Managing indirect taxes in rapid-growth markets

Report highlights

Managing indirect taxes in rapid-growth markets

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Through interviews conducted with clients, investment agencies and our indirect tax professionals who live and work in these countries, we highlight some of the everyday challenges that businesses encounter and how they tackle them in practice:

Markets for growth

  • Globalization continues, but the players are changing
  • Brazil, Russia, India and China continue to be a strong focus for multinationals and markets such as Indonesia, Mexico, Turkey and Vietnam are catching up fast

Five global indirect tax trends: how do they play out in the RGMs?

  1. VAT/GST rates are increasing
  2. Excise duties are on the rise again
  3. Free trade is increasing but is meeting protectionist challenges
  4. Indirect tax systems are becoming more efficient
  5. Tax administrations are focusing on compliance and enforcement

Indirect tax issues and opportunities: trading with RGMs

  • Reducing or eliminating customs duties and VAT/ GST on imports can improve cash flow and costs for importing companies
  • Exporters need robust processes to comply with export controls for certain goods or they risk penalties, seizure of the goods, business closure and criminal sanctions
  • Exports are a major risk area for VAT/GST — requiring robust documentation and processes to prove VAT‑free treatment
  • Cross-border electronic services are increasing but VAT/GST systems are struggling to keep pace, which is leading to double taxation and non-taxation
  • Indirect tax issues and opportunities: investing in RGMs
  • A wide variety of grants and incentives are offered in RGMs for activities such as job creation, capital expenditure, R&D and sustainable energy
  • Trading in most RGMs means registering for VAT/ GST and complying with local rules
  • Registration may allow VAT/GST recovery on costs, but it may increase compliance complexity, costs and risks
  • VAT/GST registration may create wider tax implications, including permanent establishment issues

Indirect tax issues and opportunities: operating in RGMs

  • Companies operating in RGMs face a range of VAT/ GST challenges including unclear rules, detailed local compliance requirements and lack of guidance
  • VAT/GST “leakage,” delays in obtaining refunds and penalties for errors may add to the cost of doing business and have a negative impact on cash flow
  • Reforms to consumption tax systems may be welcome, but rapid changes and delayed legislation create risk and uncertainty for taxpayers
  • RGM tax administrations are increasing their use of technology to collect and audit taxpayer information
  • Free trade agreements, duty-free zones and bonded manufacturing environments help to reduce product costs, but companies must assess the qualifying conditions and compliance burdens
  • Differences between customs valuation and transfer pricing methodologies may cause difficulties for multinationals’ related-party transactions
  • RGM incentives programs and eligibility requirements can change rapidly — decreasing projected savings and increasing compliance costs
  • Companies seeking RGM incentives must develop robust compliance processes

Effective management

  • Full compliance may be hard to achieve across different RGMs, complex corporate structures and multiple IT systems — leading to risks and inefficiencies
  • Multinationals must find the right balance between centralized control and detailed local requirements to meet their multiple obligations efficiently and cost-effectively

Key steps to managing indirect taxes and incentives in RGMs include:

  • Gaining visibility
  • Gaining control
  • Assigning responsibility
  • Measuring and monitoring outcomes
  • Adapting to change

Contacts


Leaders  
Global Director — Indirect Tax  
Philip Robinson
+41 58 289 3197
Americas Europe, Middle East, India
and Africa (EMEIA)
Jeffrey N. Saviano
+1 212 773 0780 (New York)
+1 617 375 3702 (Boston)
Gijsbert Bulk
+31 88 407 11 75
Jean-Hugues Chabot
+1 514 874 4345
 
Asia-Pacific  
Robert Smith
+86 21 2228 2328
 
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