VAT Determination: Avoiding the Domino Effect

Understanding the intricacies of Value-Added Tax (VAT) is crucial for any business operating in a global marketplace. VAT determination allows organizations to identify business scenarios where products and/or services are taxable and accordingly, the applicable tax rate and tax point. In layman’s terms, your business process needs to be able to define who bought the product/service, what product/service was purchased, when it was purchased, where it was purchased and how much was paid for the product/service. This information is subsequently used to determine how much VAT is due to be paid on the transaction in question and who is responsible to pay the VAT.

However, there are multiple variables when trying to determine the amount of VAT to calculate and charge on the sale of your own sales of goods and services. It is a common misconception that these variables are defined in the tax law or regulations; however, this is not the case. When governments introduce indirect taxes such as VAT, the regulations are for the masses and can be likened to a framework where the main structure is defined and organizations then need to tailor the regulations around their own business processes to be able to fill in the blanks. Failure to do so could lead to incorrect calculations which subsequently result in an incorrect tax return.

If we look at the technology journey of the VAT lifecycle, the first and the most important step for organizations is to be able to configure their VAT determination process correctly. Accurate VAT determination should result in the correct VAT treatment for each transaction and subsequently, the rest of the VAT lifecycle is set on a firm foundation.

How do I select the correct technology?

Technology solutions can help automate the VAT determination process. There are a range of solutions available, picking the right one depends on many factors, such as your existing IT landscape, budget, and your overall tax transformation strategy. This is where EY’s Tax, Technology & Transformation (TTT) team can assist in selecting the correct technology that matches the needs of your organization.

One of the available solutions for organizations is Thomson Reuters — ONESOURCE Indirect Tax Determination (OITD). OITD comes with ready content for over 205 countries across the globe, which is managed and maintained by the Thomson Reuters team. Therefore, any updates in regulations or legislation that impact your determination are automatically updated. OITD has certified integrations for SAP, Oracle and Microsoft, which makes the solution very easy to connect to your existing IT landscape.

The solution is available both as a cloud offering and on premise; and has been deployed in multiple sectors such as FMCG, oil and gas, banking, finance and manufacturing, to name a few. In addition, if you have a highly complex landscape with multiple systems, it can become your single source of truth, as OITD can connect easily to multiple systems.

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