How does Scope determine the taxability (tax-free or taxable) of receipts? What are reason codes in this context?

First of all, Scope determines the taxability of the invoiced shipment. This depends primarily on the transportation route.

Taxable (transportation within the EU)
Tax-free import (transportation from a third country to the EU)
Tax-free export (transportation from the EU to a third country)
Third country transport (transport from a third country to a (possibly different) third country)

Scope also recognizes two special cases, which cannot be determined automatically but must be set manually by the user

Offshore
Bonded goods

A receipt then first uses the taxability of the shipment to decide whether a receipt line with tax-free (FREE) or taxable (VAT) is proposed.

The following applies within Germany:

Taxable → VAT
Tax-free → FREE
Tax-free export → FREE
Tax-free import → FREE if the “Tax-free in import/export” flag is set in the ChargeType, otherwise VAT
Third country transportation → FREE
Offshore → FREE
Bonded goods → FREE

If the invoice recipient is linked to the invoice issuer by a VAT group or is marked as “Embassy/Embassy”, tax-free (FREE) is always suggested, regardless of the taxability of the shipment.

If the invoice recipient is from a third country, tax-free (FREE) is always suggested, regardless of the taxability of the shipment. If in this case, the taxability is manually changed to taxable (VAT), the reason code “third country” is also set, and no tax is shown.

If the invoice recipient is from another EU country, the reason code “Reverse Charge” is also set for the VAT result and no tax is shown.

Overview of Reason Codes

Tax	Reason-Code	Description	Example (for a local branch in Germany)
Taxable	--	Transportation within the EU billed to a local customer is subject to VAT on all amounts, excluding taxes and customs duties. The applicable local VAT rate will be applied, which is 19% in Germany and 20% in Austria, for example.	Shipment from Germany to France, with the invoice recipient being located in Germany.
Taxable	RC - Reverse Charge	Transportation within the EU billed to a customer with a valid VAT ID from another EU country is subject to the Reverse Charge mechanism. This means that all amounts, excluding taxes and customs duties, must be charged using Reverse Charge. Since the system is unable to determine the applicable tax rates for individual services, no additional tax will be displayed on the invoice. Instead, the standard legal text, effective from January 1, 2010, will be included: “According to European VAT law, the amount in your country is subject to the Reverse Charge procedure.”	Shipment from Germany to France, with the invoice recipient being a business in France that possesses a valid VAT ID.
Taxable	RC3 - Reverse Charge (3C)	The Reverse Charge mechanism for third countries is utilized by a customer in Germany to report amounts that would be taxable if billed to a local business, but the invoice recipient is from a country outside the EU. As a general rule, for all other customers, transactions billed to non-EU recipients are treated similarly to those designated with the reason code '3C'.	Shipment from Germany to France, invoice recipient = United States
Tax free	EX - Export	This reason code is automatically assigned for invoicing EU businesses when the shipment involves exporting goods from the EU to a non-EU country. Exceptions apply for customs duties and taxes (as outlined below).	Shipment from Germany to the United States
Tax free	IM - Import	This reason code is automatically assigned for billing to EU businesses when the shipment involves importing goods from a non-EU country into the EU. However, this default applies only to cost types that are categorized as freight in the master data. For other cost types that are not marked as freight, Scope defaults to taxable (VAT) for local customers or uses the Reverse Charge mechanism for EU customers who are not local. Exceptions to this rule include customs duties and taxes (see below).	Shipment from the US to Germany, where the main transport was conducted in the US, results in all freight charges being exempt from tax. However, services rendered in Germany are subject to tax for the invoice recipient based in Germany.
Tax free	3T - Third Country Transport	This reason code applies when a shipment is transported from a non-EU country to another non-EU country. For instance, if goods are shipped from Hong Kong to Singapore and the invoice recipient is located in the EU and possesses a valid VAT ID, this reason code will be utilized. In cases involving non-EU recipients, the reason code 3C will be applied instead. Exceptions to this rule include customs duties and taxes.	Shipment from Hong Kong to Japan, invoice recipient = Germany
Tax free	DT - Customs Duties	This reason code is applied when a cost type is categorized as “Customs Duties”. By default, Scope assigns this category to cost types DT, ET, and VT. Regardless of the overall taxability of the order (for instance, tax-free exports or offshore transactions), all invoice line items associated with a “Customs Duties” cost type will receive this reason code.
Tax free	TX - Tax	This reason code is applied when a cost type categorized as “Taxes” is selected. This is commonly seen in cases such as insurance, where taxes are already included in the amounts. Regardless of the overall taxability of the order (for example, tax-free exports or offshore transactions), all invoice line items associated with a “Tax” cost type will be assigned this reason code.
Tax free	3C - third country	Billing to a business entity located in a non-EU country. Exceptions apply as noted in RC3 regarding customs duties and taxes.	Shipment from Germany to France, invoice recipient = United States
Tax free	IN - Internal	This reason code is used for internal invoices, which occur when the invoice recipient shares the same VAT ID as the issuer. Once the system recognizes an invoice as internal, this reason code is applied universally across all relevant line items, with the exception of customs duties. Users cannot apply VAT to such invoices.	Invoice recipient = Internal
Tax free	OS - Offshore	In Germany, shipments related to the US Army are classified as “third country” transactions. The system only recognizes that the shipment is imported into Germany; however, it cannot automatically identify the US base. Therefore, with special authorization, the entire shipment can be designated as 'Offshore.' In this case, the Reason Code “Offshore” will be applied to all relevant line items, excluding customs duties.	The shipment has been designated as “Offshore."
Tax free	NT - Not Taxable	This reason code is used as the default for tax-free amounts when the order does not provide clear information as to why no tax is being applied.	Simple shipment without a specified departure or destination (e.g., a warehouse order); taxability is not set on the order. If a line item for such an order is manually marked as tax-free, the reason code “NT” will be applied.