How "refund_discrepancy" product is created in Xero and a way to avoid it

If the refund is done as a lumpsum amount in any Shopify order, then it will not be synced with the individual products but will rather be synced as "refund_discrepancy" product in Xero invoice. When you refund in Shopify, the refund in Shopify should have the products listed to avoid refund discrepancy. Below are the screenshots for refund at line item level in Shopify.

With our app, returns are synced in a manner very similar to the Sales (just reverse). We specifically create Credit Note for the returns.

If the refund/return in Shopify had the products listed, the Credit Note will have all those products very similar to the Invoice for the sale. It will also show the method through which the refund was processed - Shopify, PayPal, etc.

Any refund discrepancy related items are synced as No tax.

Our app considers the tax charged on the order in Shopify to apply the tax in the invoice in Xero. If there has been no tax charged on the order in Shopify, our app will not consider the tax.

If you refund the order at line item level in Shopify then tax is applied in Shopify and our app receives the tax data from Shopify and syncs it to Xero.

If you do not refund the order at line item level then the tax is not applied in Shopify so our app does not receive the tax information from Shopify so tax is not synced to Xero.