Richard's Take "Central Procurement"

When improvement is made in one area, improvements in other areas should also be made. What sense does it make if cost reduction is the business strategy, but from an indirect tax perspective the implemented changes result in substantial commercial risk, tax risks and a hidden costs (significant amount of rework due to corrections) if not properly managed in time?

Hidden factory or hidden operation definition: the rework and cover ups, the hours and days of wasted time in a company of people who constantly correct mistakes (unnecessary rework). The objective is to make the hidden factory visible (measure/calculate ROI) and as result returns precious time and money to the business.

When a business model has changed as a result of the implementation of a centralized procurement model, this can create not only VAT risks, but commercial risks as well. These risks include logistics problems with importing goods into a country and subsequent delays and hold offs of shipments resulting in disruption of daily business. Some root causes are: the company forgot to register for VAT and/or procurement staff forgot to communicate with suppliers which party is responsible for importing the goods.

From: Why is management necessary and what needs to be done ?

The tax function should ascertain proper implementation and determine the impact of changes in businesses, laws and regulations on implemented tax planning.

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.

The next question raised is then what is the impact of such change will be on:

1. Company’s supply chain: indirect tax footprint and tax jurisdiction
2. Company’s ERP system set up
3. Current business and indirect tax compliance processes
4. Invoice and reporting requirements for existing supplier and vendors
5. Existing and updated contractual arrangement of responsibilities who in the supply chain will be the importer of record
6. New VAT registrations needed
7. Logistics – any problems foreseen in actually getting goods into a country and/or delays and hold off of shipments resulting in disruption of daily business expected?

Implementation

Once a commercial and tax-efficient structure is determined—one that addresses both historical and potential risk—it is time to take the theory behind the structure into the realm of practice.

Who is taking care of filing VAT registrations? When should you apply for VAT registration, since average lead times in jurisdictions can be several months? Who is responsible for maintaining a structure and making sure the business is acting in accordance with the model? How is this communicated throughout the organization? How will ongoing monitoring be handled?

How do you see this?