Tax base amount refers to amount on which tax percentage will be applied for tax amount calculation
Discount base amount refers to amount on which discount percentage will be applied for discount amount calculation.
Company selling a product to customer, product price 100, tax rate 10% and discount 5%
There can be below four approaches for handling discount and tax amount calculation:
Base amount for discount calculation can be net (product price).
Base amount for discount calculation can be gross (product price + tax).
Base amount for tax calculation can be net (product price).
Base amount for tax calculation can be net (product price - discount).
The approach for deciding discount base amount and tax base amount varies from country to country. Each country has its own approach for deciding base amount for tax calculation and discount calculation.
Note: Combination of (Gross discount base & net tax base) is very rarely used, used only with jurisdiction codes.
Configuration for Tax base amount and Discount base amount in sap
Configuration for tax base amount and discount base amount can be done at company code level as well as at jurisdiction level.
If jurisdiction is not being used in the company code, then settings made at company code level are applied.
If jurisdiction is used in the company code, then settings made at jurisdiction level takes precedence and setting at company code level is ignored.