Het Financieele Dagblad, Thursday, 26 June 2008
At a large multinational, a software error resulted in the company paying too much VAT over an 11-year period. The software registered when a customer was repaid the remaining portion of his subscription following its cancellation.
What the system did not register was that the customer also received a VAT refund over the remaining portion. The total amount of wrongfully paid VAT eventually rose to around €55 million, of which the tax authorities were only prepared to return €20 million.
In the case of another company, a software error resulted in the opposite situation: it had deducted €40 million in excessive input VAT.
Many organizations lack an ‘indirect tax control framework' for defining a strategy, systems and control mechanisms to manage risks linked to reporting VAT. With an indirect tax control framework, companies determine the management level that is responsible for the entire VAT reporting process, from beginning to end.
The risk that VAT errors will compromise companies' financial positions and reputations is a growing one. With globalization of business, the complexity of transactions in terms of VAT is increasing.
The root of an operational VAT problem often lies in the inadequate modification of an IT system following a takeover or merger, international expansion or a change in the VAT qualification of transactions, as can happen when tax legislation is amended or a country joins the EU.
An indirect tax control framework minimizes risks and reduces costs by improving operations. Take, for example, the VAT determination logic of VAT calculations and reports and driving back the required VAT operating capital. A company with a good framework is in an excellent position to enter into an advance agreement with the tax authorities.
The advantage of such an agreement is that companies gain faster insight into their tax positions and that more emphasis is placed on monitoring the actual VAT position, rather than on subsequent verification.
