- Tax Risk Management: An Overview
- Why VAT is important
- Tax penalties can emerge in several scenarios if VAT regulations are overlooked
- VAT/GST risks
- VAT/GST rewards
- Key Trends in VAT Landscape
- E-invoicing and VAT a global trend
- Standard Audit Files for Tax and the Trend of Digital Tax Auditing
- VAT determination of incoming invoices
- Incorrect VAT numbers
VAT GST risks - Let’s dive into an engaging exploration of AR and AP
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Let’s dive into an engaging exploration of AR and AP
Failures in VAT-critical systems and processes can result in VAT overpayments that represent a real cost to the business, or under-declarations that threaten penalties and reputational risk.
The tax authorities check the correctness of VAT reporting only afterward. Non-compliance could result in an assessment (depending on the country’s assessment period: NL is five years), including interest and increased penalties, being levied over many years.
The penalties for incorrect invoicing can be a percentage of the turnover, so the amounts can quickly become material. In Europe, up to 27 percent VAT on the turnover, plus penalties.
Take, for example, the risk when the zero VAT rate is incorrectly applied. The supplier is responsible for meeting all the conditions for applying the zero VAT rate. If not, the tax authorities will seek to recover tax due from this supplier via a tax assessment levy.
If the applicable VAT rate is 25%, the tax assessment will be 25/125 of the consideration charged. This assessment has to be increased with interest and penalties to determine the total tax burden.
Something as basic as a billing error leading to invoices issued in the wrong name could delay revenue receipt and result in nonrecoverable VAT. The penalties for incorrect invoicing can be a percentage of the turnover, so amounts can quickly become material, up to 27 percent VAT in Europe (Hungary 27%) on the turnover, plus penalties.
As written before, it is risky for businesses to monitor only the balance between output and input VAT. Neutrality can only be achieved - better is the word earned - if specific formal and material requirements are met.
In many countries, tax authorities do not audit indirect tax returns. Tax certainty about tax positions taken will exist once the statutory time limits are exceeded. That might change when digital audits' approaches are standardized and implemented as audit methods or other VAT fraud measures come into force.
A single operational failure in the systems and processes that manage the flow of Indirect Taxes through the supply chain can have significant consequences, including additional assessments, penalties, blocked VAT refunds, and delayed customer payments.
But do these taxes and tax planning opportunities get the attention they need, especially in light of increasingly complicated and globalized business models?
One common denominator that is too often missing from a financial transformation's strategic or planning elements is indirect tax. Although these tax considerations may not be among the issues that drive a financial transformation decision, tax can give rise to significant and costly challenges. That is particularly true of value-added tax (VAT), which hits many disparate points within the enterprise, such as finance, procurement, IT, or HR.