VAT changes are closer than they appear

Indirect Tax

VAT changes are closer than they appear

4apps group, 8 August 2021

Every now and then we find ourselves driving our car on the highway when another car appears in our side-view mirror out of nowhere, being a lot closer than expected. Sounds familiar, doesn’t it? With just a little imagination this may apply to any event in life or business. Unfortunately for IT and Tax Managers, indirect taxes are no exception.

Jumping unto your bumper

As an IT manager you may find yourself in a situation where a Tax Manager more or less ‘jumps onto your bumper’ confronting you with the need for software changes caused by amended VAT regulations. In case you are a Tax Manager, the odd guest on your bumper may be the tax inspector or even all VAT changes related to COVID-19 such as the temporary VAT reduction that was put in place in Germany.

COVID-19 related VAT changes

What these COVID-19 related VAT measures have in common is the fact that they are mostly temporary reductions in VAT rates. They are in fact new rates that either apply generally (as was the case in Germany) or to specific products. In order to be able to adapt swiftly to these new rates, while avoiding another ‘wing mirror experience’, it is important that your VAT codes are set up in a standardized way. Using a VAT percentage in the naming of the VAT code is a no go, as this is confusing and calls for new VAT codes to be created with all the associated consequences. A little to our surprise, however, this is still quite common these days.

Naming convention

A convention of a Dutch standard VAT code that we apply is “NL AR DO GDS STD”, which stands for domestic (NL DOmestic) VAT on sales (AR) relating to goods (GDS) at the STanDard rate (o21% in the Netherlands). Should the Netherlands decide to reduce this percentage temporarily, an adjustment of the percentage associated with the VAT code would be sufficient without the need for an entirely new VAT code. However, if a new VAT code is required because the name convention is not generic, an adjustment of a percentage isn’t nearly enough to do the job. Before you know it, reality has caught up with your organization when looking in the mirror.

Standardized Oracle EBS setup

In that case, we strongly advise you to take a close look at the setup within your Oracle EBS. A standardized setup of your EB tax module within Oracle EBS enables you to quickly and easily determine the correct VAT rate for all countries in which your company operates. Hopefully, the COVID-19 pandemic will soon be restrained. With the right setup of your VAT software, you are in fact already vaccinated against unexpected VAT changes and yet another unpleasant mirror experience! This time you will see it coming, with more than enough time to react!

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