Three More VAT Determination Challenges for Multinationals
Let's take a look at the aspects of VAT management that rate among the most troublesome for MNCs.
When you’re dealing with something as profoundly complex as value added tax (VAT) lifecycle management, it’s handy to have a heat map of the most troublesome areas. A Vertex e-book, VAT Determination: The Biggest VAT Challenges for Multinationals, provides this guidance.
I covered the top two challenges in an earlier post. Here, I’ll highlight three more aspects of VAT management that rate among the most onerous for multinational organisations:
1. VAT-free transactions are not free of VAT challenges.
Companies may need to meet various legal criteria for the exemption to be applied. They must be able to explain why they made the determination, and they may be asked to provide additional documentation.
2. ERP logic and the complex nature of VAT reporting.
ERP systems may lack the extensive functionality needed to handle complex tax calculations and manage VAT determination. For example, their data fields may be incorrect or incomplete, or they may require hard coding.
3. The inherent challenges around accounts payable.
Vendors make mistakes in charging VAT, and companies’ in-house tax staffers don’t always catch the errors. As noted in the e-book, “Even the most skilled accounts payable (A/P) professionals may find it challenging to understand the vast complexities of VAT determination on purchases, especially when doing so across multiple jurisdictions.” The risk is even greater for companies that outsource their A/P operations, since third-party service providers often lack the deeper tax expertise that’s needed to manage VAT.
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Global tax technology can help companies overcome these VAT determination challenges, the document concludes. Advanced systems can reduce administration costs and time, lighten the burden of keeping rates and rules up-to-date, and provide the necessary audit trail and governance structures throughout the VAT lifecycle.
That said, it’s vital to recognise that the VAT policy landscape continually shifts. Tax leaders looking for an update on looming EU VAT changes should check out Vertex VAT expert Aleksandra Bal’s European CEO article, Taxing Times Ahead: CEOs Must Prepare for Impending VAT Changes.
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