Evolve to succeed case study - Value Added TaxHow we helped one multinational improve group cash flow and manage VAT compliance |
Abstract
Our client was a multinational group that had a shared services centre, alongside manufacturing, distribution and retail functions in Ireland. We approached the client with ideas on how to improve cash flow within the group and how best to manage the Value Added Tax (VAT) compliance function within the shared services centre.
Challenge
This was a complex business for VAT purposes, with VAT obligations throughout the EU that were being dealt with from Ireland.
The company was keen to find out how it could improve its cash flow and generally reduce VAT accounting costs. As it had a significant global treasury operation, it incurred irrecoverable VAT and was keen to reduce the level of irrecoverable VAT incurred.
There were significant inter-company charges going through the group both for services provided by the shared services centre and for sales of product between the manufacturing and distribution companies.
Approach
We began with a review of the group’s VAT accounting to discover where VAT cash flow could be improved and where there was potential for VAT savings.
We also considered ways in which the VAT compliance function could be managed in a more cost-efficient and risk-averse manner.
Solution
We included all the companies in an Irish VAT group, which had several benefits. First, it removed the VAT charge on intra-group transactions. In most instances this provided only a cash flow advantage, but for the treasury company this produced a real VAT saving by removing the irrecoverable VAT from intra-group transactions.
The second benefit of including all companies in a VAT group was that all the entities could benefit from qualifying for a VAT13B authorisation. This meant all the entities in the group could buy goods and services without having to pay VAT. Again, this produced a valuable cash flow advantage for the companies of the group.
We also reviewed the VAT recovery entitlement of the treasury company. By using a more accurate VAT recovery method, we were able to increase the level of VAT that the treasury company was entitled to recover.
We discovered that the group was also paying customs duty on raw materials it imported for its manufacturing activity. We were able to remove this duty charge by putting in place a customs procedure, “processing under customs control”.
We also introduced “Abacus VAT”, an automated VAT compliance solution. Implementing Abacus will reduce the costs and risk associated with the multi-jurisdictional VAT compliance currently hosted in the shared service centre.
