Description
Value-added tax (VAT) is imposed in over 140 countries worldwide, making it the world’s most commonly used tax. Although VAT is currently not imposed in the United States, any U.S. multinational corporation should be aware of VAT as it can impact almost every transaction that takes place while doing business overseas. In brief, VAT is applied to the sale price charged for goods or services at every point in the supply chain.
INTERNATIONAL INDIRECT TAX
International Indirect Tax
Value-added tax services
Value-added tax (VAT) is imposed in over
140 countries worldwide, making it the
world’s most commonly used tax. Although
VAT is currently not imposed in the United
States, any U.S. multinational corporation
should be aware of VAT as it can impact
almost every transaction that takes place
while doing business overseas. In brief, VAT
is applied to the sale price charged for goods
or services at every point in the supply chain.
A business has to account to the government
for the VAT due on its income but it can usually
claim a credit for the VAT that it incurs on the
cost of materials and other taxable costs.
Producers, wholesalers, and retailers are all
required to pay VAT and must keep accurate
records to ensure that they receive credits
for the VAT they pay in the chain—from
production to the ultimate sale of the goods.
Significant VAT issues—and real cash costs including penalties
and interest for VAT non-compliance and irrecoverable VAT—
can arise in areas such as:
• Global contracting
• Global supply chain
• Mergers, acquisitions, and divestitures
• Expansions into new countries
• Technology and compliance
• Cash flow enhancement
• Financial services and insurance
How can KPMG help?
KPMG’s International Indirect Tax team includes professionals
who have real hands-on experience working in VAT regimes
across many different countries in Europe, Latin America,
and the Asia Pacific. They have worked with companies in all
sectors and in all stages of their development. We use this
significant experience to help clients identify and manage their
VAT risks and compliance costs, plus we help clients identify
ways to reduce both their absolute VAT costs as well as the
cash flow impact that VAT has on them. Our approach to VAT
services combines an international perspective and locally
based structure, using technology both as an enabler for VAT
compliance and as a means to help U.S.-based companies
gain visibility into their international VAT affairs. International
Indirect Tax professionals work closely with Global Indirect Tax
professionals from KPMG International member firms across
the globe on a regular basis, enabling us to mobilize international
teams quickly and provide responsive and consistent service.
General VAT consulting
KPMG can assist companies to address global VAT issues as they expand internationally.
Listed below are just some of the specific areas where we have knowledge and in-depth
experience, but companies should keep in mind that we are also able to assist with VAT
issues that might be encountered in the financial services or insurance sectors or in the
areas of global contracting, mergers and acquisitions or supply chain changes.
• VAT Diagnostic Review – We use our Diagnostic Review to both interview your
staff and analyze your supply chain (goods and services). This will enable
you to better understand your VAT risks and opportunities, including those arising
from expansion into new countries, the use of new financial systems and business
processes, and nonintegrated accounting systems.
• VAT manuals/matrices – To help your accounting department make decisions with
respect to purchases or the sale of goods or services, we can develop country-specific
decision trees that assist with the VAT decision-making process. This country-by-country
VAT manual also includes invoice and statutory reporting requirements for each country.
• Training – VAT affects everyone in a company’s supply chain, specifically those in
logistics, sales, and accounting. Our customized half-day or full-day training sessions
have been helpful in determining that everyone understands the VAT trigger points and
whom to work with, from an internal standpoint, so that VAT is managed efficiently and
correctly.
• Due diligence – Before acquiring a company, you should be aware of the significant
historic VAT liabilities of the target company before agreeing on a purchase price. Any
timely discovered liabilities could reduce the purchase price of the company and give
the buyer an idea of the VAT challenges that they may need to address after acquisition
is complete.
INTERNATIONAL INDIRECT TAX
Case study
KPMG was advising a client in the financial services
industry regarding the purchase of a company with
operations in both the United States and Europe.
During the due diligence process, it was discovered
that the target’s U.K. entity had been incorrectly seeking
credits for VAT that it was incurring on its costs. As a
result of identifying this issue, the purchaser was in a
position to secure a purchase price reduction from the
vendor to cover the historical liabilities and to reflect the
increase in costs going forward.
VAT compliance
As VAT is a compliance tax that affects most sales and purchase transactions,
reporting requirements will need to be met once a company has transactions that
are subject to VAT in a VAT jurisdiction. The services we offer in this area are to clients
who are required to be registered, are currently registered, or who have outstanding
liabilities that need to be quantified.
• VAT registrations and fiscal representation services – As soon as a foreign company
has sales that are subject to local VAT in a VAT jurisdiction, it will most likely need
to register as soon as possible with the local VAT authorities. Should the foreign
company not have a physical presence in the country and is required to appoint a
country representative, then KPMG can also assist with meeting this requirement,
usually through the appointment of a local member firm.
• VAT returns and other reporting – KPMG’s approach is to coordinate global VAT
compliance engagements centrally while the compliance preparation or review
is performed by local member firms. For example, in Europe, the compliance
obligations can include VAT returns and various mandatory statistical filings.
• Audit defense – Regularly, foreign tax authorities will select a VAT return or period
of time for an audit and ask for underlying documents. We can assist in reviewing
the documents that need to be provided and coordinate with our local member firm
offices to facilitate communication with local tax authorities.
• Refund claims – U.S. headquartered companies may have the opportunity to recover
VAT incurred in countries where they are not VAT registered through a nonresident
reclaim filing. Types of expenditures that may qualify for a reclaim filing range from
hotel stays to the importation of goods. KPMG can assist with filing the reclaim and
negotiating with the local tax authorities. We can also help your overseas subsidiaries
file claims for underrecovered VAT that might arise in their ongoing operations.
• Provision reviews – Audit clients may have recognized VAT exposures but are unable
to quantify the exposure. KPMG can coordinate with local member firms to assist
clients in quantifying potential VAT exposures by computing the potential VAT liability,
penalty, and interest expense.
INTERNATIONAL INDIRECT TAX
The VAT “Through-Put”
The amount of VAT managed within a company is generally
between 20 percent and 30 percent of non-U.S. revenue:
VAT Rate VAT Amount
(in millions USD)
Sales 5,000 20% 1,000
Purchases (3,000) 20% 600
Salaries (1,000) N/A N/A
Transfer Pricing (500) 20% 100
Net Income 500
Income Tax Rate 30%
Income Tax 150
Gross VAT 1,700
kpmg.com
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY
A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (I) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY
TAXPAYER OR (II) PROMOTING, MARKETING, OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information
to specific situations should be determined through consultation with your tax adviser.
© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. The KPMG
name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 24193NSS
Technology implementation
• VAT implementation in standard Enterprise Resource Planning
(ERP) software – Standard third-party ERP systems can be
programmed to automatically determine the VAT derivation
(i.e., rate, invoice requirements) of accounts receivable and
accounts payable. However, internal and external system
integrators may not have the experience with VAT to implement
this and sign off on the proper VAT/GST treatment of the global
transactions. KPMG can:
– Map VAT scenarios with their proper VAT treatment to deliver
a fiscal requirements document
– Build the business design script – the blueprint to enable
the ERP software provider to customize its software to
achieve the correct automated VAT derivation for transactions
– Test the new VAT settings after ERP software provider
has customized the system based on KPMG’s business
design script
• Implementation of specific VAT software that automatically
determines the VAT treatment – VAT engines work closely
together with the ERP software systems and replace the ERP
software system’s standard VAT module. The implementation
of a third-party VAT engine requires the same detailed VAT and
system experience to properly implement the VAT module.
KPMG can work closely with the providers of these software tax
engines and the client to provide the ERP software provider with
the building plans it needs to correctly implement the third-party
VAT engine as well as undertaking the configuration and testing
the resulting work flows.
Why KPMG?
Our International Indirect Tax team has significant overseas
experience in VAT and can help clients address their VAT issues in
order to meet their goals of effectively and efficiently managing the
tax. We can work closely with KPMG International member firms
in every major market that has a VAT regime in order to address our
client’s specific needs.
Contact us:
Frank Sangster, Principal
Head of International Indirect Tax Group
[email protected]
267-256-1680
Leah Durner, Principal
U.S. Indirect Tax practice
[email protected]
202-533-5542
Stephen James, Principal
U.S. Indirect Tax practice
[email protected]
650-404-5016
doc_269058278.pdf
Value-added tax (VAT) is imposed in over 140 countries worldwide, making it the world’s most commonly used tax. Although VAT is currently not imposed in the United States, any U.S. multinational corporation should be aware of VAT as it can impact almost every transaction that takes place while doing business overseas. In brief, VAT is applied to the sale price charged for goods or services at every point in the supply chain.
INTERNATIONAL INDIRECT TAX
International Indirect Tax
Value-added tax services
Value-added tax (VAT) is imposed in over
140 countries worldwide, making it the
world’s most commonly used tax. Although
VAT is currently not imposed in the United
States, any U.S. multinational corporation
should be aware of VAT as it can impact
almost every transaction that takes place
while doing business overseas. In brief, VAT
is applied to the sale price charged for goods
or services at every point in the supply chain.
A business has to account to the government
for the VAT due on its income but it can usually
claim a credit for the VAT that it incurs on the
cost of materials and other taxable costs.
Producers, wholesalers, and retailers are all
required to pay VAT and must keep accurate
records to ensure that they receive credits
for the VAT they pay in the chain—from
production to the ultimate sale of the goods.
Significant VAT issues—and real cash costs including penalties
and interest for VAT non-compliance and irrecoverable VAT—
can arise in areas such as:
• Global contracting
• Global supply chain
• Mergers, acquisitions, and divestitures
• Expansions into new countries
• Technology and compliance
• Cash flow enhancement
• Financial services and insurance
How can KPMG help?
KPMG’s International Indirect Tax team includes professionals
who have real hands-on experience working in VAT regimes
across many different countries in Europe, Latin America,
and the Asia Pacific. They have worked with companies in all
sectors and in all stages of their development. We use this
significant experience to help clients identify and manage their
VAT risks and compliance costs, plus we help clients identify
ways to reduce both their absolute VAT costs as well as the
cash flow impact that VAT has on them. Our approach to VAT
services combines an international perspective and locally
based structure, using technology both as an enabler for VAT
compliance and as a means to help U.S.-based companies
gain visibility into their international VAT affairs. International
Indirect Tax professionals work closely with Global Indirect Tax
professionals from KPMG International member firms across
the globe on a regular basis, enabling us to mobilize international
teams quickly and provide responsive and consistent service.
General VAT consulting
KPMG can assist companies to address global VAT issues as they expand internationally.
Listed below are just some of the specific areas where we have knowledge and in-depth
experience, but companies should keep in mind that we are also able to assist with VAT
issues that might be encountered in the financial services or insurance sectors or in the
areas of global contracting, mergers and acquisitions or supply chain changes.
• VAT Diagnostic Review – We use our Diagnostic Review to both interview your
staff and analyze your supply chain (goods and services). This will enable
you to better understand your VAT risks and opportunities, including those arising
from expansion into new countries, the use of new financial systems and business
processes, and nonintegrated accounting systems.
• VAT manuals/matrices – To help your accounting department make decisions with
respect to purchases or the sale of goods or services, we can develop country-specific
decision trees that assist with the VAT decision-making process. This country-by-country
VAT manual also includes invoice and statutory reporting requirements for each country.
• Training – VAT affects everyone in a company’s supply chain, specifically those in
logistics, sales, and accounting. Our customized half-day or full-day training sessions
have been helpful in determining that everyone understands the VAT trigger points and
whom to work with, from an internal standpoint, so that VAT is managed efficiently and
correctly.
• Due diligence – Before acquiring a company, you should be aware of the significant
historic VAT liabilities of the target company before agreeing on a purchase price. Any
timely discovered liabilities could reduce the purchase price of the company and give
the buyer an idea of the VAT challenges that they may need to address after acquisition
is complete.
INTERNATIONAL INDIRECT TAX
Case study
KPMG was advising a client in the financial services
industry regarding the purchase of a company with
operations in both the United States and Europe.
During the due diligence process, it was discovered
that the target’s U.K. entity had been incorrectly seeking
credits for VAT that it was incurring on its costs. As a
result of identifying this issue, the purchaser was in a
position to secure a purchase price reduction from the
vendor to cover the historical liabilities and to reflect the
increase in costs going forward.
VAT compliance
As VAT is a compliance tax that affects most sales and purchase transactions,
reporting requirements will need to be met once a company has transactions that
are subject to VAT in a VAT jurisdiction. The services we offer in this area are to clients
who are required to be registered, are currently registered, or who have outstanding
liabilities that need to be quantified.
• VAT registrations and fiscal representation services – As soon as a foreign company
has sales that are subject to local VAT in a VAT jurisdiction, it will most likely need
to register as soon as possible with the local VAT authorities. Should the foreign
company not have a physical presence in the country and is required to appoint a
country representative, then KPMG can also assist with meeting this requirement,
usually through the appointment of a local member firm.
• VAT returns and other reporting – KPMG’s approach is to coordinate global VAT
compliance engagements centrally while the compliance preparation or review
is performed by local member firms. For example, in Europe, the compliance
obligations can include VAT returns and various mandatory statistical filings.
• Audit defense – Regularly, foreign tax authorities will select a VAT return or period
of time for an audit and ask for underlying documents. We can assist in reviewing
the documents that need to be provided and coordinate with our local member firm
offices to facilitate communication with local tax authorities.
• Refund claims – U.S. headquartered companies may have the opportunity to recover
VAT incurred in countries where they are not VAT registered through a nonresident
reclaim filing. Types of expenditures that may qualify for a reclaim filing range from
hotel stays to the importation of goods. KPMG can assist with filing the reclaim and
negotiating with the local tax authorities. We can also help your overseas subsidiaries
file claims for underrecovered VAT that might arise in their ongoing operations.
• Provision reviews – Audit clients may have recognized VAT exposures but are unable
to quantify the exposure. KPMG can coordinate with local member firms to assist
clients in quantifying potential VAT exposures by computing the potential VAT liability,
penalty, and interest expense.
INTERNATIONAL INDIRECT TAX
The VAT “Through-Put”
The amount of VAT managed within a company is generally
between 20 percent and 30 percent of non-U.S. revenue:
VAT Rate VAT Amount
(in millions USD)
Sales 5,000 20% 1,000
Purchases (3,000) 20% 600
Salaries (1,000) N/A N/A
Transfer Pricing (500) 20% 100
Net Income 500
Income Tax Rate 30%
Income Tax 150
Gross VAT 1,700
kpmg.com
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY
A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (I) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY
TAXPAYER OR (II) PROMOTING, MARKETING, OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information
to specific situations should be determined through consultation with your tax adviser.
© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. The KPMG
name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 24193NSS
Technology implementation
• VAT implementation in standard Enterprise Resource Planning
(ERP) software – Standard third-party ERP systems can be
programmed to automatically determine the VAT derivation
(i.e., rate, invoice requirements) of accounts receivable and
accounts payable. However, internal and external system
integrators may not have the experience with VAT to implement
this and sign off on the proper VAT/GST treatment of the global
transactions. KPMG can:
– Map VAT scenarios with their proper VAT treatment to deliver
a fiscal requirements document
– Build the business design script – the blueprint to enable
the ERP software provider to customize its software to
achieve the correct automated VAT derivation for transactions
– Test the new VAT settings after ERP software provider
has customized the system based on KPMG’s business
design script
• Implementation of specific VAT software that automatically
determines the VAT treatment – VAT engines work closely
together with the ERP software systems and replace the ERP
software system’s standard VAT module. The implementation
of a third-party VAT engine requires the same detailed VAT and
system experience to properly implement the VAT module.
KPMG can work closely with the providers of these software tax
engines and the client to provide the ERP software provider with
the building plans it needs to correctly implement the third-party
VAT engine as well as undertaking the configuration and testing
the resulting work flows.
Why KPMG?
Our International Indirect Tax team has significant overseas
experience in VAT and can help clients address their VAT issues in
order to meet their goals of effectively and efficiently managing the
tax. We can work closely with KPMG International member firms
in every major market that has a VAT regime in order to address our
client’s specific needs.
Contact us:
Frank Sangster, Principal
Head of International Indirect Tax Group
[email protected]
267-256-1680
Leah Durner, Principal
U.S. Indirect Tax practice
[email protected]
202-533-5542
Stephen James, Principal
U.S. Indirect Tax practice
[email protected]
650-404-5016
doc_269058278.pdf