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Tax

International indirect tax guide 2016

Peter Legge Peter Legge

Indirect taxation is becoming ever more complicated, varied between jurisdictions and prone to government tinkering. Getting on top of the complexity and change is not only vital in avoiding mistakes, audits and disputes but also enabling your business to move into new markets and manage cash flows efficiently. So how can your business put management of indirect tax onto a sustainable footing?

It’s now five years since the landmark Hudson Highland Group settlement in the US that was indicative of the transformation of the ground rules for sales and use tax (SUT), value added tax (VAT), goods and services tax (GST) and other indirect tax compliance. The Securities and Exchange Commission (SEC) had moved against Hudson Highland because of what it deemed to be the company’s ‘failures to maintain appropriate internal controls’ and underlying lack of ‘accounting software capable of calculating the amounts of sales taxes owed’.

Up until then, the authorities had primarily focused on whether the amounts of indirect tax being collected, paid and reclaimed were reasonable. The SEC order took regulatory demands to a new level by not only requiring companies to justify the numbers if challenged, but also demonstrate that the data, systems, processes and controls for carrying out the calculations are fit for purpose.

Many other governments, regulators and tax authorities quickly followed the US lead, for example Senior Accounting Officer (SAO) rules in the UK. And ten years on, the impact of these new demands still reverberates around indirect tax teams across the globe.