Ingrid Rosenlund

Problem:

Sales exempt from VAT (sales tax) that are incorrectly posted with a “purchase” tax direction instead of a “sales” tax direction are not included in the Norwegian VAT declaration. Therefore, the VAT declaration does not comply with the Norwegian VAT reporting requirements. The Norwegian Tax Administration (Skatteetaten) reconcile the reported VAT declaration with the reported SAF-T (Standard Audit File-Tax) file, and this reported problem results in a discrepancy.

Background:

Dynamics 365 FO determines the sales tax direction based on the account specified in the Account field. If the general ledger parameter "tax direction requirement" is set to "yes", the system validates that a tax direction is entered on a main account. This setup allows posting of sales exempt from VAT on accounts that are set up with a “purchase” tax direction. The result is that the transaction is posted with the correct sales tax code, but the sale is classified as a “purchase” tax transaction.

Mapping of the tax code to the VAT declaration allows both “sales” and “purchase” tax directions, so we expect the sale to be included in the VAT declaration. However, the VAT declaration only includes sales exempt from VAT that are posted with a “sales” tax direction and not those posted with a “purchase” tax direction. The result is incorrect reporting of sales exempt of VAT to the Norwegian Tax authorities.

Legal reference:

The legal reporting requirements in Norway stipulate that sales exempt from VAT must be reported for each account and in total. This is outlined in The Norwegian Bookkeeping Act (Bokføringsloven) Section 5, which specifies statutory financial reporting, and further detailed in the Norwegian Bookkeeping Regulations (Bokføringsforskriften) Section 3, specifically item 8.

Example:

A sale of NOK 10,000 is posted as a credit to main account 6730 and a debit to offset account 2999. The general ledger parameter "tax direction requirement" is set to "yes", and main account 6730 is configured with a “purchase” tax direction. The sale is recorded with sales tax code 6, which is set up for domestic sales exempt from VAT.

Due to this setup the sale is posted with a “purchase” tax direction and is therefore not included in the VAT reporting to the Norwegian government. In the event of a tax audit by the Norwegian Tax Administration (Skatteetaten), the VAT reporting would not reconcile with the SAF-T reporting (as emphasised earlier). This discrepancy could result in serious sanctions from the Norwegian authorities, according to the Norwegian Tax Administration Act (Skatteforvaltningsloven), Section 11-1.

Solution for solving the problem:

To ensure that Dynamics 365 FO complies with Norwegian laws and regulations, all sales reported with tax codes set up for sales must be included in the VAT declaration, regardless of the tax direction. Both sales posted with a “purchase” tax direction and a “sales” tax direction must be included.

Alternatively, the problem could be resolved by implementing an extended validation when posting the general journal to ensure that tax codes for sales exempt from VAT are not posted with a "purchase" tax direction.