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A well-implemented indirect tax strategy is essential for the effective functioning of a new business from the go-live stage, both from tax and commercial perspectives. This ensures smooth inventory movement, efficient sales and invoicing, reduced disputes with non-paying customers, ongoing tax compliance, and timely, on-budget business integration.
Indirect taxes play a vital role in the daily operations of a company, impacting various activities including invoicing, inventory management, supplier payments, and cash collection. As a result, the risks associated with indirect taxes can significantly affect an organization’s commercial viability, especially during mergers, acquisitions, or changes in the business model.
One critical aspect often overlooked in strategic planning for business model changes is indirect tax. Although tax considerations may not be the primary focus during financial transformations, neglecting them can lead to substantial and costly challenges—particularly concerning value-added tax (VAT), which influences multiple departments within the organization, including finance, procurement, IT, and HR.
Incomplete integration during transitions often leads to invoicing issues. For example, if many payable invoices are not correctly coded, this can cause delays in VAT deductions. Additionally, if a legacy system is only partially integrated with the new model, it may result in the issuance of incorrect sales invoices, leading to customer disputes, inaccurate tax reporting, and missed compliance obligations.