By Richard Cornelisse, CEO of the KEY Group
Top Management frequently perceive VAT/GST a low risk because the flow of taxes is similar to a “cash in and cash out”. Measuring risks is often based on the balance between output VAT and input VAT and not on the total amount of VAT/GST throughput (also called VAT ‘under management’).
The findings are not a surprise as often the question is asked what risk management even has to do with VAT/GST. The reasoning behind this question is that VAT/GST are typically neutral for fully taxable businesses: “a cash in and cash out”.
However, from “European Union VAT System: A High Level Overview” follows that input VAT deduction and output VAT has to be managed separately to avoid substantial VAT assessments, penalties and interest payments. 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
A clear view on the VAT throughput of the organization is conditional for the right way to manage risks: what is roughly the amount of VAT/GST “at risk” that must be actively managed as it flows through the business?
Read more about Trends, Exposures and VAT Throughput via the following links:
Some initial KEY questions you could raise:
- What is the applicable VAT rate?
- What is the amount charged (taxable base)?
- Where does the supply take place and does the supplier need to register as a foreign entity in the country concerned?
- When does the supply take place (relevant for timing of recovery and time limits) and when does the obligation to account for VAT arise (tax point)?
- Does the company have the relevant documentation in place to support the VAT treatment applied on the supply (administrative requirements, proof of transport)?
- Can the company recover all VAT on its costs and purchases?
- What are the reporting requirements (VAT return filing, Sales/Acquisition Listings and Statistical reporting)?
KEY Risk Areas Of VAT paid And VAT charged’ And ‘System Set Up
A summary of a few of the core risks:
- VAT paid (AP)
- VAT owed (AR)
- Indirect tax functionality in systems and how these arise.
- Indirect Tax Function Effectiveness (indirecttaxtechnology.com)
- The KEY Group measures Indirect Tax Performance and improves where necessary (indirecttaxtechnology.com)
- How Internal Audit could contribute value in realizing indirect tax objectives? (indirecttaxtechnology.com)
- The impact of VAT rate change on company’s compliance costs (indirecttaxtechnology.com)
- Merger and Acquisition – Integration And Indirect Tax: Managing the Moving Parts Before, During, And After a Transaction (indirecttaxtechnology.com)
- Digital Flyer – Taxmarc™ Product Overview (indirecttaxtechnology.com)
- Everything You Always Wanted to Know About VAT in SAP * But Were Not Aware to Ask (indirecttaxtechnology.com)
- Taxmarc™: your best SAP solution for Indirect Tax Automation (indirecttaxtechnology.com)