For many organizations, VAT is still seen as a technical afterthought—something to “get right” once commercial decisions have already been made. In reality, VAT sits at the intersection of supply chain design, pricing, system architecture, and customer experience. When the tax function is involved early and effectively, VAT can actively support business objectives. When it is not, VAT has a habit of derailing them—often at the worst possible moment.
This article explores the evolving role of the tax function in relation to VAT, how it can support strategic business goals, and what happens when it does not, illustrated by real-world war stories.
VAT as a Business Enabler, Not Just a Compliance Obligation
The modern tax function’s role goes far beyond filing returns and responding to audits. In a VAT context, it should:
- Enable scalable growth by designing VAT-robust operating models that support new markets, new products, and acquisitions.
- Protect margins by ensuring VAT leakage is avoided and irrecoverable VAT is minimized.
- Support operational efficiency through clear tax logic embedded in systems like SAP, rather than manual fixes.
- Reduce risk by implementing preventive controls instead of detective, after-the-fact corrections.
- Safeguard business continuity as real-time and near-real-time reporting (e-invoicing, e-reporting) becomes mandatory across jurisdictions.
To achieve this, tax must be involved upstream—in commercial discussions, system design, and transformation programs—not just downstream when issues surface.
How VAT Directly Impacts Business Objectives
1. Growth and Market Expansion
Entering new countries or launching new business models (e-commerce, platforms, subscription services, intercompany hubs) fundamentally changes VAT obligations. The tax function must translate business ambition into a VAT-compliant design that works in practice and in SAP.
2. Speed to Market
If VAT requirements are not designed upfront, go-lives are delayed by tax fire drills, workarounds, and emergency approvals. Tax clarity accelerates delivery.
3. M&A and Integration
Post-acquisition VAT complexity—multiple ERP instances, inconsistent tax logic, local “temporary” solutions—can undermine the very synergies the deal was meant to create.
4. Cost Control and Cash Flow
Incorrect VAT determination leads to blocked invoices, lost input VAT, penalties, and cash trapped in disputes with tax authorities.
War Stories from the Field
War Story 1: The Supply Chain That Looked Great—Until VAT Got Involved
A multinational redesigned its European distribution model to improve delivery times and reduce logistics costs. The tax function was consulted only after contracts were signed and SAP build had started.
The result:
- The new flows triggered unexpected fixed establishment risks.
- VAT registrations were missing in key countries.
- SAP could not determine VAT correctly because the legal and physical flows no longer aligned.
Go-live was delayed by six months, emergency VAT registrations were required, and manual invoicing became the norm. The savings from the new supply chain were largely offset by VAT inefficiencies and compliance costs.
Lesson: If your VAT model doesn’t support your supply chain, your supply chain doesn’t work.
War Story 2: “We’ll Fix the VAT Later” in an SAP Transformation
During a global SAP rollout, VAT design was considered “phase two.” The business wanted speed; tax was told to accept temporary solutions.
Those “temporary” solutions included:
- Hard-coded tax codes with no clear logic.
- Manual VAT overrides in O2C and P2P.
- Country-specific exceptions no one documented.
Three years later, the company faced:
• An audit that uncovered systemic VAT errors across multiple countries.
• A remediation project is more expensive than doing it right the first time.
• Loss of confidence from the business in both SAP and the tax function.
Lesson: There is nothing more permanent than a temporary VAT workaround.
War Story 3: When VAT Controls Kill a Deal
Ahead of an IPO, a company implemented strict VAT controls to “clean up” processes. In theory, the controls were correct. In practice, they blocked thousands of invoices due to master data issues and edge cases the business actually relied on.
- Sales teams couldn’t invoice.
- Cash collection stalled.
- Manual override procedures were unclear and inconsistently applied.
The tax function was blamed for “over-engineering,” even though the root cause was poor alignment between tax policy, system design, and operational reality.
Lesson: VAT controls must support the business rhythm—not stop it.
War Story 4: E-Invoicing Arrives, VAT Design Isn’t Ready
With mandatory e-invoicing on the horizon, a company discovered that its VAT determination logic was inconsistent, auditable, or explainable—yet authorities now expected real-time accuracy.
What previously could be corrected in a VAT return now resulted in:
- Immediate invoice rejections.
- Reporting mismatches visible to tax authorities.
- Operational disruptions across O2C.
Lesson: Real-time VAT reporting exposes every weakness in your VAT design.
What “Good” Looks Like
When the tax function truly supports business objectives, it:
- Is embedded in transformation and commercial decision-making, not consulted last.
- Designs clear VAT principles that can be translated into SAP logic.
- Balances control with pragmatism, including well-defined exception handling.
- Speaks the language of the business: impact on cash, margin, speed, and risk.
- Treats VAT data quality as a strategic asset, especially in a world of continuous transaction controls.
Conclusion
VAT is not just a tax problem—it is a business design issue. The tax function plays a critical role in ensuring that business ambition is supported, not undermined, by VAT reality. The war stories show a consistent pattern: when tax is reactive, VAT becomes a blocker; when tax is proactive, VAT becomes an enabler.
In a world of increasing transparency, digital reporting, and complex business models, the organizations that succeed will be those where the tax function helps the business move faster—with fewer surprises along the way.
