Page 4 of 5: A real world example
A multinational company based in France decided to centralize and transfer functions to Switzerland. Not only did they neglect to document the processes and thoroughly analyze the VAT impact, they also lost staff that was familiar with the functions.
As a result, the company also lost access to the historical data relating to the preparation of VAT returns and had employees that were unfamiliar with the methods for preparing the returns or making manual adjustments.
At the time the VAT audit was announced, major panic ensued and the SSC staff had to work around the clock to obtain more insight into the original processes and collect information for reconstructing the VAT returns.
The company was at risk for the full amount of the VAT and for penalties of up to 100% of the VAT owed. In short, the potential benefits of the SSC migration were largely overshadowed by the additional time and money that had to be spent for this emergency response and the disruption to orderly operations.
Underpinning all the activities that comprise identifying, diagnosing and designing the SSC’s treatment of VAT and GST is transparent communication and a well-defined service level agreement (SLA) that everyone involved understands and supports.
That must include the responsibilities both within and outside the SSC, the division of duties and the protocols for communicating, resolving and escalating issues.
Before the processes are transferred over, each one should be thoroughly vetted to confirm:
Rollouts should be reviewed holistically from a portfolio perspective in order to understand and effectively manage the demands upon corporate and SSC resources and the return on investment for each major initiative.
Likewise, the VAT work stream should be integrated with contingent technology and finance projects.
This may prove challenging as a number of initiatives, particularly those that deal with systems development and technology enablers, are often not visible to the tax function — another point that underscores the need for transparency and upfront communications.
Failure to align with initiatives that can intersect with VAT can result in a VAT design that is inefficient from a process perspective and not a “best fit” for the business.