Richard Cornelisse

Are non-routine and other significant business transactions propely executed?

In Indirect Tax Strategic Plan on 13/12/2014 at 1:30 pm

If the reason of a business model change is to optimize companys effective tax rate (tax opportunities), minimizing cash tax effect or cost reduction or realize efficiency overall such standardizing business processes, it is important that with regard to managing such change the indirect tax functions is timely involved (design phase) and also ascertains that proper implementation and executing of indirect tax planning has been taken place. That means that indirect tax issues should be addressed up front during the design phase.

Any change has impact on current processes and controls and its effectiveness. Business model change such as centralized operating model result often in an increased number of transactions and indirect tax obligations across many geographies.

Operational changes have a tax consequence due to the change in transactional flows and the change in a company’s assets, functions and risks profile. Important is to ensure that the new operating model is not only implemented correctly from a tax perspective, but also ensures that business processes are tax aligned realizing support of the business in the areas of compliance, finance & accounting, legal IT systems, indirect tax and regulatory matters. That means teaming is a necessity with with various work streams.

In many Asian countries the Commissionaire concept is not known. In several Asian and Latin- American countries centralized ownership of raw materials, work in progress and finished inventory is not possible. In most countries outside Europe having to register for VAT/GST/Consumption Tax will often results in a full taxable presence, including a liability for Corporate Income Tax.

One of the key processes relate to ERP system. A wrong perception in the design phase can lead to substantial tax and commercial risks. It could also impact the company’s reputation as also customers, suppliers, external auditor, senior management, tax authorities could become stakeholders when it goes wrong.

A condition for success of any ERP solution is involvement by the indirect tax department in design phase, teaming with other workstreams.

The change of a business model can create not only VAT risks, but as well commercial risks such as logistics problems in getting goods into a country and delays and hold off of shipments resulting in disruption of daily business. Some root causes: the company forgot to register for VAT or procurement forgot to agree with supplier who was importing the goods.

Read more: Are non-routine and other significant business transactions propely executed?

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