Lack of effective VAT planning makes businesses vulnerable

Tax directors caution that failing to adequately plan for changes to the VAT rules could expose businesses to oversights and exorbitant fines.

Tax directors are concerned that businesses that do not adequately plan for VAT and legislative changes may expose themselves to oversights by regulators and hefty fines for non-compliance.


Tax experts have expressed their concerns and advised internal tax practitioners to set up systems and procedures for handling changes to VAT and tax law.


According to Alex Baulf, senior director for global indirect tax at tax technology company Avalara in the UK, "one of the main challenges is just staying aware of changing global indirect tax requirements, new mandates, and regulations."


To track international VAT developments, including the digital services tax (DST) regimes, these include creating internal and online tracking systems. To make sure that businesses are coordinated from planning to implementation, tax professionals could combine project management with legislative planning.

According to a tax expert at a European e-commerce company, "a big chunk of what people in the tax area want from businesses is to stay in control and to keep on top of things."


Baulf emphasizes that there are risks associated with doing business.


According to him, "there are genuine risks of not being able to meet new requirements on time, ranging from penalties and interest all the way through to not being able to do business in a country."


When it comes to strategy, businesses do have a choice. To assist in meeting the regulatory requirements, they can put in place a variety of measures.


Businesses can either adopt a reactive or proactive strategy for handling legislative changes or issues in their businesses, according to Marta Pankiv, senior director and head of group tax at software company Tricentis in Austria.


According to her, companies that employ the reactive approach frequently fall behind the legislative curve and scramble to determine where they must register for VAT only after the legislation has been announced.


Due to this, businesses are forced into challenging circumstances with few options for resolving their problems or anxiety.


According to Pankiv, being proactive allows you to plan, work with your business, and see how to structure your flows and delivery from those flows.


The only thing that is certain is that the VAT regulatory environment will continue to change legally. Following the COVID-19 pandemic, the tax authorities are not likely to change their stance.


The majority of VAT regulation has been done in Europe. Due to this, the EU has stepped up efforts to harmonize VAT regulations across the union through programs like the One-Stop Shop (OSS), the EU's central processing system for VAT reporting.


By requiring businesses to register for VAT in just one member state rather than several, these measures aim to simplify the EU's VAT regulations. In an effort to close the compliance gap, some European tax authorities have also implemented electronic invoicing and electronic reporting.


The burden of businesses complying with VAT has also increased as a result of a global trend toward raising indirect taxes.


A tax expert at a toy company in the UK says, "we’ve seen that with increasing rates of VAT in Europe there have also been lots of other types of indirect taxes coming on board and now there are moves towards finding ways to have digitised taxes [returns]."


In the Asia Pacific region, where indirect tax regulations have frequently been introduced, even for business-to-business (B2B) services, Pankiv claims that there is also a trend toward ongoing changes.


According to her, in order to better plan their tax strategies, tax practitioners should be aware of both legislative changes and their company's business priorities.


In order to be ready, Pankiv advises speaking with your management and salespeople so they can inform you in advance about the opportunities they are considering and the regions in which they are located.


Perhaps you can use partnerships, joint ventures, or any other business model you can think of to sell to those nations.


Businesses evaluate growth opportunities using a variety of factors, not just commercial ones. Some businesses have started using proactive strategies to examine both internal operations and potential for growth.


According to Baulf, "we are seeing more businesses adopt a proactive horizon scanning approach, using technology and processes to detect and monitor possible tax regulatory changes, from a rumour or public consultation all the way through to the final legislation going live."


According to him, some multinational corporations create scoring systems for evaluating potential regulatory changes and their effects on the company using risk registers.


Businesses that invest in international and scalable tax technology platforms to support e-invoicing, e-reporting, or filing VAT returns in various countries can also benefit significantly.


However, there are tactics that tax directors can employ to guarantee that their organizations are prepared for statutory changes and that their IT infrastructure is appropriate.


The first step is to perform a comprehensive analysis of the company's tax processes related to data formulation and collection. Analyzing internal systems' automation and analytics capabilities is required for this.


Businesses would then need to develop a plan to implement the necessary IT-enabled tax processes after these had been analyzed.


Ensure that senior management and all other employees in the organization share the strategic vision and processes.


The use of tax technology, according to a tax expert at a large luxury goods company in London, is essential to ensuring that tax practitioners can continue to satisfy their organization's compliance requirements.


According to him, automated technology systems have the potential to be beneficial and to foster trust among tax authorities, the larger business community, and tax departments.


In-house tax professionals need to invest in more than just technology systems; they also need to be in line with the business strategy of their company. In order to plan for the tax or VAT requirements, this may entail evaluating the markets the company hopes to enter.


"A key challenge is getting clear, concise certainty over new digital services regimes for VAT or corporate income taxes from international tax authorities. This involves understanding the scope of the regulatory changes and when they will apply ," according to Baulf.


According to Baulf, businesses should keep an eye on how similar the VAT/GST sales tax regulations on digital services are in various nations. They ought to look for commonalities and determine where differences are most likely to exist.


“You can’t have an individual tax policy, an individual process or different technology solutions for every single country in the world that introduces a specific tax. It’s got to be scalable,” insists Baulf.


He claims that numerous nations essentially copy and paste foreign tax laws into their own domestic legislation or regulations.


“Do look at the requirements you have today, then start building the roadmap of upcoming changes, quickly identifying where the rules are similar,” advises Baulf.


“Is the location of evidence that you need the same? Sometimes, there are deviations which can often lead to double taxation or cumbersome local tax calculation policies,” he continues.


Businesses can develop a thorough understanding of potential changes that are likely to have an impact on their organizations by keeping track of tax amendments in various countries.


Additionally, it aids businesses in developing efficient tax plans that allow them to anticipate regulatory changes. As opposed to merely responding to changes, this will enable businesses to exert more control.

By fLEXI tEAM