VAT throughtput

The VAT throughput could calculate via the company’s annual report based on the following data:

  • Take regional or country revenues from annual report / 10K

  • Multiply by average VAT rate

  • Enter costs of sales and selling, general and administrative expenses include R&D where appropriate

  • Take out employee costs

  • Allocate to each region or country

  • Multiply by average VAT rate

  • Add % to allow for intercompany transactions (e.g. 30%)

  • High level estimate of totoal VAT that needs to be managed

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Another way is to report the VAT throughput automatically to facilitate the possibility to perform trend analysis via dashboards. We can provide support to set this up including in-house data analytics as control and performance measurement tool.


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Take aways 

Formal support and active involvement of senior management

Optimum process improvement or business transformations will not likely be realized by the sum of individual independent efforts.The risk is that individually everybody knows what needs to be done within his or her own area of expertise, but what is lacking is overall direction and thus progress.

Set up a project plan

  • 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

From concept through completion and beyond

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.

Global tax environment is in a state of fast change

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

Risk: a domino-like effect

With indirect taxes intertwining through the day- to-day operations of a company—raising sales invoices, moving inventory, paying suppliers, collecting cash—indirect tax risk can have a distinct and domino-like effect on the commerciality of an organization.

Tax audits and new technology

More than 80% of businesses are still using spreadsheets to manage their VAT compliance in at least one jurisdiction in which they operate, despite tax authorities around the world investing in better tools.

OECD's Standard Audit File for Tax Purposes

The SAF-T standard, originally created by the OECD (similar as BEPS), is intended to give tax authorities easy access to the relevant data in an easily readable format for both corporate income tax as VAT.

What if there are glitches in your data, input errors, empty fields, awkward descriptions in fields or apparent inconsistencies?

Measurement of performance

Identify the lowest performing indirect tax processes that have the most direct impact on the company’s business and tax objectives. These are then targeted for improvement. Generate and select a set of solutions to improve the performance.

Tax Risk Management

The tax department risk management strategy differentiates between strategic, operational, financial and compliance risks and contains detailed action plans for managing these 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.

Implementation of tax planning

Assess that tax advice given is also correctly implemented:

  • Factual pattern has not change
  • Procedures and risk monitoring functions accordingly
  • Configured in system(s) or manual processes
  • etc.


And impact of changes in business, laws and regulations on implemented tax planning.

Quantify tax risks

In order to quickly gain insight into the level of tax risks (i.e. calculation of the potential assessment), statistical sampling can be used. By selecting a few elements (euros), the reliability of the composition of tax items can be determined to a high degree of certainty.

Wrong use of 0% VAT rate: financial impact

If not correct, the tax authorities might 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 will be increased with interest and penalties to determine the total tax burden.

Focus on effective solutions

In order to solve a problem, we also have to identify it completely, and not just settle for the most apparent symptom of that problem.

Symptom of a bigger issue or solve the real problem

In order to fix a problem, we have to first understand the root cause thoroughly. We have to accept the possibility that the problem involves far more than what is immediately apparent and will require more work than is estimated at the beginning. 

Analyze defects

Define the causes of defects, measure those defects, and analyze them so that they can be reduced.

Root cause analysis

  • How did the results happen?
  • Why did they happen?
  • What specifically caused them to happen?

Verify the implemented VAT configuration

An ERP review should highlight where the VAT configuration could be improved or if additional control measures should be added to the business’s Tax Control Framework.

VAT / GST under management

In order to get senior management's buy-in for change and accept indirect tax priorities it is important that proper visibility exist of the amount of VAT/GST under management in the key jurisdictions.

Reputational risks

To avoid any reputation damage and negative publicity around taxes, through building a tax control framework.

Keep a logbook – risk register – of all identified inconsistencies

The internal tax function should always have insight into the areas for attention through this logbook. The risk register should contain the following labels: number, name of the risk, risk definition, cause for the risk to occur, risk category and the risk owner.

External audit and internal audit changes to be expected?

  • Apple’s and Coca Cola’s tax assessment might exceed $2,5 bn
  • Material and reputational risk
  • Will ‘tax assurance’ mandatory be reviewed by External Auditors
  • What information will be requested?
  • What will be the impact on Internal Audit?
  • How will review likely take place (e.g. Big Data discussions)
  • What is the overlap with tax authorities tax audit approach?

Internal audit reviews

Ascertain that unacceptable but existing tax risks will be identified.

Size of the tax function

The tax department consists of the right number of tax personnel and the right level of skills and capabilities.

Tax team management

Creating and maintaining an efficient, effective, pro-active, highly skilled tax department identifying opportunities and managing tax risk and thereby creating value

Employee development

To develop and apply a people development, recognition and retention model and to allocate resources in line with employee skills and prioritized business requirements.

Individual career development plans

Individual career development plans created and maintained and career paths for tax professionals to senior roles within and outside tax department encouraged.

Contributing value to internal customers

The added value to involve the tax department is understood by internal customers (e.g. business, legal, procurement, supply chain, etc).

KPIs and measurement

The efficiency and effectiveness of the tax department is periodically measured and compared with financial and operational KPI's. Interaction with the business is evaluated and improvement points are identified and action plans executed.

Measure cost effectiveness

The cost effectiveness of the tax department is periodically measured. Outsourcing is considered as an option for routine work.

Quality review

The quality of the output of the tax department is periodically assessed both internal and by external parties (internal audit / independent testing / external parties).

Tax planning

A systematic approach exists to tax planning using consistently applied criteria and sufficient consideration is given to the extent and type of work carried out by external advisers. Tax planning is applicable to cash flow planning and impact analysis of changes in business and tax laws.

Resources and budget

The resources and budget is aligned with the outcome of the tax risk assessment: tax resources spent most of our time on high risk areas. Ensure that tax department has sufficient resources and budget to fulfill its role and carry out the corresponding responsibilities.