3820446 - What's the system logic for Foreign or Domestic entry field?

We encountered an issue where, if a user's country of residence in the user profile is Japan, and they submit a report with Tokyo as the purchase city, the system does not calculate tax.
Support team told us the reason is that the 'Foreign or Domestic' field of the entry at background is Foreign. It should be Home transaction. 
Why this happened? What's the system logic for 'Foreign or Domestic' entry field?

How system evaluate if entry if Foreign or Home , KBA , CON-EXP-ADM-TAX , Tax Administration , CON-EXP-ADM-FOF , Forms and Fields , Problem