VAT remains under-measured and under-managed in most organisations – KPMG

A new benchmark survey from KPMG International shows that VAT remains under-resourced, under-measured and under-managed in most organisations, despite the global shift towards indirect tax away from direct tax.

“Indirect tax performance can now be benchmarked globally based on real data obtained from over 100 global businesses,” said Niall Campbell, KPMG’s global head of indirect tax services. “Something that has been missing, until now, is a set of benchmarks that provide valuable insights into how businesses are currently managing their VAT obligations globally”.

The survey showed that the majority of organisations (66 per cent) do not have a global or regional head of VAT. Those that do are largely EU based with the UK, Germany and The Netherlands being the top three locations. Even at the largest global organisations surveyed ($20 billion + turnover), 50 per cent did not have a global head of VAT. Furthermore, 75 per cent of respondents say they have 10 or less full-time VAT specialists employed globally and just fewer than 10 per cent have 40 or more.

In terms of accountability for VAT, the picture is not clear – 12 per cent of respondents did not know who was accountable and the balance were broadly split between saying VAT is a tax function responsibility to being a finance function responsibility. Larger businesses trended towards accountability for VAT residing within the tax function.

The existence and quality of documented processes designed to manage VAT across the entire business was limited. Only 40 per cent have policies in the EMEA region and only 17 per cent in the ASAPC and LATAM regions. Only nine per cent of respondents rate their policies as excellent.

Mr Campbell said: “Given the scale of VAT throughput being handled by multi-national organisations today, in many cases over $5 billion, there is clear evidence that organisations do not have sufficient resources or processes in place to manage the increasing complexity and scale of VAT obligations globally. Investment in VAT management by businesses does not appear to be keeping pace with the demands of global reforms, presenting a major business risk.”

He added: “It is essential that every organisation has a very clear idea of where it is headed in terms of its global VAT management – what is the ‘end game’ it is seeking to achieve? This end game should be challenging over the long term and take account of likely future changes and emerging best practices. However, it should also be broken down into smaller, bite size targets that can be achieved each year.

“As only the things that get measured are likely to improve, it is critical that all multinational businesses seriously consider what the most appropriate qualitative and quantitative measures are for their business, put in place a program of continuous improvement and demonstrate over time how real business value can be generated through better indirect tax management.”

Tony Pace, partner in charge of indirect tax services at KPMG in Malta, said: “In the local context, it is clearly even more of a challenge for business professionals to stay on top of VAT considering particularly that VAT processes are but one of a number of responsibilities which typically fall under the general remit of the organisation’s head of finance. Furthermore, with the rise in cross-border transactions, processing each transaction using the correct VAT treatment and complying with VAT obligations in Malta and elsewhere can be a truly complex and daunting task.”

The KPMG International Benchmark Survey on VAT will be re-performed on an annual basis to track the evolution of indirect tax benchmarks globally. KPMG’s Global Indirect Tax practice expects that this, and subsequent surveys, will help companies enhance performance through greater visibility and the setting of more challenging indirect tax performance goals.

For the current survey, there were 124 respondents to the survey from 27 countries. Seventy-six per cent of respondents have turnover in excess of $1 billion and at least 30 per cent have turnover in excess of $20 billion.