Wrong tax calculation issue in EU

[HendrikJa]

Hello,

We are recently switching from WooCommerce to Shopify and have an issue in the tax calculation. Somehow, we cannot find the right option to replicate the correct VAT behaviour in Shopify. I’ll explain the issue: Among others, we sell products with reduced VAT rates (food productes for examples) from our home country Germany and other EU countries. So while the standard VAT rate in Germany might be 19% and in Austria 20%, for food items its 7% in Germany and 10% in Austria. The correct tax calculation as it currently works in WooCommerce is the following:

Germany:

Food Product A

21,95 €

contains 1,44€ VAT at 7%

Austria
Food Product A

22,56€

contains 2,05€ reduced VAT at 10%

In Shopify, we created tax overwrites to get the correct rate: 7% for food collection in Germany, 10% in Austria. We have tried all different combinations of tax and market settings. The closed we get is with dynamic tax inclusion enabled. This is the result:

Germany
Food Product A

21,95 €

contains 1,44€ VAT at 7% (absolutely correct)

Austria:
Food Product A
22,14 €

contains 2,01 VAT

What I think happens is: Shopify (although it shows the correct VAT in Germany, which is weird) calculates like this for Austria:
21,95 € - 19% German VAT (Wrong) + 10% Austrian VAT

However, what it should do is this (and btw, shopifys documentation says it does):

21,95€ - 7% German VAT + 10% Austrian VAT

Does somebody has an answer to this? We can’t be the only EU store to experience this issue.

Thanks in Advance.

[antonvivaldi]

I have the same issue! The overrides are totally broken. I’ve also tried creating tax exempt customers and the base price of the products is wrong too.

Selling food as well…

[Rostislav]

Hi Hendrik

This is expected behavior of Shopify tax engine for tax inclusive settings with dynamic taxation enabled , but it is a bit different from what you showed there :

21.95/1.19 *German VAT removed) *1.20 *Austrian VAT added) = 20.14 .

Shopify always add/deducts standard rates , and the override kicks in only at checkout .

And the actual difference between Shopify’s engine and the calculation that you wanted is not really that much

21.95/1.071.10= 22.56 , 22,56/11010=2,05 . Thus difference is 4 cents only.

Better result may be achieved if “don’t add taxes” option is enabled in markets and you make separate markets for separate EU countries groups (i.e you can group Finland , Sweden and Denmark in the same group with VAT being 25.5, 25 , 25 percent respectively) and you create markups or price reductions for these markets :

Then the price can be adjusted for markets via markup/price reduction in grouped markets and only the reduced VAT from the override is applied

In this example I applied 2 percent markup to increase the price for Austria . VAT 22.39/110*10=2.03