Value Added Tax

Value Added Tax (VAT) Services

Value Added Tax (VAT), is a transaction-based tax charged on the supply of goods and services by businesses where they are making a supply for consideration, with the tax ultimately paid by the final consumer in the supply chain. VAT collected at each stage of the supply chain is remitted/reported by the VAT payer to the tax authorities.

There are currently more than 160 jurisdictions around the world that maintain and enforce a VAT system, with average tax rates exceeding 20%. Many U.S. and Canadian companies that do business outside North America are unaware of the application of VAT to their transactions and how to best manage compliance and mitigate the risks within their supply chains. VAT has numerous “touchpoints” that impact both sales and purchase transactions; the result can have a significant impact on cash flow, and if not managed properly, may result in a significant risk of assessment liability, and ultimately a strain on the bottom line.

Your Company May be at Risk of Non-Compliance or VAT Overpayment

If your company takes part in any of the following business activities outside of the U.S. or Canada, you may be at risk of non-compliance and overpayment of VAT:

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  • Purchase goods and/or services from foreign suppliers
  • Sell goods and/or services to foreign customers
  • Import goods or warranty/repair parts into the foreign country of the customer
  • Have a foreign distribution center or warehouse
  • Hold inventory or just-in-time stock at a supplier or customer location in foreign countries
  • Outsource contractual warranty obligation to a third party
  • Facilitate the sale of goods and/or services on behalf of a third party
  • Procure tooling which remains in a country outside the U.S./Canada, and the tooling is utilized to produce prototypes, try-outs or production parts shipped from a foreign country
  • Provide training, exhibition or conferences in foreign countries
  • Send employees for business development, training, or to attend conferences in foreign countries

The Challenge in Managing VAT

Most U.S. and Canadian companies do not have VAT experts on their tax teams who have a deep knowledge of the nuances of VAT and may be leaving paid taxes unrecovered or paying VAT on transactions otherwise exempt from VAT. Challenges for tax teams include:

  • U.S. Sales & Use Tax professionals are increasingly responsible for managing global VAT. VAT is fundamentally different in its application and administration when compared to Sales & Use tax rules.
  • Digitalization is changing the way businesses operate and is rapidly changing the tax landscape. Growth in disruptive business models such as eCommerce, mobility, ridesharing, and the monetization of data means that VAT laws have not caught up with the fourth Industrial Revolution. This will lead to expansion of operations into foreign markets, with increased complexity of business operations and supply chains.
  • U.S.-based multinational companies do not have adequate visibility to VAT paid on foreign purchases, hence the VAT is “trapped” in the expense or asset GL accounts. This could negatively impact the overall profit margin of a company into the double digits if not managed properly.
  • The VAT amount may be ineffectively managed (VAT Throughput) in an organization (i.e. VAT flowing through the procure-to-pay, order-to-cash, downstream record-to-report business processes).
  • U.S.-based multinational companies struggle to review VAT implications on the purchase of services from foreign suppliers and thereby pay VAT on purchases that would otherwise be zero-rated or exempt from VAT, resulting in an inefficient management of cash flow and a direct hit to the bottom line.
  • U.S.-based multinational companies are often time barred from recovering VAT in “good VAT countries” under the special VAT reclamation process, which generally has a short window of 6 months from the end of a calendar year to file a VAT refund application.
DMA’s VAT professionals have over 80 years of combined experience in all areas of transaction taxation and can assist your company in navigating the complex VAT rules, providing solutions to properly manage and minimize your VAT exposure. Our clients represent many industries in the Fortune 1000, including automotive, oil and gas, manufacturing, pharmaceutical, life sciences, material logistics and planning. 

Case Study

Value Added Tax Overpayment and Advisory Service

auto_car_truck_manufactur_AdobeStock_116169611_resized200Our Fortune 500 client is one of North America’s largest automotive companies. It develops, manufactures, markets and distributes passenger and commercial vehicles, SUVs, service parts, and accessories to customers in the Americas, Asia Pacific and EMEA regions.

Chosen for its comprehensive VAT knowledge on cross-border transactions, DMA thoroughly reviewed the client’s complex cross-border supply chain of tool shops, Tier I suppliers, and other suppliers in the business tooling process.

Learn how DMA's review process netted over $8 million in cash flow savings for our client.

   Download the Case Study