Offset account = 605120 – Electricity expenses
Accounting entry in Legal entity A for the invoice

Main account DR CR
Due from Legal entity B 101.00

Tax receivable 19.00

Accounts payable 120.00

Accounting entry in Legal entity A for the payment

Main account DR CR
Accounts payable 117.60

Cash 117.60

POSTING SALES TAX AMOUNTS FOR INTERCOMPANY TRANSACTIONS

Accounting entry in Legal entity A for the settlement

Main account DR CR
Accounts payable 2.40

Cash discount 2.00

Tax receivable .38

Due to Legal entity B .02

Accounting entry in Legal entity B

Main account DR CR
605120 – Electricity expenses 100.00

605120 – Electricity expenses 1.00

Due to Legal entity A 101.00

Due from Legal entity A .02

605120 – Electricity expenses .02

Example: Posting sales tax amounts when underpayments

or overpayments
When an overpayment or underpayment is made, the expense account on the invoice will be adjusted
upon settlement of the payment. In the case of an overpayment, the expense account will be adjusted
to reflect the additional sales tax charge amount. In the case of an underpayment, the expense
account will be adjusted to reflect the reduction in the sales tax charge.
Nonrecoverable VAT (Value-added tax) is percentage of the tax that a legal entity cannot recover from
the government. In Microsoft Dynamics AX, this amount can be entered in the Pct. exempt from
sales tax field in the in the Values of sales tax codes form. (Click General ledger > Setup >
Sales tax > Sales tax codes. Click Values)
Assumptions
100.00 Invoice
124.00 Payment
20 percent sales tax
5 percent non-recoverable VAT
Source legal entity = A
Account type = Vendor
Account = Contoso, Ltd.
Destination (offset) legal entity = B
Offset account type = Ledger
Offset account = 605120 – Electricity expenses

POSTING SALES TAX AMOUNTS FOR INTERCOMPANY TRANSACTIONS

Accounting entry in Legal entity A for invoice

Main account DR CR
Due from Legal entity B 101.00

Tax receivable 19.00

Accounts payable 120.00

Accounting entry in Legal entity A for payment

Main account DR CR
Accounts payable 124.00

Cash 124.00

Accounting entry in Legal entity A for settlement

Main account DR CR
Due from Legal entity B .03

Tax receivable .64

Overpayment account 3.33

Accounts payable 3.33

Accounts payable .67

Accounting entry in Legal entity B

Main account DR CR
605120 – Electricity expenses 100.00

605120 – Electricity expenses 1.00

Due to Legal entity A 101.00

605120 – Electricity expenses .03

Due to Legal entity A .03

POSTING SALES TAX AMOUNTS FOR INTERCOMPANY TRANSACTIONS

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POSTING SALES TAX AMOUNTS FOR INTERCOMPANY TRANSACTIONS