VAT Consultant Russell Hughes explains VAT compliance risks to pharma businesses during a period of increased activity, such as COVID-19, with European Pharmaceutical Manufacturer.
The coronavirus crisis has posed immense challenges for a number of industries, with many facing an effective cessation of business activity. Like many other manufacturing businesses the pharmaceutical industry has faced challenges, but demand for some goods – among them hand sanitiser – has been so great that non-pharmaceutical companies have even turned production lines over to its manufacture.
Some pharmaceutical businesses may be overwhelmed by current demand, and may find that they are supplying customers in greater quantity and even supplying customers in new countries. In the midst of a global pandemic, VAT obligations could be easily overlooked. But it is essential that pharma sector businesses keep a keen eye on sales, supply chains and obligations to remain compliant.
Any pharma business seeing increased demand and sales needs to consider a number of factors.
Key is to understand supply chains. A good first step is a coherent and thorough supply chain mapping and review exercise. This should be a jumping off point for reviewing VAT accounting procedures, and is necessary to understand requirements under the new Four Quick Fixes accounting system, which will be discussed later.
Business to consumer (B2C) sales
Some companies are experiencing high demand from individual consumers across the EU. For intra-EU B2C sales, each Member State has a threshold which once exceeded means businesses must become VAT registered in the Member State where the goods are delivered. Once VAT registered, they will be required to charge local VAT on the sale of their products and then file the relevant VAT declarations. Therefore, it is important that businesses keep a close eye on thresholds and ensure that they are compliant with local VAT obligations.