Change of a company's business model

In short: changing a business model reshapes how Value Added Tax (VAT) and GST flow through a company. The indirect tax consequences — registration, invoicing, inventory, customs and system configuration — are easy to overlook during restructuring, yet handling them poorly leads to penalties, disputes and cash-flow delays. This article explains the risks, the structures involved, the work streams to assess, and the questions to answer before migrating.

Why does a VAT/GST strategy matter when changing a business model?

A well-designed VAT/GST strategy is fundamental to operating a business successfully. Beyond ensuring compliance, it strengthens commercial performance by supporting smooth inventory management, streamlined sales and invoicing, fewer customer disputes, and delivery on time and within budget.

Indirect taxes influence nearly every part of a company’s operations — invoicing, inventory control, supplier transactions and cash-flow management. Because their reach is so broad, the risks they carry can have a profound effect on commercial sustainability, a concern that becomes especially acute during mergers and acquisitions or whenever the operating model itself is changed.

Indirect tax is among the most frequently overlooked elements of planning for a business model change. Although tax rarely sits at the forefront during financial restructuring, neglecting it can create substantial difficulties. This is particularly true of VAT, which reaches across finance, procurement, IT and human resources. When indirect tax is poorly integrated, invoicing problems follow: incorrectly coded payable invoices delay VAT recovery, and a legacy system only partially integrated with the new model can generate inaccurate sales invoices, producing disputes, flawed filings, and missed deadlines.

What is a principal structure and how does it optimise profit?

Adopting a classic principal structure within a new entity can improve profitability where it allows value to be located in lower-tax jurisdictions. Under such a structure, the central entity holds title to inventory across the locations in which it operates, which obliges that entity to register for VAT in each territory where stock is held. Because any later change can disrupt established processes and controls, indirect tax must be addressed during the design phase.

Tax planning is strongest when the business model aligns its profit drivers — the value-adding functions performed and the risks assumed — with the jurisdictions in which those activities sit. Achieving that alignment deliberately, rather than accidentally, is what separates a robust structure from one that only appears efficient on paper.

How do centralised transactions affect indirect tax?

A centralised operating structure typically increases both the volume of transactions and the indirect tax obligations arising across multiple jurisdictions. It is therefore essential that the new operating model is properly aligned with indirect tax requirements, so the organisation stays compliant across finance, accounting, legal, IT and regulatory functions. This alignment depends on genuine collaboration among those functions during the design phase, rather than treating tax as something to resolve after the structure is settled.

What are the risks of changing a business model?

Changing a business model introduces risks that span tax and commercial concerns. Logistics difficulties such as customs delays and import complications can disrupt operations, produce invoicing errors, force invoices to be reissued, and slow cash flow. Misclassifying transactions compounds the problem, undermining VAT compliance and exposing the business to inaccuracies and penalties.

These difficulties commonly stem from a failure to register for VAT where required and from poor coordination between procurement teams and the suppliers responsible for imports. Left unaddressed, they can also damage a company’s reputation, affecting the confidence of customers, suppliers, auditors, senior management, tax authorities and shareholders alike.

How should a company adapt to the change?

Assessing how operational changes will affect the supply chain and the tax function is critical. A new arrangement may require updates to ERP systems, invoicing methods, contracts, pricing procedures and internal controls. Several factors determine whether that adaptation succeeds.

Foremost is senior management support: the tax model should reflect and reinforce the wider business case, and securing leadership endorsement should be a priority. The structure must rest on a sound business case, and its delivery should be governed by structured project management with a rigorous design and implementation process. Equally important is a comprehensive understanding of the underlying facts — objectives, transaction flows and business processes. Early IT integration is essential, since technology decisions taken late are costly and disruptive. Finally, the change needs genuine management buy-in across all affected groups, backed by adequate resources; without sufficient people, time and funding, even a well-conceived structure can falter in execution.

Which work streams need to be assessed?

A change of this kind touches several distinct work streams, each deserving careful evaluation. For corporate income tax, the impact on local direct taxes should be assessed in every affected territory. Transfer pricing documentation usually needs updating to reflect the shift in roles—for example, a move from a commissionaire arrangement to a limited-risk distributor (LRD) model.

The VAT consequences warrant close attention, because the accounting rules for an LRD differ from those of a commissionaire and may materially affect existing system logic, such as an SAP configuration. Customs is a related concern: where transfer prices are adjusted, the effect on customs valuation should be investigated. On the legal side, existing commissionaire agreements may need to be terminated or renegotiated. Technology underpins all of these: implementing an LRD structure in SAP, with full automation of VAT in accounts payable and receivable and real-time access to business model data, lets the organisation run the new model reliably and evidence its compliance.

Why is data access critical for finance and tax?

Both the finance and tax functions need access to comprehensive data to analyse transaction processing and the systems that support it. Data integrity comes under significant operational risk when transactions booked in a particular jurisdiction are not properly assessed for their tax implications.

Where financial data fails to reflect the business model design accurately, or where changes are managed poorly, compliance becomes far harder to maintain. Obtaining the tax data needed for reporting to regulators and stakeholders across jurisdictions can present a further challenge. To keep the tax function aligned with the initiatives that influence VAT processes, an organisation must foster transparency and proactive communication among departments — without which it risks building a VAT design that is inefficient and poorly matched to the business.

What should you assess before a VAT migration?

Before migrating to a new model, it is worth working through some practical questions about the existing VAT environment. The starting point is whether the organisation truly understands its current VAT processes, including manual adjustments and quality-control measures, and whether those are documented well enough for the new environment. It is also prudent to anticipate personnel changes, capture critical knowledge from individuals who may leave, and retain access to the manual processes and workarounds they relied on.

Attention should also go to how dependent current processes are on local VAT expertise and technology, and what would be lost if either changed. Consider whether different processes will be required across jurisdictions, who owns VAT compliance today and who will own it after the transition, and where the essential process controls reside. Above all, be clear how the new model will address local VAT risks while supporting effective internal communication and coordination. Working through these considerations in a structured way lets a business navigate indirect tax far more confidently, improving both operational efficiency and overall prospects for success.