In most organisations indirect taxes touch multiple business functions, such as purchasing, sales and inventory management. For US sales and use tax and value-added tax (VAT), the consumer ultimately bears the burden of payment of the tax. The burden of compliance however rests with the business. Taxand UK and Taxand USA discuss some key corporate initiatives that have indirect tax implications.
IT initiatives, such as enterprise resource planning (ERP) roll-outs or upgrades, have a significant impact on an organisation. With the proper focus, improved indirect tax compliance can be a real benefit. The tax department needs to play a key role in deciding:
- The scope of VAT and sales and use tax requirements within the overall project
- Whether native functionality or a tax engine addresses the organisation’s compliance requirements
- How the individual project work streams align with the tax department in order to realize the objectives driving the ERP roll-out
The outsourcing of functions such as accounts payable (AP) can deliver significant savings to organisations. However the identification of, and accounting for, indirect taxes on purchase invoices is a key element to the success of such outsourcing initiatives.
When the AP function is performed in-house, AP clerks often have an intimate knowledge of the organisation’s supply chain and historical indirect treatment of AP invoices. It is therefore crucial that an effective knowledge transfer, support system and monitoring model are put in place in order to ensure that indirect tax compliance standards are maintained or improved as part of the AP outsourcing initiative.
Shared Service Centers (SSCs)
SSCs often house functions such as AP but, increasingly, also include other functions such as end-of-month financial reporting and the preparation of indirect tax filings. These SSCs are often located in non-English speaking countries, making the knowledge transfer and ongoing support of the indirect tax function an even greater challenge. Similar to an outsourcing initiative, effective transition and knowledge transfer plans related to the indirect tax function and requirements need to be realized when creating an SSC.
Mergers & Acquisitions
M&A activity can also present challenges from a compliance standpoint, especially in cases where companies are expanding internationally into new jurisdictions. Aside from the usual tax due diligence and advisory activities that a tax department will perform to support M&A activities, there will also be a need to work with migration teams to ensure that VAT and sales and use tax compliance is managed effectively as part of any transition arrangements.