VAT/GST function effectiveness
An increasing number of in-house VAT managers are facing the challenge of creating an indirect tax strategy that is more closely aligned with the business objectives of operational integrity and the promotion of shareholder trust. Key to this development is a growing awareness that the effective management of indirect tax risk requires an operational as well as a technical focus.
Failures in VAT-critical systems and processes can result in overpayments of VAT that represent a real cost to the business, or in underdeclarations that entail the threat of penalties and reputational risk. The task of the in-house VAT function is to consult with the CFO, Board and other parts of the organization to design and implement an Indirect Tax strategy that can be communicated to non- tax specialists within the organization who fulfill key operational roles in the end-to-end VAT accounting process.
By working with the IT and finance functions, the in-house VAT function can help identify latent risks within existing VAT-critical systems and processes. He or she can then begin to build a risk framework around those core functions to help minimize operational errors.
The scope and robustness of the risk framework will depend on the individual organization, its operating structure and its preferred risk profile. However, a number of operational risk issues will be common to many multinational organizations. How does the IT department guarantee the integrity of transactional data processed through its ERP systems?
- What safeguards are there against failures in connectivity between individual ERP systems and other VAT-critical applications (e.g. standalone T&E systems)?
- How often is the ERP tax code set-up and tax determination logic reviewed and updated?
- What subject matter guidance is available to non-tax specialists in VAT-critical operational roles such as procurement, logistics and accounting?
- Who discusses materiality issues with external auditors and advises on the accuracy of provisions?
- Who owns the relationship with local tax authorities?
- If significant operational changes are required to the end-to-end VAT accounting process, who takes overall responsibility for project and workflow management?
- To what extent is the appetite for planning risk within the indirect tax function aligned with the strategic approach to operational risk taken by the business?
By taking steps to address questions of this type, by identifying key stakeholders in the IT and finance functions, and by defining VAT-critical roles and responsibilities within the end-to-end VAT accounting process, Key Group supports the in-house VAT manager to raise an awareness of the operational impact of indirect taxes throughout the organization.
Through the development of our risk framework around VAT-critical functions, he or she can then provide the organization with improved visibility of the impact of indirect taxes and certainty as to the true impact of the VAT numbers on the financial statements. With improved visibility of the current state will come opportunities to optimize the way in which the organization manages its throughput of indirect taxes.
By taking steps to address questions of this type, by identifying key stakeholders in the IT and finance functions, and by defining VAT-critical roles and responsibilities within the end-to-end VAT accounting process, the in-house VAT manager can begin to raise an awareness of the operational impact of indirect taxes throughout the organization.
Increased automation of VAT accounting and reporting, greater use of tax technology enablers (e.g. e-invoicing, e-filing) and the use of place of supply simplifications or payment deferral options to reduce VAT working capital requirements are all examples of ways in which the in-house Indirect Tax function can add value through tax operational improvement rather than traditional VAT consultancy. Realizing such improvements are the core business of the Key Group.