(GST) compliance obligations (pdf, 5.62 MB) - Ernst & Young T ...
(GST) compliance obligations (pdf, 5.62 MB) - Ernst & Young T ... (GST) compliance obligations (pdf, 5.62 MB) - Ernst & Young T ...
“In South Africa, the last 5 to 10 years saw SARS on a taxpayer service campaign where the focus was to encourage multi-national VAT taxpayers to become more compliant with the administrative side of VAT, namely, filling VAT returns correctly on time and making payments and so on. But we’ve expanded the focus on compliance activities since the start of the recession. Recently the Minister of Finance and the Commissioner have by public notice communicated that SARS will focus on revenue and refund compliance.” Prenesh Ramphal, Senior Manager of VAT Research and Development, South African Revenue Service (SARS) The “right” amount of tax? Paying the “right” amount of VAT means not paying too little VAT — or too much. The VAT system provides that registered businesses may deduct or recover VAT paid on most legitimate business expenses. However, not all VAT is recoverable — different countries either allow or block different expenditure, especially related to travel and expense costs. For example, if an MNE hosts a conference for its sales force in country A, all the hotel and catering charges may be treated as recoverable, whereas the same costs may be blocked if the conference is held in country B. Foreign VAT recovery Even for accepted business expenses, recovering foreign VAT may be an issue and most MNEs incur VAT in countries where they are not established. Although there are mechanisms for mutual VAT recovery, most notably in the EU, many countries around the world do not refund VAT to non-resident businesses. Even where a refund scheme exists, it may not be open to businesses from particular countries (such as to businesses established in the non-EU countries that do not refund VAT) or it may be difficult for foreign companies to fulfill the requirements in practice. The Organisation for Economic Cooperation and Development (OECD) recently reported on this issue. 5 In 2006, the OECD’s Committee on Fiscal Affairs (CFA) adopted the principle that “the burden of value-added taxes themselves should not lie on taxable businesses except where explicitly provided for in legislation.” It undertook surveys of both governments and businesses to estimate the extent to which this principle was applied to VAT incurred abroad. The OECD’s report, published in February 2010, indicated that, although 5 VAT/GST relief for foreign businesses: the state of play OECD 2010 most OECD member countries have implemented VAT relief procedures, they are frequently complex. More than 80% of businesses surveyed by the OECD indicated that they cannot recover all their foreign VAT and more than 20% reported that they are unable to recover any foreign VAT, at all. A large number (72%) of the businesses surveyed said that they found these procedures “difficult,” and a third said that these difficulties influenced decisions on investment. The OECD comments about the survey: “... businesses would like to see improved communication with tax administrations. Greater harmonization and standardization of the procedures would speed up and improve these repayment systems. The CFA will continue to work on these issues with a view to helping countries improve their VAT relief procedures while at the same time providing safeguards against fraud.” Paying VAT twice Economic double taxation is a genuine risk in some business sectors. Complex transactions may be hard to classify for VAT purposes; this increases the likelihood that countries’ VAT systems may treat the same activity in different ways or that tax administrations may arrive at different conclusions based on the same facts. For certain types of trading activity — for example, crossborder supplies of energy — different rules mean that VAT may apply in more than one territory for the same transaction. Therefore, as matters currently stand, paying the right amount of VAT in these cases means paying tax twice. There is currently no formal mechanism for individual countries to resolve these instances of double taxation, as VAT is not covered generally by international double taxation agreements. VAT and GST: multiple burdens for multinational companies “As VATs have been spreading across the world, international trade has also been expanding rapidly. As a result, the potential for double taxation and unintentional nontaxation has increased.” The Organisation for Economic Cooperation and Development 14
6 OECD International VAT/GST Guidelines, OECD 2010 Commenting on the current position, the OECD notes that businesses may be dissuaded from making investment or trading decisions because of uncertainties about the application of VAT while tax administrations struggle with applying the tax on international transactions where there are no internationally agreed rules. However, the OECD is now developing draft international VAT guidelines 6 setting out how international transactions should be taxed for VAT purposes, which it hopes will benefit taxpayers and tax administrations alike. The flat world effect Few companies do business today in the same way and in the same markets as they did 10 or even 5 years ago. Business models have evolved and are constantly evolving. VAT systems can struggle to keep pace with globalization; in most countries, the basic legislation was adopted many years ago, before, for example, the advent of e-commerce and when fewer companies engaged in cross-border trade. Each change in how or where an MNE does business has far-reaching implications for its VAT compliance. As businesses evolve, they must constantly review their VAT reporting obligations, including the impact on their financial situation and working capital requirements. 15 VAT and GST: multiple burdens for multinational companies
- Page 1: VAT and GST Multiple burdens for mu
- Page 4 and 5: Introduction The global financial c
- Page 6 and 7: The business burden of VAT What is
- Page 8 and 9: Insights Obtaining VAT refunds in t
- Page 10 and 11: “We encourage all countries to en
- Page 12 and 13: “I believe most GST or VAT system
- Page 16 and 17: “An essential requirement within
- Page 18 and 19: A working sales invoice A simple an
- Page 20 and 21: Insights Multiple invoices, multipl
- Page 22 and 23: Complex transactions The seeds of t
- Page 24: Tax administration viewpoint Prenes
- Page 27 and 28: No. of countries No. of countries 2
- Page 29 and 30: Insights “No penalties if there
- Page 31 and 32: A recent OECD conference 8 recogniz
- Page 33 and 34: Tax administration viewpoint Prenes
- Page 35 and 36: Tax administration viewpoint: ways
- Page 39 and 40: Contacts Philip Robinson philip.rob
6 OECD International VAT/<strong>GST</strong> Guidelines, OECD 2010<br />
Commenting on the current position, the OECD notes that businesses may be<br />
dissuaded from making investment or trading decisions because of uncertainties about<br />
the application of VAT while tax administrations struggle with applying the tax on<br />
international transactions where there are no internationally agreed rules. However,<br />
the OECD is now developing draft international VAT guidelines 6 setting out how<br />
international transactions should be taxed for VAT purposes, which it hopes will benefit<br />
taxpayers and tax administrations alike.<br />
The flat world effect<br />
Few companies do business today in the same way and in the same markets as they<br />
did 10 or even 5 years ago. Business models have evolved and are constantly evolving.<br />
VAT systems can struggle to keep pace with globalization; in most countries, the<br />
basic legislation was adopted many years ago, before, for example, the advent of<br />
e-commerce and when fewer companies engaged in cross-border trade.<br />
Each change in how or where an MNE does business has far-reaching implications<br />
for its VAT <strong>compliance</strong>. As businesses evolve, they must constantly review their VAT<br />
reporting <strong>obligations</strong>, including the impact on their financial situation and working<br />
capital requirements.<br />
15 VAT and <strong>GST</strong>: multiple burdens for multinational companies
Change language