The tax function should ascertain proper implementation and determine the impact of changes in businesses, laws and regulations on implemented tax planning. Getting ahead of possible problems at the planning stage before they arise in practice is one critical way to make sure that the company reaps the benefits. When the business model changed as a result of the implementation of a centralized procurement model, this could create not only VAT risks, but commercial risks as well.
For example logistics problems with importing goods into a country and subsequent delays and hold offs of shipments resulting in disruption of daily business.
A root cause could be that the company forgot to register for VAT and/or procurement staff forgot to communicate with suppliers which party is responsible for importing the goods.
Operational changes and tax Operational changes have a tax consequence due to the change in transactional flows and the change in a company’s assets, functions and risks profile: 'reevaluate operations and processes'.
Important is to ensure that the new operating model is not only implemented correctly from a tax perspective, but also ensures that business processes are tax aligned realizing support of the business in the areas of compliance, finance & accounting, legal IT systems, indirect tax and regulatory matters.
Technology-related tax risk
understand and address
the potential harms and benefits of (new) technology
Work streams and need to team up That means teaming is a necessity with various work streams.
The selling arrangement may change from a buy/sell to broker/agent or vice versa. Goods purchasing may become centralized. The flows and storage locations of goods may change.
In any of these cases, new VAT registration obligations may be created in different countries. Likewise VAT could be chargeable by different entities and the recoverability of the VAT could change and different billing flows are created.
See chapter: 'non-routine and significant business transactions
Examples where indirect tax expertise is always needed upfront
- Share issues or sales
- Acquisition or disposal of any business or part of a business
- Acquisition or disposal of real estate
- Financial transformation
- Part of the business is outsourced (e.g. a Shared Service Centre or accounts payable/receivable to a third party service provider)
- Other financial transactions
VAT should be considered in every aspect of the migration process, from concept through completion and beyond. Managing by design — looking at any process or transaction from end to end and factoring in all the requirements and controls essential to designing and optimizing a compliant VAT process.
How to manage change
Increase tax function's visibility Likewise, the VAT work stream should be integrated with contingent technology and finance projects.
This may prove challenging as a number of initiatives, particularly those that deal with systems development and technology enablers, are often not visible to the tax function — another point that underscores the need for transparency and upfront communications.
Failure to align with initiatives that can intersect with VAT can result in a VAT design that is inefficient from a process perspective and not a “best fit” for the business.
Written by Richard Cornelisse
Richard advises multinational businesses in improving the efficiency and effectiveness of their Indirect Tax Function and Tax Control Framework.
He started his career as a manager at Arthur Andersen and then became an EY partner where he led the indirect tax performance team for Netherlands and Belgium. Currently, he is a managing director of SAP Tax Consultancy Firm.
Richard has over 20 years of experience advising clients on international VAT issues. He is specialized in the tax aspects of financial transformations, shared service center migration, and post-merger integration work.