With global indirect taxation policies placing an ever-increasing burden on today’s companies, it’s more important than ever for business owners to keep up-to-date with changing legislation. One firm that demonstrates exactly how to achieve this is giant international accountancy firm Grant Thornton.
One of the biggest challenges for those looking after a company’s indirect taxation is to keep abreast of the many legislative changes taking place within the sector on what seems like an increasingly regular basis.
Unlike direct taxation legislation indirect taxation measures such as VAT is continuously evolving on a global scale. Excise duty on such items as tobacco and alcohol is also rising while in some countries a whole new sector of excise taxes have been created in order to penalise foods which contain a lot of sugar and fats (commonly referred to as ‘snack taxes’) and which are likely to have a negative effect on a country’s health system by increasing the likelihood of diabetes and obesity. At the same time as excise duty parameters are altered, new free trade agreements sit uncomfortably alongside ever-tougher customs restrictions.
But that’s not all that’s affecting the indirect taxation sector. Technology too is playing a major role. This isn’t just in terms of where indirect taxation should make its mark in the digital world – although it’s already been agreed (January 2015) that in the world of e-commerce VAT will be charged in the country of consumption rather than dispatch. Other effects of technology surround how it’s being used (ie e-auditing is commonplace these days). New digital tools have also, of course, made it easier for tax authorities to monitor businesses to ensure compliance and, if necessary, push for enforcement.
Why is indirect taxation such a focus for governments around the globe? One reason is that indirect tax has a much more positive effect on a country’s economic growth than direct taxation. And with many economies around the world still on pretty shaky foundations, that’s a fact not to be sniffed at. Even institutions such as the International Monetary Fund (IMF) and the European Commission agree that corporate and individual wealth should be maintained and tax focused on goods and services instead.
One individual who can talk eloquently on all of the above changes to the indirect taxation sector is Jarlath O’Keefe. The Head of world-wide accountancy firm Grant Thornton’s Indirect Tax division in Ireland; O’Keefe is the man ultimately in charge of VAT, Customs, Excise and Vehicle Registration Tax for some of the country’s largest domestic and international firms. So, how does he see the industry he knows so well progressing over the next few years?
“For a start, the intention is that VAT in Europe is set to be standardised, under new terms being developed by the European Union. By 2017 you’re looking at a one-size-fits-all VAT return,” he said.
The timeframe, however, seems optimistic to O’Keefe. But he has no doubts as to its impact.
He added: “When introduced this should result in far simpler cross border transactions for companies dealing in the Business to Business (B2B) market, as well as more efficiency and better relations between countries overall.
“The existing regulations have been in place for more than two decades now and a change has been long overdue.”
When it comes to compliance, VAT has become a major focus of enforcement, O’Keefe says. At the same time penalties and interest payments have increased, making it even more essential for companies to keep on top of any sudden changes to indirect taxation that could potentially affect the future growth of their business.
O’Keefe adds: “The constant legislative changes to indirect taxation means looking at not just what a company pays out in that sense, but also what it is currently reclaiming. There could be more opportunities for reclaiming further down the line, for instance, while all potential risks must obviously be explored as well.
“Every necessary part of the business should be involved in this exercise – tax, finance, procurement, operations etc – and what individuals are responsible for made clear from the outset.”
Future indirect tax challenges for companies
When it comes to the main challenges companies are confronted with in the face of indirect taxation, O’Keefe believes this can be divided into four distinct areas – compliance, centralisation, awareness and risk management.
In terms of the first area – compliance – he is referring to a company’s accuracy in reporting their business dealings in order to avoid any future high interest and penalty charges. Centralisation means having one individual overseeing indirect tax. Awareness is about the company understanding how new indirect tax legislation will affect them. Lastly, risk management refers to the company ensuring it remains on track with those legislative changes in order to avoid any future tax hurdles.
When it comes to the management of those indirect taxes, again O’Keefe likes to sub-divide. This time he has three distinct areas for a business to consider – operational, compliance and strategic.
“It’s often the case that in many companies these three areas are separate and never the twain shall meet. However, having to collect, process and analyse all the indirect tax data for a company encourages employees to come together – which benefits the company in the long run.
“The best companies will learn to manage risk, provide advice in a strategic fashion, look after VAT cash flow and always looks for ways to improve their accounting processes.”
At Grant Thornton, the company’s model results in a higher partner to staff ratio than its competitors (even when other large international brands are brought into the mix). The Grant Thornton ethos is to provide plenty of hands-on and “senior face time” for clients – and that’s throughout the year, not just at audit time.
The Irish Grant Thornton operation has been in existence since 1899 and today employs more than 700 individuals in Ireland’s largest centres such as Dublin, Belfast, Cork, Galway, Kildare and Limerick. World-wide the company employs 40,000 staff over 130 countries.
Their philosophy is “right first time” ie going back to correct a mistake costs time and money. The company put plenty of emphasis on customer care, where clients are provided with a new service plan on an annual basis, as well as a ‘satisfaction review’ on the previous year.
It’s all this and more which has persuaded our judging team that Grant Thornton (Ireland) should clinch the title of Indirect Tax Firm of the Year, Ireland – 2015 in the BW M&A Awards Category. As far as we were concerned, they were the clear leader by far.