This works well, as far as it goes, @lubos. Transactions are simple. But reports are potentially confusing. And the entire goal with this change was to enable reports that support necessary tax filings.
First, you are inflating the
Tax Collected and
Tax Paid amounts on the Tax Summary report, but not on the Tax Transactions report. A similar transaction shows up there like this:
The implication is that no tax was charged/collected or assessed/paid. As it happens, that is actually true. An incoming sales invoice (converted to a purchase invoice) in a reverse charge VAT situation will not include any tax. Yet the Tax Summary will show both collection and payment of tax. And the
Total Purchases column on the Tax Summary will reflect an amount larger than what the supplier billed.
At the same time, the Tax Transactions report shows no tax component at all and a lower
Total Purchases amount matching what the invoice really said and what would be paid.
Perhaps the solution is to change the calculation on the Tax Summary report so
Total Purchases includes the sum of
Tax Collected, Net Purchases, and
Tax Paid. That way, the total will match what has been invoiced. In normal situations, there will be nothing in the
Tax Collected column, so lines for ordinary tax codes will be the same as they are now. The result would be agreement of totals between Tax Summary and Tax Transactions.
If you adopt the suggestion above, I think the Tax Transactions report could be left as is. The
Total Purchases column would match the Tax Summary and the purchase invoices. The
Tax Collected and
Tax Paid columns would be zero, but that would reflect the actual transaction, where tax did not appear on the invoice. This is an improvement over previous workaround solutions using 100% custom tax codes, because transactions using them did not show up at all on Tax Transactions.
Second, is the terminology misleading? The column labels imply that tax charged to customers has been collected, possibly before it has. Likewise tax may have been billed to the business by a supplier, but not actually paid. The terminology isn’t too confusing for normal tax situations. Anyone using accrual basis accounting will probably realize what they mean.
But when you get to a reverse charge situation, confusion is more likely. No tax has been invoiced, collected, or paid, and never will be. The amounts in both columns on the Tax Summary are imputed, or virtual, taxes contributing to calculation of overall, effective amounts. One report (Tax Summary) says they were collected and paid, while the other (Tax Transactions) doesn’t mention them. And the total purchase amounts conflict. My suggestion above resolves the purchase amount conundrum. And there is a valid reason for differences in the
Tax Collected and
Tax Paid amounts on the different reports, although the reason will probably elude some users.
That all points out possible confusion over what “collected” and “paid” mean in a real-world environment where there are both ordinary tax transactions and reverse charge ones. Not only do they mean slightly different things under accrual versus cash accounting, they mean totally different things in reverse charge situations. I don’t have a suggestion to improve that. And it may not be necessary to change anything if other confusions are cleared up. I am curious what others think.
Third, right now, reverse charge tax codes can be applied to sales invoices. Yet they have no effect on the invoice besides showing up. And they affect no accounts and show on no reports. There is no situation I know of where you would apply a reverse charge VAT on a sales invoice, so why allow such a tax code to be applied to sales invoices?