Indirect Taxes Increasingly Hitting Multinationals
A panel of tax experts from around the world and delegates at a global tax conference for multinational companies, held in Berlin by Taxand, has debated the impact of VAT as a growing source of revenue for governments around the world.
Governments have come to realise that the introduction of these taxes are a means of creating true visibility of the supply chain, of collecting revenue from unprofitable companies who would previously have made no contribution to the tax take and as a means of raising revenue in a semi invisible way to the consumer.
Rates around the world typically vary from 15% to 25%. The average VAT rate in Europe is 20% and currently rising, as a number of jurisdictions, such as Spain and possibly the UK, look at VAT as a means to help the public finances recover. In areas like South America, the rates are as high as 25%.
Only 25 years ago, Europe was the only continent to have any indirect taxes, such as VAT, now it is a truly global tax with countries such as Canada having recently implemented a new tax, India soon to adopt and the US contemplating introduction to raise extra revenue.
As the US considers whether to implement VAT, multinationals must start to consider the impact on their overall tax structure and where their sales are taking place. While the political will might not be there to introduce such a tax so soon after the healthcare bill in the US, it is widely believed that the tax will be introduced in the next five years in order to recover the massive budget deficits.
Currently many multinationals do not have the technology in place to deal with differing rates of VAT around the world and also need to look carefully at their structures to ensure that they can effectively recover taxes that are generated between subsidiaries across the globe.
In jurisdictions, such as Italy, changes to the VAT rules mean that often companies can find themselves looking at VAT refunds. However, Italy, like many other jurisdictions, are renowned for taking a long time to effect the refunds, leaving multinationals waiting for extended periods for the refunds to reach their books.
According to the panel, multinationals need to wake up to the rising wave of new sales based taxes around the world and realise the extensive impact this can have on supply chain operations and logistics to ensure compliance without huge costs. They must also brace themselves for the cost of future compliance as jurisdictions around the world continue to raise the current levels of VAT to raise extra revenues to plug their ever growing debt levels.