My one “VAT under management” slide is an all-time favorite in my VAT training sessions, and my audience at the Avalara seminar in Boston yesterday reminded me that it would be good to share the slide on my blog.
It shows the importance of VAT in your global organization, which may include just one legal entity / trading company or even a big tree of trading companies.
The idea is to figure out your organization’s overseas gross sales, and gross purchases and other costs. These are numbers that you should be able to obtain fairly easily from the finance department. Put the numbers together, use the average standard rate of the countries where the organization is in business, and off you go.
The goal is to show that VAT must be carefully managed on the sales (Accounts Receivable), because if you underpay VAT you will be penalized. And the same applies for input tax (Accounts Payable) – underclaiming VAT is a direct pain in gross profit.
Also, other than with income taxes, the final amount of VAT that is to be paid over to the authorities is irrelevant. This number is simply the difference between output tax and input tax. You must be on top of output and input tax, not only the end payment or refund!
The result is that the VAT man (m/f) is responsible for managing x percent of gross sales in VAT. In my client portfolio, this percentage varies between 21% and 45%. Whatever your organization’s percentage is, it is significant and eye-opening!
This example is deliberately kept coarse and simple. We don’t include imports / exports, and we don’t look at reverse charges. I have more complex calculations available that include these data flows, but my point on this slide that you should be able to show the importance of VAT in a simple and swift ‘elevator speech’ to anyone you happen to meet there…
If you are interested in this approach, you should also have a look at http://globalindirecttaxmanagement.com/. Richard Cornelisse and his team are really good at this.
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