VAT in the Digital Age: The business perspective · A) Business information to maximize Indirect...
Transcript of VAT in the Digital Age: The business perspective · A) Business information to maximize Indirect...
Strictly Confidential
December 2019
VAT in the Digital Age: The business perspective
Summary
1) The acknowledgement of the new reality: Relevance of Indirect Taxes
2) Our understanding of the Tax Authorities’ perspective
A) Business information to maximize Indirect Tax revenue
B) The “Eureka” moment: Business information to maximize ALL revenues
3) The renewed relationship with EU Tax Authorities
4) The real challenge – The “friendly” criticism
5) The only way forward: Adaptation and self-improvement
6) Our challenge at AstraZeneca (AZ)
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The acknowledgement of the new reality: Relevance of
Indirect Taxes
• Indirect Taxes are turning into the preferred source of revenue for
many Tax Authorities worldwide.
• Many countries around the world are changing or recently
establishing Indirect Tax systems very similar to the European model.
• OECD information shows an increasing international trend: Corporate
Income Tax (CIT) revenue as a percentage of GDP is generally
stalling whereas the Indirect Tax share gradually increases.
Please allow me to show you some charts…
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Evolution of Indirect Tax (VAT) & CIT revenue as percentage
of GDP in 34 largest OECD countries
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0,0%
1,0%
2,0%
3,0%
4,0%
5,0%
6,0%
7,0%
8,0%
9,0%
10,0%
2007 2017
VAT CIT
* Representation of public information published by the OECD
The acknowledgement of the new reality: Relevance of
Indirect Taxes
How to maximize the trend?
How to efficiently tackle fraud and increase Tax revenue?
To the eyes of the Tax Authorities the answer was simple…
By collecting and analysing large amounts of transactional business
information
Please allow me to share some background information with you…
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A) Business information to maximize Indirect Tax revenue
• Interested by such trend, the European Commission estimated the total
amount of VAT lost across the EU-27 (“VAT GAP”) in 2015 at EUR 151.5
billion based on the VAT collection figures available at the time.
• The European Commission then proposed 20 measures to tackle the VAT
GAP and among those, the key measure was:
“Investigate the possibility of extending the use of automated access to
data.
It will also explore with Member States the possibility to develop an
automated mechanism that would allow a cross-matching between the
data reported by each party of every single transaction. That would
allow detecting fraud in early stages and ultimately prevent a missing trader
fraud, be it domestic or intra-Community”.
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A) Business information to maximize Indirect Tax revenue
(cont.)
• Currently almost all European Tax Authorities are running or planning to run
different initiatives to capture large amounts of multipurpose information
aiming to achieve a “real picture” of the business activity that would help
them (i) tackle fraud and (ii) increase the VAT revenue.
• For that purpose, most have enlarged their IT budget and increased the
communication among themselves.
• Their plan is beginning to work! According to the VAT GAP report for 2018:
“The VAT GAP decreased by €10.5 billion to €147.1 billion in 2016, a drop to
12.3% of total VAT revenues compared to 13.2% the year before.”
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B) The “Eureka” moment: Business information to maximize ALL
revenues
• Upon collecting and processing large amounts of transactional data seeking
to maximize the VAT revenue in many different ways, European Tax
Authorities soon realised the potential of that information... They had their
“Eureka” moment:
VAT is no longer ONLY a very profitable tax…
• It is ALSO a mechanism to allow them gather very large and complex
amounts of business information at an invoice level, at a transactional level.
Detailed business information might be more valuable than immediate
revenue…
• For the first time, Tax Authorities have a “granular - end to end – full picture”
understanding our businesses from a holistic tax perspective i.e. useful for all
taxes…
VAT is now a primary source of multipurpose business information
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The renewed relationship with EU Tax Authorities
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Finance
team
Billing /
Accounting
systems
Transactional
information &
documentation
(e.g. invoices)
Tax team
Deals with
transactional
information and
documentation to
prepare VAT returns &
supporting data
Periodical VAT
returns &
supporting data
Queries / Audits
Tax
Authorities
Analyse
VAT returns &
supporting
data
Daily transactional
information
Queries / rejections
Finance
team
Billing /
Accounting
systems
Tax Authorities
Analyse daily
transactional
information &
cross-check other
reported by 3rd
parties
Ongoing
Involvement
Tax team
Assisting to VAT
sensitise
business / re-
design processes
to secure
information is
correct in origin
Pas
t
Present /
Future NEW ROLE
The real challenge – The “friendly” criticism
• Dialogue vs. Monologue
• Need for a common European VAT digitalization roadmap
Coordination with other Tax Authorities e.g. European SII?
Coordination with EU Business operators. Need for EU Business
consultation?
• Business adaptation does not only relay in the Tax Experts and require heavy IT
investments and deep business transformation. Time sensible implementation
• EU Tax Authorities should pre-agree a common EU approach and act in a
coordinated manner which would translate into millions of EUR on savings to EU
business at all levels e.g. IT investment, human hours, sanctions, etc.
• EU MUST be an attractive and business friendly territory! 10
The only way forward: Adaptation and self-improvement
The Indirect Tax expert is NOT going to disappear BUT needs to rapidly adapt to the
new reality by, among other things:
1) Becoming conscious of the new VAT reality:
VAT is now a very detailed primary source of multipurpose business information
2) Spreading the news within the business in an effective way:
Be the “story teller” NOT the “scaremonger”
3) The business MUST control the information in all its processes. Business
information must be correct at creation point.
Guide the message since you are the Subject Matter Expert (SME)
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The only way forward: Adaptation and self-improvement (cont.)
4) Teaming up with different Functions / Departments to help them get things right
first time
Be a trusted and knowledgeable business partner.
5) Assessing the situation and preparing a remediation plan (assisted by SMEs):
a) Cross-functional VAT review of business processes (“VAT Sensitization”) and
b) Identification of an IT tool/s that suits the specific needs of the business.
NOT all available tools work in all situations…
Prevent them from buying a Ferrari if they do not yet have the road or the gas
station!
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Our challenge at AZ - Quick glance at us
• Pharmaceutical is perceived to be one of the most complex economical sectors
from the perspective of Indirect Tax compliance among other factors due to:
The complexity and variety of supply chains (e.g. controlled conditions of the
product for testing, circulation, distribution and commercialization).
The large volume and number of high value cross-border transactions.
The need for permanent stock.
The traditional Contract Manufacturing Organizations (CMO)’s arrangements on
product supplies.
• The different European business activities performed by AZ are conducted
through approximately 120+ different legal entities, with multiple VAT
registrations in different EU Member States and operating through 5+ different
accounting / billing systems heavily customized.
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Our challenge at AZ – Our action plan
• Review of Indirect Tax internal policies and standards to better reflect the new
reality and the tasks and needs of the Indirect Tax experts.
• Business internal informative talks, trainings and published information to explain
the new reality and to socialize potential issues detected.
• Involvement of the Indirect Tax experts in business-wide IT initiatives to secure
adequate design and VAT sensitization.
• Regular meetings with other business stakeholders to better understand
business processes, existing issues and potential solutions.
• Design of an Indirect Tax Data Strategy as part of a global business improving
initiative. 14
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Cambridge, CB2 0AA, UK, T: +44(0)203 749 5000, www.astrazeneca.com
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Thank you all for your attention!
Please do not hesitate to further contact me at:
Alfredo Espada Associate Director – EMEIA Indirect Tax & Tax Technology AstraZeneca Corporate Finance – Global Taxation City House, 136 Hills Road, Cambridge, CB2 8PA M: 00 44 795 118 1108 [email protected]