Clean, accurate, and relevant data is the oxygen that today’s companies need to survive and thrive, and investing in tax services can boost the supply. A recent survey of executives by Ryan shows that tax professionals must prove to their CFOs how tax services can make real, consequential improvements to a company’s bottom line. Data is the key to proving their case.
As part of their core duties, tax departments can show that a VAT analysis will find uncaptured VAT credits, providing an immediate boost to a company’s bottom line. However, a VAT analysis can also improve the quality of VAT processes and accessibility of data throughout a company, even for nontax functions and processes.
As a matter of compliance, companies must invest significant resources in VAT processes to better understand, plan for, and adhere to new, complex VAT rules, especially in Europe. Tax professionals can show that VAT reviews also empower company leaders to bolster their business in a myriad of ways: strengthen their supply chains, turbocharge their financial planning and analysis (FP&A), improve their merger and acquisition (M&A) strategies, and streamline processes throughout the organisation, to name a few.
Boosting the Bottom Line by Catching Overpay
Bringing cash back to the organisation is of course valuable, particularly in turbulent economic times. Often when a tax team is undertaking a VAT review, it will find instances where VAT has been overpaid because problems with the company’s data means offsetting credit hasn’t been captured. “Data issues can be caused by inaccurate machine scanning, human error, corrupted data transfers between different systems, or wrongly configured data,” says Suzanne den Breems, Principal and Practice Leader for VAT Recovery in Europe at Ryan. “Address these issues and you can be confident you’re complying with regulation without paying more than you need to.”
In addition, a tax partner can be a valuable resource when launching a VAT review, not just to fix overpay in the past, but to reduce its future occurrence by closing the gaps. “In the course of the review, we can draw that to clients’ attention to recover the missed VAT credits, but also to point them in the direction of what they need to do going forward to fix some of their data issues,” says Scott Fowler, Principal, Client Services at Ryan.
VAT data is transactional data drawn from many, if not all, areas of the organisation. Because of this, a VAT review can provide insights and benefits beyond the company tax department:
Supply chain efficienciesVAT reviews can lower supply chain costs by identifying and capturing VAT credits that otherwise would be missed. Nearly every third-party cost can potentially have a VAT element, such as raw materials, supplied finished goods, and vendor services, so VAT touches nearly every aspect of accounts payable.
There are many ways VAT analysis can clarify costs. Each cost can have a different VAT treatment depending on where it originates and travels to—certain types of services are exempt from VAT and different government agencies require different types of VAT reporting. In addition to the recovery of missed VAT credits, a VAT review can improve the data quality throughout the supply chain and processes.
What’s more, the true cost of every transaction is more than simply the price tag of the good. When products and materials cross tax jurisdictions, there are many varied ways they’re taxed. To determine full transactional costs of goods in motion, VAT data is great to capture what a price tag cannot.
Financial planning and analysisAs companies deploy advanced FP&A to guide their strategic planning and risk management, the accuracy and timeliness of their insights depends on the quality of the data that they’re based on. By uncovering data inaccuracies and inefficiencies, VAT analysis bolsters FP&A and helps companies make smarter, faster business decisions. It can also help set appropriate short- and long-term corporate goals, which rely on accurate data sets. VAT data can be a part of providing a structure to ensure planning and goal setting is based on true baseline data.
M&A advantagesMany companies decide to have a VAT review performed on a newly acquired company, not only to assess the VAT accounting and compliance processes of the acquisition, but to assess data issues that need to be fixed. The VAT review is an opportunity to pinpoint potential integration issues between the disparate data systems of the buyer and the acquisition. “It's a good way to get really detailed insights into both the data quality and the processes that are in place,” den Breems says.
Talent recruiting and retentionThe results from VAT reviews help company tax departments to drive efficiencies—through technology applications, for example—and to focus more on strategic work that is more meaningful to the company’s success. Strategically focused tax departments that devote fewer resources to rote tasks, such as reconciling reports, are more attractive workplaces for high-end tax talent. Talent recruiting and retention are improved when the tax function is valued as an integral part of the company and is able to move beyond compliance alone and develop its more strategic, creative consultancy skillset.
Collaboration advantagesThe transactional data that comprises VAT data is drawn from across the business, and often this data is held in separate databases. If tax can spearhead the unification of these databases, it can become a unifier of silos and a creator of a central source of truth. By identifying the data inaccuracies that lead to uncaptured VAT credits, a VAT review can help the different functions within a company—tax, finance, accounting, operations, and IT—take a big-picture view of the company’s data and see why the inaccuracies are occurring. “A lot of times, it comes down to communication,” den Breems says.
Tax professionals need to make the case to their companies that investing in their function creates far more than just compliance benefits. To do this, and to raise their department’s profile in the process, they must communicate that they are reliable stewards: proactive, engaged, running regular health checks, and never complacent. The tax function must also be confident enough not to fear catching past errors, but instead have the foresight to see that their value increases once all past gaps are found and future ones prevented.
They can show how their department can contribute meaningfully to profit margins, and a VAT review can bolster their argument with both immediate and long-term results. VAT reviews uncover revenue immediately through unclaimed VAT credits and provide a boost to the bottom line by uncovering data deficiencies and their causes. By improving how companies capture and process data, a VAT review can elevate processes across the entire organisation.
This feature appeared on We Are Tech Women on 23 September 2023.
Suzanne den Breems
Principal, Practice Leader
VAT Consultancy and Recovery