TBI Expert View is our in-depth look into the evolving world of global VAT, the VAT landscape, and current trends that companies should be considering and planning for as we head into 2023.
In Episode 2 of Series 3 of TBI Expert View, Manuela Blochwitz, VAT Manager for Envista and Lisa Dowling, Senior Global Director, Head of Indirect Tax, Advisory and Compliance at Taxback International discuss ‘VAT Controls when moving to a Shared Service Center’.
Hello everyone, and welcome back to The Expert View. In this episode, we’re going to talk about internal VAT controls. We’ve spoken previously about external factors influencing your VAT compliance function like e-invoicing and digital reporting requirements. Now we’re going to talk with Manuela Blochwitz from the Envista Group who is going to take us through VAT controls within her business.
Thank you, Lisa, for the introduction. Hello, everybody. Before I talk about VAT controls, I want to give you a very small introduction on who the Envista Group are and what we do. Envista is a brand that combines a lot of well-known brands for the dental market. For example, producing implants, braces and brackets. You may know if you have teenage kids. And that all together is under the Envista Group, with several group entities. They have 12,000 employees globally with revenue of 2.3 billion, which increased even last year. I mentioned 30 more brands and experience of more than 125 years. By selling consumables needed by a dentists/dental labs, we have several typical VAT topics.
Before I talk about the active controls in a multinational and especially when working with the shared service center, I want to give you a couple of examples of the challenges I had in the last three years when Envista was moving to the shared service center. One of the biggest challenges was probably that the Envista Group has so many separate group entities and all the group entities have their VAT registrations and their own businesses.
They also use different ERP systems, so partly companies are using SAP, but partly Oracle. They have a lot of changes, their acquisition merges, etc. Lots of the groups are very active and so they are always changing, so it never gets boring. It also means there are constant changes for VAT purposes. You may know if you work with a shared service center, there is a certain fluctuation of employees, which also needs to be dealt with. We do have U.S. companies being registered in Europe. The understanding and the awareness of VAT within the U.S. teams is quite a different one to what you’re used to it in Europe. Also, the responsibilities within the shared service center between the VAT team and the General Ledger accountants is split. We also have local finance teams taking care of VAT compliance. Last but not least we take care Indirect Tax Compliance in-house, but we also outsource.
So those are the main drivers for the controls we are actually talking about. And maybe just to give you some numbers and maybe first a question for you. Do you know how many VAT registration your group has to manage and what does it mean in terms of declaration to be filed on a monthly basis? And how many people are involved? In Envista, we have 100 VAT registrations, which means on a monthly average basis 150 declarations to be submitted, and that is taken care of by 55 different people. So you can already see where the issues are coming from and what topics we need to discuss.
So the question is how do you control it if you have such a wide range of people taking care of VAT compliance. Controls to be implemented – it starts very easy. You need an overview, you need to know how many VAT registrations you are handling and managing and what are the exact legal names? What are the VAT numbers? What are the actual tasks? Is this monthly or quarterly read return? Is the company obliged to file Intrastat Declaration, EC Sales Listing, any other specific declaration? Maybe on an annual basis – for this kind of information you need to know and then you need to know who’s handling that. If there are any issues, who do you contact?
If that’s a declaration which is maybe outsourced, then you also need to have the contact details of the advisor or you need to know where to get that. So it’s actually starts very easy, but it can be quite a cumbersome exercise to get all of this information together. And once you have that information, I strongly recommend implementing an electronic compliance tracking tool. There are a couple of those on the market, that will allow you & all the other people responsible for Indirect Tax to gain easy access.
You can register those responsible for compliance, so they get an automated reminder, let’s say five days before the due date, meaning declarations won’t be forgotten. They also need to upload a copy, so you always have access to the copies of the declarations. It’s also an archiving function and very important for such companies, for the reviewer and the manager. They can also click that they reviewed and approved the declaration and by doing that in that electronic tool, you even have a document which is quite important. However, submitting on time, it’s just half of the job. You also need to ensure the declarations are submitted correctly, and there are a couple of things you could do to ensure that the quality is substantial.
I think the main thing is to have a standardized template for all entities and users. That will allow you to build in standard checks. It could be simple checks, like do you reconcile the declaration for VAT purposes with the Intrastat Declaration? Are the VAT numbers for the inter-community supplies of the customer orders valid? Are they checked at fees? These are simple things you can put in the standardized template, maybe also the VAT reconciliation which often gets forgotten.
This a very important part of the VAT compliance to have those reconciliations. If you have the standard template for the VAT manager or if you’re heading up the VAT team, it’s important that it is easy for you to read because if all companies use the same template, it’s much easier to find your way through. Also, if you’re handing over or if there are changes in the team, if somebody else is taking over the entity, they will already be used to the same template.
Of course on top of that, not only the standardized template, it’s advisable to organize VAT training on very general VAT topics or very specific, for example:
How do I do a VAT reconciliation?
How do I read certain reports and SAP/Oracle?
If you have training then this is quite useful, especially for digital accountants who are not VAT specialists. For them it would be even more important than for your own VAT team. And then still on top of both of them, I would recommend to do spot checks from time to time, maybe per region or per country, whatever is more suitable for your entity.
Earlier I mentioned that some of the VAT compliance is outsourced. I would try to streamline the advisory part or the compliance part done by advisers because it doesn’t make sense to have one entity, with 15 VAT registration and have 14 different VAT advisers taking care of the VAT compliance. If you just have one adviser, it’s much easier. You know who you need to contact you? In the best case, you only submit one file of data. It’s also for the admin efforts – you only need to set up one engagement letter. You need to read one or two invoices per month. So that will reduce a lot of admin effort for you. It will also increase the quality of your VAT compliance. Maybe if you’re lucky and you have some budget in your company, you could even go one step further. Not only applying the compliance tracking tool, but also implementing certain controls which you have maybe manually in the excel files on an electronic level by using robotics or specifics of that which can be developed in-house or even purchased from a third party. I think that is another topic maybe for the next presentation.
Now we talked about all the different controls you can put in, but if you talk to your head of tax or the CFO to get some budget for those tasks, what can you tell them? What is the result? What do you want to achieve with those? First, of course, if you increase the quality of the declaration, which in the end it’s minimizing the tax risk. It also reduces costs, if you use the size processors, you not only increase the quality of the declaration, you also allow the preparer and the reviewer to act faster.
The same if you streamline the advisor, you’re only sending out one pack of data instead of several. In the end that will save time, and time is usually money saved and maybe even if you are lucky, allow you in the end to have some internal discussion and how you can allocate resources to the VAT team. Maybe you can have some GL accountant’s work shifted to the VAT team by getting additional resources. All of those kind of discussion you could have with the leadership team.
So you save time, you save cost because you minimized the VAT and the tax risk. Also, if you streamline advisory, you may save costs on the fees. It’s much easier to negotiate a good fee arrangement if you just have one partner, instead of arranging it with several partners. Very important, what we also mentioned before you are tax compliant, and you can document processes.
Thank you very much for your time. I’d be happy if you could take maybe one or two ideas for my presentation to improve the VAT controls in your company. Thank you.
Great, thanks Manuela. That was a fantastic presentation. I suppose the key point is really to understand your internal VAT processes so that you then have the ability to adapt to any of those external factors that we’ve spoken about so often and the multiple changes that we are seeing coming down the line. So again, Manuela, thanks so much and we’ll talk to you again soon.
Take a look at Episode 1 of Series 3 of Expert View where Nicoletta Petrosino, Global Indirect Tax Manager for the Nestlé group and Lisa Dowling, Senior Global Director, Head of Indirect Tax, Advisory and Compliance at Taxback International discuss ‘VAT in the Digital Age’.