The “true impact” of indirect tax

The effective visualization and quantification of indirect tax projects towards finance leaders.

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Bridging the gap between the language of indirect tax and finance is vital to clearly demonstrate both the need to invest in the organization’s Indirect tax function and, more importantly, the return on investment that can be expected by finance leadership. 

In times of high uncertainty and potential high pressure on the organization’s working capital, it is important that the finance leadership understands that VAT is not always ‘neutral’ and that indirect tax planning, aligned with the organization’s overall strategy, is vital in order to optimize the indirect tax cash flow and overall P&L impact for the organization.

By applying accounting quantification methodologies, the indirect tax function can translate and visualize the impact of the various indirect tax projects from a P&L and working capital perspective. This will help finance leaders understand the importance of supporting the indirect tax function and securing the required budget and resources to successfully reach the working capital improvements and P&L savings.

Harvesting the power of data analytics and clear management reporting

The Indirect Tax Navigation dashboard allows clients to clearly visualize and quantify all indirect tax projects from a financial point of view. EY’s indirect tax experts help clients to gather the required project data elements and to determine the financial qualification and quantification for every single project.

The outcome is visualized in Microsoft Power BI dashboards with a clear and pragmatic executive summary as well as detailed underlying overviews covering the various projects identified.

Various tabs, each with their distinctive quantification methodology, represent the various aspects of the organization’s indirect tax lifecycle; accounting, compliance & reporting, strategy & planning and controversy. The quantification methodologies are not commonly utilized by indirect tax leaders but commonly accepted by finance leaders (e.g. WACC rate).

The application of the Indirect Tax Navigation dashboard has led to successful outcomes with various multinationals ranging from;

• securing budget for the further expansion of the indirect tax function;
• aligning the global strategy of indirect tax across regions;
• optimizing business operations or M&A planning to enhance cash flow; to
• implementation of (improved) processes and technology. 

The methodologies applied are not exclusive for indirect tax but can also be applied in order to visualize and quantify the value of direct tax or global trade projects within clients’ organizations.

Triggering events

There are various scenarios whereby organizations can greatly benefit from the Indirect Tax Navigation dashboard. The following events are just a few examples:

• when appointing a new CFO there is a need for clear insight into the organization’s indirect tax situation and potential P&L savings;
• M&A: when acquiring or divesting a business it is vital to understand the potential VAT impact ranging from the VAT qualification of the asset/share deal to the validity and ageing of VAT balances that will be transferred;
• when the indirect tax lead is struggling to secure resources and budget to execute the required indirect tax projects;
• in case of a finance transformation, or setting up a shared service center;
• when there is a high pressure on working capital.