Vat Compliance
VAT is one of the most important sources of income for most governments. In the EU, VAT has increased its share of government revenue during the last ten years compared with income taxes and social security contributions. This is one of the reasons why VAT reporting obligations and penalties have also increased.
In the VAT system companies have a special role as tax collectors for the government. They charge VAT to their customers and then deliver the funds to the government. There are few areas within tax which are so complicated and where there are so many potential pitfalls as within VAT. There are different rates for different products and services. VAT may be fully-, partially- or non-deductible depending on the circumstances. For international trade there are differences in VAT treatment depending on if sales are to businesses or consumers. In some countries VAT needs to be reported on transaction level which requires IT systems capable of this. These are just some of the many complexities and difficulties within VAT. You need to know your business partners and assure they are registered for VAT. Invoices need to be designed in a correct way. Even for large corporations it is a major challenge to maintain in-house competence and resources to keep up with regulations, changes in them and reporting requirements.
Apart from compliance issues as those mentioned above there are many practical difficulties with maintaining in-house VAT capabilities. Seemingly ordinary matters such as holidays, sicknesses and personnel rotation are cumbersome and usually expensive to address. You often find yourself over-staffed or under-staffed. Through outsourcing you can both reduce costs and improve quality of VAT compliance by tapping into the resources of high-class service providers.
Reporting and filing VAT returns in foreign jurisdictions is often not possible for an individual company as you need local accesses to log in to reporting systems. You also often need to provide documentation in local languages. A competent outsourcing provider will solve this for you, either through its own capability or through an established network of partners. It is quite difficult to find a suitable partner by yourself in other countries. Price and communication issues are quite common. If you need a fiscal representative it is especially expensive, for example a non- EU company needs one in the European union and vice versa.
When outsourcing VAT compliance you also have an opportunity to optimize VAT flows transactional systems. A lot of manual work and cost can be avoided if you configure accounting systems in the best possible way. An incorrectly or incompletely configured accounting system may not correctly calculate the tax you owe or should reclaim. It may also not support you with reports and traceability of transactions. By letting the system do the work you save many hours of work and you also reduce risks for manual errors. It also enables accounting personnel to focus on other issues such as business controlling rather than checking VAT transactions. It also helps companies recruit quality personnel who prefer to work with value added processes rather than manual controls.
The majority of businesses are interested in reducing risk in their overall VAT processes. The key to controlling risk is to understand end to end VAT processes within the company, from master data maintenance to invoicing, payments, filing VAT returns and more. With the help of a VAT specialist you can maintain solid routines and conduct periodical healthchecks. This reduces risk for systematical or ad-hoc errors which can result in both penalties and perhaps negative effect on the company’s cash-flow. Responsibilities and key drivers for VAT and other indirect taxes may be spread throughout an enterprise, in any of such diverse departments as finance, IT, supply chain, logistics, and human resources. An external eye may therefore be extra valuable when evaluating total VAT risks and processes in a company.
EFF offers comprehensive VAT compliance and outsourcing services. We offer both VAT compliance services, such as VAT registration and filings in most jurisdictions of the world, and VAT consulting and risk control services. With EFF’s help you can solve practical issues and also optimize and risk-minimalize VAT processes. EFF’s experienced team of experts can assure you continuity and efficiency
