VAT treatment on settlement discounts

Dear all,
I wonder if someone can shade some light on the issue we are having with the settlement discounts treatment when setting up a German company.
Usually, SAP currently assumes that the customer will make payment in the prescribed discount period and hence the VAT is calculated (and shown on the invoice) based on the discounted price. For example: Early settlement discount shown in the invoice header u2013 10% if paid within 30 days
Value (ignoring the discount)      £100.00
VAT (£90 @ 15%)                      £13.50
Invoice total                              £113.50
The customer actually pays the company £103.50 (£90 + £13.50)
However, it looks like this calculation is not valid for Germany as the VAT must be calculated on the gross amount, that is, ignoring the discount. It is not allowed to reduce the calculation basis for VAT in advance. In the example above, the total invoice amount should be £115.00.
We have been playing around with the "Tax base is net value" and the "Discount base is net value" fields in the Company Code Global Data customizing point but it doesn't seem to be working correctly. We guess that the first one should be deactivated and the second one should be activated.
We have also checked the payment terms in case the reason could be on the way the payment terms have been defined but again, we haven't found anything.
Any help on this would be highly appreciated.
Thank you very much in advance. Best regards
Pablo

Hi Lokesh,
Thanks for that. We have read through that document but still a bit concerned about how this fix will work. We tested it last night and can see that the accounting for VAT is correct but the invoicing apparently isn't as it shows VAT calculated after PPD. We have logged it again with the help desk now we have more information.
Thanks for your help

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VAT Calculation in UK Localization
Now I require a SDK help on this...
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When I opened the created Purchase Order in SAP Business One; and reassign the same Payment Terms then it considers the discount and appropriately calculate the VAT.
Here is the sample code snipu2026
''' <summary>
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    ''' <remarks></remarks>
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        Dim lstr_Err As String = ""
        Dim lint_ReturnCode As Integer = 0
        Dim lstr_ObjKey As String = ""
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Line Level Amounts :-
Unit Price :- 500 GBP
Line Discount % :- 0.00
Price After Discount :- 500 GBP
Vat Group :- I1
Gross Price :- 587.50 GBP
Total Lc :- 500 GBP
Tax Amount LC :- 87.50 GBP
Gross Total Lc :- 587.50 GBP
Header Level Amounts :-
Total Bef.Discount :- 500 GBP.
Header Discount :- 0.00 %
Tax :- 87.50 GBP
Total Payment Due :- 587.50 %
But the expected result has to be as follows :-
Unit Price = 500 GBP
Cash Discount Percent :- 2 %
500 - 500*2 % = 490
490 * 17.5 % = 85.75 GBP
So the Tax Amount at the Line level should be 85.75 GBP instead of 87.50 GBP
I would appreciate if someone could review my code and rectify the problem.
Regards,
Jennifer Smith.

Still no luck
I was just investigating this and found that;
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My client has a scenario where in some purchase orders , he receives the discount after tax.
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