The single European market has provided great growth opportunities to businesses across Europe.
Automotive companies have been among those that have taken up on this opportunity and expanded their production capabilities, especially to new EU Member States in Eastern Europe where costs are more competitive.
However, this expansion has also come at a cost, with automotive companies facing an increasingly complex supply chain. Hence VAT reporting obligations have become more complex and spread throughout more countries.
Supply chain structure
An understanding of the way automotive companies structure their business in different tax jurisdictions is essential in order to be able to assess the correct VAT treatment for each type of transaction (e.g. intra-community transactions, domestic sales, exports, etc.). Without this being clearly mapped and substantiated, determining any potential VAT liabilities or registration requirements can be big challenge.
It is crucial for a business operating such complex supply chains to get things right from the start and have upfront information on its VAT liabilities, registration and reporting requirements. This is essential because non-compliance charges (i.e. penalties, interest and management of audits) can be significantly high in some jurisdictions, affecting profit margins in a market that is already very competitive.
Domestic sales of moulds, dies, templates, patterns, punches and other similar tools (generally referred to as “tooling”) are routinely performed in the automotive industry. Yet the same type of transaction may lead to different VAT treatments being applied depending on the exact provisions in force in the Member State where the sales occurs. For example, the sale of tooling by non-resident companies requires VAT registrations to be obtained and local VAT to be accounted for. There can though be exceptions to when VAT is charged (i.e. sales to domestic clients). Other Member States though apply the extended reverse charge mechanism and do not want non-established business to register. There are even exceptions from registration for one-off transactions.
Our extensive expertise in cross-border transactions allows us to take a broad view of your business and provide you with tailored advice that considers not just one side of a transaction but your entire supply chain from a VAT perspective. This makes sure that all of the variables mentioned above can be taken into account and bespoke advice provided on not both your obligations but also efficiencies that could be created.
VAT registration obligations and reporting
As mentioned automotive companies may have the obligation to register for VAT in some countries, depending on the way the supply chain is structured, or because of domestic transactions performed. On the other hand, there are cases where companies can avoid registration or they may be even prohibited to register (in some EU jurisdictions) if other options are available.
Correct reporting after registration and timely knowledge of your reporting obligations is also important as some countries impose high penalties for non-compliance. Romania for example has a 0.08% penalty payable per day for VAT liabilities not declared but uncovered during an audit which goes on top of its standard 0.02% per day penalty for late payment, leading up to a total of 36,5% in potential charges for one year. Greece can levy penalties of up to 200% of the VAT due whilst in other countries, penalties may not be due depending on how errors are disclosed to the tax authorities.
We can tell you if, when and where you need to register for VAT throughout EU and non-EU countries, take care of the registration process and help you comply with reporting obligations in these countries.
VAT recovery claims and audits
Automotive companies are often in a VAT credit position, especially in countries where tooling operations occur. It is essential therefore to determine whether your refund of that VAT should be achieved by following the procedure laid down by the Refund Directive or if you have an obligation to register for VAT purposes in that Member State and follow the domestic refund procedure.
Each jurisdiction has different requirements in terms of information and documents needed for a claim to be made under the Refund Directive, but certain patterns have emerged: for example, tax authorities in Eastern Europe are more formalistic and require substantially more documentation than their peers. Furthermore, non-compliance with formal requirements (e.g. invoices not having the customer’s correct address, failure to provide CMR’s as transport documents) are often used to justify significant delays in answering a refund claim or can even lead to companies being denied the amounts requested.
Another unwanted consequence of operating in several countries is companies find themselves often in the position of having to discuss with tax authorities, suppliers and clients in several jurisdictions at once during VAT refunds, which takes away valuable resources from their core business.
Rather than leaving you having to establish and manage relationships in many countries with tax authorities, or deal with high and unpredictable costs, Accordance’s single point of contact brings control and visibility to all VAT services you require, whether it’s VAT registration services, VAT reporting services, or VAT refund services, allowing you to focus on your day to day business. Furthermore, through on time reporting and by meeting all your VAT obligations we can help you achieve a better reputation with tax authorities throughout Europe and improve your chances of a smooth VAT recovery process.