Core VAT risks

Managing risk is about making decisions at all levels of an organization, to limit the effect and likelihood of threats happening and to increase the effect and likelihood of opportunities. It is about taking the right amount of the right risk.

  • Review the categories of VAT risk the company is facing as well as the likelihood of occurrence, its potential impact and mitigation measures
  • Review the company's risk appetite and risk tolerance and the way in which risks is measured

 
For further detailed information read our following chapters:

  1. Why is management necessary and what needs to be done?
  2. Indirect Tax Risk Management
  3. Tax trends
  4. Change of a company's business model
  5. The intersection of VAT and shared service centers?
  6. M&A integration and indirect tax: managing the moving parts before, during, and after a transaction
  7. Migration to new jurisdictions 

 

Indirect tax risk management

Aim: ensure identification, select and manage tax risks as a basis for indirect tax management and reporting, ascertain that unacceptable but existing tax risks are identified and that clear, timely communication on tax status, tax activities and tax risks takes place.

Financial impact

The correctness of VAT reporting is checked only afterwards by the tax authorities. Non compliance could result in that over many years an assessment can be levied (depends on country’s assessment period: NL is five years) including interest and increased with penalties. 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 on the turnover plus penalties.

Take for example the risk when incorrectly the zero VAT rate is applied. The supplier is responsible for ensuring that all the conditions for applying the zero VAT rate are met. If not, the tax authorities will seek to recover tax due from this supplier via a levy of a tax assessment. 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.

It is risky business to monitor only the balance between output VAT and input VAT. Neutrality can only be achieved - better is the word earned - if certain formal and material requirements are met.

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Take aways 

We combine technical knowledge with industry understanding and knowhow of technologically advanced tools and methodologies available in the market or developed by ourselves.

  • Focus on tax processes that could be improved
    • Manual process: same data requests are made by different stakeholders
  • As Is assessment
  • Anticipate future changes and the data needed
    • What are tax trends?
    • What is happening locally and what should be considered across jurisdictions where you operate?
    • Anticipate new stakeholders and their data needs or requests (internal and external)
  • Define scope and actions for short, mid and long term
  • Write business case for change
  • Realize sponsorship for implementation
  • What tax data is requested and by whom?
  • What tax process can be improved and what can be automated?
    • CIT, VAT, tax data warehouse
  • What is the Return on Investment?
    • Hard saving: process improvement
    • Meeting (new) tax requirement
  • What systems are in use: SAP, Oracle, etc
    • By which entities?
  • How many end-use computing tools (e.g. excel spreadsheet) do we have?
  • How do we avoid an ad-hoc solution?
    • Understand the bigger picture
    • Real problem and not the symptom

Technology-related tax risk: understand and address the potential harms and benefits of (new) technology.

Ascertaining proper IT support for ensuring efficient, timely and reliable reporting.

VAT should be considered in every aspect of the process, from concept through completion and beyond. Managing by design — looking at any process or transaction from end to end and factoring in all the requirements and controls essential to designing and optimizing a compliant VAT process.

We speak the language of the business and IT and no translation is needed.

  • Set up a project charter that will take effect preferable during feasibility but ultimately during design
  • Write a business case and problem statement
  • Define scope of the project
  • Define objectives and goals of the project
  • Involve stakeholders and define priorities
  • Set measurable milestones
  • Ensure that the right sponsors provide buy-in.
  • Identify (project) risks and how to manage them
  • Jointly validate and refine the project plan and develop a roadmap to success
  • Hold regular meeting to track progress of the various work streams

VAT should be considered in every aspect of the process, from concept through completion and beyond.

Looking at any process or transaction from end to end and factoring in all the requirements and controls essential to designing and optimizing a compliant VAT process.

The key to success in the management is the ability to translate tax knowledge into workable business processes.