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The tax function should be able to understand business activities/objectives including R&D and get aligned with other functions like legal, HR and IT. The tax objective is to mitigate risk and identify opportunities to support a company's supply chain.
A common factor among organizations with an increased risk profile is often the absence of a clear strategy to manage both the technical and operational risk issues associated with indirect taxes. Most major multinationals include one or more VAT specialists within the tax function.
However, the way in which organizations seek to utilize this specialism tends to mirror the traditional consulting model: the specialist adviser holds a central position within the tax function, responding to individual queries raised by logistics managers, accounting staff and local business units.
The role is often a reactive one, relying on the ability of colleagues with an operational or local market focus to identify potential areas of indirect tax risk and refer them to the tax department for specialist review.
As a consequence, central visibility of the VAT compliance issues affecting local country operations tends to be patchy at best, with little or no continuity in the management of local VAT risk across the enterprise.
A further limitation on the effectiveness of the in-house VAT adviser is that he or she tends to focus on technical questions of strict VAT liability, rather than on the operational issues affecting the integrity of transactional reporting. An increasing number of in-house VAT managers, however, are facing the challenge of creating an indirect tax strategy that is more closely aligned with the business objectives of operational integrity.
Within most organizations, there is no single person or department responsible for the end-to-end VAT accounting process. The finance department often owns overall responsibility for the sales and purchase processes, but the application architecture underpinning those processes is configured and maintained by the IT department.
The control environment surrounding manual intervention in the accounts payable and receivable processes remains the responsibility of the finance department. VAT-critical processes such as PO creation, invoice verification and AP tax code selection are subject to limited or inappropriate controls, while the attention of the internal VAT function remains focused on the provision of ad hoc advisory support to local business units.
Despite the potential impact of VAT errors on the audited accounts, the financial reporting responsibility of the in-house VAT specialist tends to be limited to VAT returns and associated filings (e.g. EC Sales List, Annual Sales Listings, Intrastat).