If your company is internationally active, you likely have value-added tax (VAT) obligations. Approximately 170 countries employ a VAT system; with the United States being a notable exception. Although the tax is common, it is often mismanaged or not optimized to provide the maximum benefit to a business. Effective management of your VAT obligations will positively affect and add value to your organization.
We believe there are four pillars to an effective global VAT strategy focused on business operations:
- Structural – Focused on understanding the VAT impact of supply flows, legal structure, operating model, revenue sources and transaction management.
- Automation – Automating VAT decisions and processes not only increases operational efficiency and decision-making accuracy, it also supports an increasing demand from tax authorities for more data.
- ompliance – The critical final step in effective VAT management is to ensure that VAT data and payments are reported accurately and on time.
- Oversight – Visibility and control through competent individuals and effective use of technology will give leadership the confidence that the business processes impacted by VAT are well managed.
We recommend the following be considered when evaluating your VAT position:
- Supply chain and transaction management: Supply chains typically involve a number of separate transactions involving vendors, customers and other group companies. Each transaction has its own VAT implication and taken as a whole can lead to some complex outcomes, particular where supplies across international borders are involved.
- Risk and compliance assurance: VAT-registered business, through the act of charging, collecting and remitting VAT, are effectively unpaid tax collectors for the tax authorities. However, there is a significant responsibility placed on businesses to ensure they make accurate decisions and comply with all the rules and regulations as well as file VAT returns and make VAT payments on a timely basis.
- Audit support: Tax authorities routinely inspect the VAT records managed by businesses and this can lead to the identification of errors and assessment.
- Liability rulings: At an individual transaction level, it is occasionally uncertain how VAT should be accounted for. Knowledgeable resources can be leveraged to help determine the correct VAT rule and rate. However, where there continues to be uncertainly business to submit a ruling request to a tax authority developing and presenting arguments to obtain the most favorable ruling.
- Corporate transactions: Some of the largest and most complex transactions that an organization enters into occur when businesses are bought and sold, particularly if there are multi-jurisdictional. VAT plays a significant and integral part in this.
If this is the first time your business has taken a strategic view of VAT, a high-level assessment of your VAT position will be a valuable starting point. A focused analysis can help you develop a foundational view of your structure, supply flows, contracting arrangements, compliance obligations, systems capabilities and automated VAT processes from which more detailed strategic and commercial decisions can be made.