Compliance. With numerous laws and regulations to abide by, it has become a sensitive word to be spoken with caution, especially around those responsible for it. Unfortunately, the GDPR and recent tax changes have only further fueled the anxiety of tax/finance managers and controllers. In an effort to relieve the pressure, we asked ourselves how to survive a VAT audit. To help you better prepare, we have described the major steps below.
VAT reporting solution
It all starts with the fact that your submitted VAT returns must be consistent with the data contained in your ERP application. This is a challenge as manual interventions using MS Excel nearly always apply. The best way to start is to reconcile your revenue from your GL trial balance with the revenue which is the basis for the output tax. When these amounts and transactions do reconcile, you have an initial check in the box.
The next thing you need to do to survive a VAT audit is focusing on whether your output tax determination is in line with the correct tax rate. If you only sell goods or services at a standard rate, there is not much to worry about as tax authorities cannot claim more output tax than the standard rate. Instead, your focus should be on reduced and zero-rated output tax and revenue that is exempt from output tax. With a sound VAT reporting solution, a push of a button should be enough to specify these revenues for a validation.
Less is more
As far as input tax is concerned, tax authorities are only interested to know if you do not recover more input tax than allowed. A common way to check if you meet this requirement starts with making the reporting of recoverable tax as simple as possible.
We have quite a few clients who use far more input tax codes than the number of input tax boxes available in a VAT declaration. This certainly doesn’t help in establishing whether or not you recover too much input tax. Complex input tax determination engines which calculate the input tax on AP invoices that are processed without purchase orders are often not quite helpful in achieving this goal either.
In defining input tax codes, less is often more. It is the input tax that your supplier charges on an AP invoice that is crucial in VAT recovery. Recovering any other amount for input tax may interrupt the output/input tax relation in the supply chain.
Cross-border transactions
At 4apps, we believe you need to synchronize the number of input tax codes in your ERP application with your VAT reporting requirements, rather than using the advanced capabilities within your ERP application to automate this process. Between input and output VAT, many tax boxes in the VAT return relate to compliance with reporting requirements for cross-border transactions and transactions where the VAT is transferred to the next party in the supply chain. These boxes nearly always have a limited net payable or recoverable VAT position. Therefore, the focus in this type of transaction is on reporting the correct taxable amounts in the correct tax boxes. Again, with an adequate VAT reporting solution, this should not be too much of a challenge.
We are sure you all know that fast and direct answers at the beginning of a tax audit will limit the time spent with ‘your friends’ at the tax authorities to a minimum. And a good reputation is what we all like…..
If you would like to know more about surviving a VAT audit and making VAT ‘live’ much more simple and straightforward when having the Oracle E-Business Suite in place, feel free to contact us. Or call Henk Tiesma directly at +31 646 178 187 or mail him at h.tiesma@4apps.com.
