1.2.2.1 Specifying the Tax Application Method

A tax can be a percentage of the component that is to be taxed (such as the principal, brokerage, and so on.), or a flat amount. If you choose to calculate tax as a flat amount, choose the Flat option. If you choose to calculate tax as a percentage of the transaction amount, choose the Rate option. If tax is to be calculated as a flat amount, specify the flat amount.

Example

For tax rule TX01, you have maintained the following details:

Code	TX01
Tax Currency	Local CCY
Tax (Type)	Rate
Rate	1.5
Min. Amount	1,000
Max. Amount	10,000

This tax rule is applied on a securities deal. The deal currency is USD and the local currency is EUR. The exchange rate between the two currencies is 1.9 (where 1.9 units of USD are equal to 1 EUR). The amount involved in the deal is 90,000 USD and tax has to be paid in EUR. Assume that tax is levied on the deal amount in your country.

Before tax is applied on the deal, the minimum and maximum amounts are converted into the deal currency (USD) as follows:

• Min. Amount:USD 1900 (EUR 1000 * 1.9)
• Max. Amount:USD 19000 (EUR 10000 * 1.9)

The tax amount for this deal is calculated as follows:

90000 * 1.5/100 = USD 1, 350 (tax amount in deal CCY)

Tax amount in Local CCY = 1350/1.9 = 710.52 EUR

As this amount is less than the Minimum (Tax) Amount specified for this tax rule, a tax of 1000 EUR is levied on the deal, instead of 710.52 EUR. On the other hand, if the tax calculated was more than the maximum tax amount, 10,000 EUR would be applied as tax, since that is the maximum possible tax that can be levied.

If you have specified a flat amount for the tax rule, then you need not specify the minimum and maximum amount limits.

Note:

The minimum and maximum limits apply for specific rules linked to a Tax Scheme, and not for the entire scheme.