ToDo’s as local taxes change

With the impact of the covid-19 pandemic, many countries have changed their tax laws. There are changes in the taxation process on all continents, and in most cases the sales tax paid by the end consumer is also affected. Here will not discuss changes on financial setup regarding tax values but more operational doing to communicate your possible changes on sales prices to customers.

Dynamics users usually carry out price calculation, price management and pricing in the Oder to Cash process in the central ERP system. This makes sense in view of the numerous commercial influencing factors, as the production process, manufacturing or even a commercial calculation is often mapped. Depending on the target markets and customers, pricing mechanisms are to be managed as net (mostly B2B) or gross (mostly B2C) offers. Based on the different sales channels, commercial customers are therefore usually set up as net price sales channels, whereas end customers (consumers) are supplied with gross sales prices.

VAT in Microsoft Dynamics 365 FO/SCM/C is only shown for the distribution channels or individual customer accounts with the parameter “Prices include sales tax”. Therefore, it is important to carefully consider how and where the prices for sales are managed and shown. In Dynamics 365 FO/SCM/C, a price is initially only a number, and only by defining a sales channel or a buyer it is decided whether the sales price includes VAT or not. The basic considerations should be driven by whether:

  • are commercial and private customers served
  • how are sales prices build
  • which discount models are used for customer groups, if applicable
  • are sales prices used for price marking in retail stores or e-commerce channels

Typically, a company that serves mainly commercial customers will show the sales prices without VAT, whereas a trader that serves mostly end customers with stationary shops or through online platforms must show the prices including VAT.

This overview provides a guide to the possibilities of price management.

In the various B2B sales channels, product price lists are typically communicated electronically as net prices, whereas in consumer business, gross sales prices must always be presented at the POS (point of sale, web shop, …).

Net price as base price, use trade agreement for gross price

Here I show you how to produce at a net sales price on the product master data (sales base price). This can be done using the “Sales price model” as “Contribution ratio” or “Charges percentage”.

Contribution margin

Contribution margin ratio calculates this way:

Both Calculations assume a net purchase price. Alternatively, the cost price can be used as the basis for the sales price calculation.

If you are using the contribution ratio calculation model, the Contribution ratio field must be filled with the percentage value that represents the ratio of purchase price to sales price. As the fomula results only values between 0 and 100 are valid.

Purchase price in 10 €, Sales Price calculated to 20 €

Charges Percentage

If you use the “Charges Percentage” calculation model, enter the profit markup in percent (markup as a multiplication factor) to the purchase price:

Purchase Price is 10 € Sales Price is calculated to 20 €

The basic sales prices are calculated on the base of the purchase price. Since the purchase prices are usually net prices, sales price is also net without any tax.

In order to calculate a retail price including VAT for an online shop or a point of sale, a trade agreement can now be created and the calculations for the tax can be supplemented. It is important that only products with the same tax rate are calculated in one trade agreement.

Create Trade agreement Price with sales tax

As we have now the base net sales price at our product we can create a trade agreement for e.g. a specific channel

First we select the products into the trade agreement of type sales price. As we select the item no price will be loaded into the trade agreement.

To load an existimg price we select “Adjustment”.

Here we can select between Current (means sales price may be from an other posted trade agreenment), cost price, Default sales price, or 0. As we calculated the base sales price before we select this one.

As we have a local sales tax of 19 % we take this to calculate the gross sales price.

The price will be calculated from base sales price (20 €) with as sales tax of 19% to to 23,80 €.

As we give this price to our stores we like to round this price to look a liitle bit more customer friendly.

We have rounding rules setup here to round mostly to .99 ct prices.

Finally we could print out all product or shelf labels of all products with changed prices.

Gross price as base price

For companies that primarily supply end customers, it may be necessary to enter the gross sales price as the base price in the article master data sheet. In this case, no additional commercial agreement is required to display the price as gross at POS or in the online shop.
However, the gross sales price is determined by the tax rate used to calculate the sales price. If you want to use the basic formulas shown above, you must include the relevant taxation of the article in the contribution ratio to calculate the correct gross price.

The contribution ratio for gross prices is calculated as follows:

So as we use 50% contribution ratio (for net prices) the gross contributions ratio calculates to 57,98 as we have 19% sales tax.

If you use the charge percenatge calculation model, charge percentage value has also to be adopted to include tax.

With a net Charge percenatge of 100 % the gross percentage calculates to 138.

In this case, the gross sales prices are now available directly in the item master data.

Using this way prices are not rounded as far you do not create a trade agreement to apply additional rounding rules.

Category Prices Rules

If the change of a sales taxes values is limited in time, a period of validity can also be specified inside the trade agreement. There is also a way to do both calculate gross sales prices and create trade agreement with validation period using “category price rules”.

You can do this step without the preperation as described before. “Category price rules” allows you:

  • to start without a created sales price before
  • calculate a trade agreement sales price on base of purchase, latest purchase, cost price, current price
  • create Trade agreemanent with some options as valid from and to, find next, expire old trade agreements
  • apply same sales price Calculation as explained before, which are called “Margin” and “Markup” here
  • automatical apply round rules to sales price
  • apply rule to multiple items selected through any retail category hierarchy
  • apply only to items without or new prices

Once the calculation and factors for the sales pricing have been determined, this procedure can also be used for “bulk processing items” using the category Price Rules.

A trade agreement journal is generated for the selected products and the selected calculation method is applied.

Whether sales prices are generated with or without sales tax is determined by the contribution ratio or Charges percentage factors that you enter in the calculation. The price journal can then be checked and posted, on demand you can create new labels as well as an integrated feature of Microsoft Dynamics 365 F/SCM/C.

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