Indirect Tax Planning

Author:Mr Greg Lockhart
Profession:Matheson
 
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Greg Lockhart, head of the firm's VAT and Customs consultancy practice, was interviewed by Finance Monthly for its July 2013 issue. Read his views on the importance of planning for indirect taxes. Q. Why is indirect tax planning important and how can it help multinational companies manage risk, improve cash flow and reduce costs? Indirect tax is the broad term used to describe a collection of taxes which, from an EU perspective, generally have a link with EU law, including most notably VAT but also Customs Duty and Excise Duties. For many businesses, VAT is seen as no more than an administrative burden only being a relevant real business factor for those businesses engaged in financial services or other VAT exempt activities. This however is not the full picture. In practice, even though a business may have full VAT recovery there remain many potential pitfalls and other mistakes which can lead to significant VAT costs and the potential incurrence of substantial interest and penalties. When a mistake is made as to VAT regarding the turnover of a business, this can have dramatic and devastating consequences as the VAT error will relate to the turnover of the business regardless of whether the business is in profit or not. Other issues can arise regarding the ability to recover VAT, which, if triggered, can dramatically impact on the profitability of a company. Likewise the ability to understand and control relevant customs duty and excise costs can have a significant impact on overhead costs of a business. Q. Why are governments taking an increasingly aggressive stance on the collection of indirect taxes? The answer to this is somewhat obvious in that all Governments face a dramatic squeeze to public finances and require stabilisation of taxation revenues. Indirect taxes can provide an easy answer insofar as they are not dependent on companies or individuals making profits. The second driving factor relates to the potential prevalence of a temptation for some parties to engage in fraudulent activities through practices such as missing trader or "carousel" fraud which many Governments within the EU are attempting to tackle. Q. How can a company handle indirect tax efficiently whilst still maintaining the correct level of regulatory/legislative compliance? The key factor here is to understand the main driving forces behind the complexity of indirect tax. Once these drivers are identified and understood a business should seek to ensure that someone...

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