As the current situation calls for a critical need for cash flow and supply chain fixes, VAT and Customs consequences must be kept in mind. Here are some ways to help you cope with the crisis and keep your business healthy until the end of the pandemic.
In the context of the COVID-19 pandemic outbreak, many companies are forced to take short-term measures either to maintain operations – e.g. supply chain adjustments, longer storage periods, new warehouses – or to cope with business interruptions – e.g. cancellation of events. As a transaction-based tax, these measures have a direct impact on the VAT consequences. Despite the urgency of implementing the appropriate measures, the related VAT consequences must be considered in order to best benefit from any reliefs and not run into risks, such as unrecognized additional registration obligations.
Now can be the time for you to consider how you can benefit as much as possible from indirect tax facilitation measures and to start preparing for the time after the crisis. We see tremendous opportunities here to not only limit the negative effects of the crisis, but also reaffirm the agility of your internal indirect tax function for the future.
Critical need for cash flow
Most jurisdictions are announcing emergency measures to increase cash flow of companies affected by the crisis. In parallel, other pre-existing rules in national VAT legislation may also allow you to preserve your cash flow.
- How can I best use cash flow assistance measures such as decreased tax rates and payment deferrals in countries where I operate?
- How should I treat cash flow assistance measures from a VAT perspective (e.g. must tax waivers or decreased interest rates be considered as a loan or a subsidy?) and what is the impact on my input VAT recovery rate?
- Are we ensuring all expenses eligible for input VAT deduction are claimed back? How about expenses incurred abroad?
- How should I treat sales of account receivables (factoring) from a VAT perspective? How about sales of account receivables with large discounts?
- In case of non-payment from my client, can I reduce my financial disadvantage by correcting the VAT already invoiced?
- In case of event cancellation / rebooking, can I reduce my financial disadvantage by correcting the VAT?
- In case of sale and lease-back, how should I structure these transactions from a VAT perspective (actual sale and lease-back with cross supplies, financial supplies or other?) and what is the best approach for cash flow optimization?
Supply chain disruption
Even seemingly marginal, changes in the supply chain might have great indirect tax impacts. The urgency of supply chain reshaping calls for indirect tax agility and close monitoring:
- How can I best use facilitation measures provided by countries that are relevant to my supply chain? Have we considered logistic issues such as delays in Customs formalities and potential mitigating measures?
- How can I assure also in times where quick decision taking is critical, all stakeholders are involved or at least informed of any changes to my business and procurement set-up (including e.g. finance and tax team)?
- What is the impact from a VAT and Customs perspective (incl. additional local registrations)?
- Is my ERP agile enough to handle the sudden change and are we using our ERP’s capabilities to the full extent (including reliable master data)? Are my adjustments correctly reflected in the system? Are adjustments imposed by countries (e.g. decreased tax rates) also reflected in the system?
- When involved in mail-order business (rapidly growing due to lockdowns), do I have full control over local indirect tax requirements?
Please contact us to engage in a dialogue on what actions to be taken – we look forward to working with you!