ITESOFT & VAT IT Talk About The Automotive Industry.
Part 2 of our latest 5 part series, with our newest partners, VAT IT.
Join Nick Dunnett, Managing Director of ITESOFT UK and Jamie Breslaw, Global Finance Operations Manager of VAT IT as they take a look at the benefits their companies bring to the automotive industry.
Using this industry as a focus because of large, international supply chains and often decentralised processes.
Part 2 of a new 5 part ITESOFT Insider View series.
Watch the video, listen to the podcast or read the transcript below.
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ITESOFT & VAT IT Talk About The Automotive Industry
Nick Dunnett: Welcome back to the latest ITESOFT Insider View, this episode we are once again joined by our partners over at VAT IT.0
Welcome back Jamie, great to have you hear again.
Last week we were talking about our 2 companies, what we do, how we work with each other and what we offer to the market.
If you haven’t already had a chance to watch that please go back and check it out.
Talking About Automotive Clients
This week we are going to look forward to some of the things that we have been able to do together, and how some of our successes have played out.
We are going to look, particularly, at how that has affected the automotive industry.
So, the auto industry is a big global industry, obviously making vehicles. Somewhere in the region of 70 million vehicles were sold last year.
It is a massive, not only manufacturing but also, logistics organisation and it covers multiple things around supply chain complexities across borders.
It covers a lot of the key areas in a quick and simple way for us to highlight where we really can bring benefit to people.
Jamie, do you want to start us of and talk about a couple of examples?
VAT IT – Automotive Example.
Jamie Breslaw: Of course, thank you, and you bringing up the complexities of the supply chain, that’s absolutely something with AP transactions where we have to look into it.
Whereas travel is more rules based, AP that can be correctly charged and therefore we can help with the reclaim of that.
Equivalently, it could also be incorrectly charged, where we can talk about some examples, where we can talk about that flow through the supply chain where it is very important to understand the mechanisms and how you can reclaim the VAT.
The automotive industry, as it is for you, it is one of our largest industries in the business where we help companies worldwide.
The first example I am going to give you, and I am going to do this through transactions we have helped deal with for clients. This is the manufacturing of customised parts, moulds, dies, tooling.
Italian Registered Entity…
So, if I set this up, in a way where you have, for example a European, Italian registered entity.
They are ordering parts from a Polish supplier through the Polish procurement team.
Now, in order to make those parts, the Italian entity, who are going to buy from the supplier. Essentially, the Polish supplier must buy tools to do it.
The parts are made in Poland, using tooling, then the Italian entity will purchase the parts.
Now, given that there hasn’t been a taxable supplier purchase made in Poland, Polish VAT is charged on the AP invoice for that transaction.
The Italian entity then has an invoice that would go through your system with Polish VAT on it.
Now, that Polish VAT is reclaimable through a mechanism in EU law that allows for reclaim from that Polish tax authority.
Understanding Complexity Of Supply Chains.
We can then step in and help with understanding the complexity of the supply chain, the flow of the goods, to reclaim the VAT.
So that is a very prevalent tooling example which occurs in some of our largest automotive clients that we service at the moment.
When you are dealing that permissions to the tax office to reclaim that VAT, often a letter of explanation is required.
We help our clients draft that letter to ensure that the tax office is completely aware of the flow within that supply chain for an effective refund and submission from that transaction.
The ITESOFT View.
Nick. Ok, so the complexities within the supply chain make this that much more important.
Because you will see goods and services being procured from one country, that appear to come from a second country, but actually there is a third, fourth or fifth country involved in the process that just adds layers of complexity in.
That’s where you can add that real benefit to cutting through that complexity and saying what is reclaimable and allowing companies to get that money back.
Jamie: Absolutely, and you need that person with the knowledge of that jurisdiction, and others in play, of the nature of the transaction, of the flow of goods etc. to be able to compliantly recover that VAT first time around.
Challenges Of International Organisations.
Nick: What we see from our side with this, is the internationalisation that brings the real challenges.
And the variety of what goes on in an organisation.
Not only do you have the full manufacturing process kicking in, and a traditional accounts payable product part number, known part etc.
We also have all the legislation around that from a security and safety perspective.
You know, there are regular occurrences of recalls happening for products, having to track the individual instance of a battery or component to which car it went to.
You have all that element of a traditional manufacturing.
Don’t Forget Sales & Marketing!
On the flip side of that you also have a full sales and marketing process happening.
You have TV ads going on. Commission going to salespeople, garage operation costs in all of these countries.
So, from an AP perspective, there is a real variety of what is coming through.
From those traditional purchase order based fixed, JIT delivery goods that 3 way match. Something everybody would love in a perfect environment.
Through to an advertising agency who say they have charged you for the privilege to going to take a look at the perfect piece of road somewhere in the world because it has the perfect bend or angle, or whatever it is that is going to create that wonderful ad that’s going to sell the cars.
Being able to support that, cope with that, in that global environment, is a real key element that our customers are looking for.
We can support our customers with that, for instance putting shared service centres in place so that they can really drive the benefit of automation and globalisation.
And helping them drive that huge reduction in the AP manual workload.
To get them away from manual processing onto the automation and seeing a reduction in manual effort of between 50 and 75% in those customers.
That’s where real benefit is coming from one or two of our customers that are operating in that space.
What about yourself? Do you have some other examples?
Other Issues In The Industry.
Jamie: Yeah, I want to discuss warranty post purchase of a vehicle.
Again, lets go with the Italian entity. They are manufacturing and supplying vehicles worldwide.
When they sell the vehicle, it comes with a warranty. And there are obligations around that warranty.
You should always look at who is delivering it. Sometimes companies will use a local engineer in that country to deliver that obligation.
When those local engineers are performing that work there is every possibility that there could be billing cross border.
With foreign VAT that is recoverable.
Place Of Supply?
However, you have also got to consider whether there is a place of supply issue.
If you are selling that car in another country and you are exceeding the threshold for VAT registration in that country it can vary the mechanism through which you can reclaim.
So, you may have to register in that foreign country, so the Italian entity selling into Poland, they have hit the threshold, or the requirements of that country. They need to register.
Rather than doing cross border reclaim you are actually doing a reclaim through a domestic mechanism in Poland.
As you said, one of the benefits of your system is a point to coordinate those global AP invoices coming in.
Advising Each Client On Each Case.
Essentially, business that are administered from one country that aren’t aware of the Polish legislation.
You talked about these complexities, that companies don’t know how to file a return there.
That don’t understand what’s reclaimable in country, we can help them, advise them and look again into that supply chain to understand which mechanism for reclaim you need.
Then we can help clients with the set up around that so that they are structured compliantly.
Some really nice synergies.
Tax Rules Around The World.
Nick. I think one of the other key things in this industry, is this globalisation.
Having to deal with the ways that tax and VAT is handed differently in different jurisdictions around the world.
If you are somewhere like Brazil, the invoices go via the government before they come to you to ensure that tax is collected in advance.
Rather than post the event like we have in the UK.
The same in Italy in fact.
It is making sure that there is a solution in place that can interface and support those big global manufacturers and their own suppliers.
They may want to do things with EDI, they may want to send in emails, paper.
And also these regulatory cases to make sure that they are compliant.
For your perspective, this is about making sure they can claim back what they have sent.
For us, it is making sure that they are legally compliant before they get to that point. That’s critical too for our customers, especially in that automotive industry.
Where the manufacturing has been moved to the right area in the world. Whether for low cost, where are we servicing the industry.
A lot of manufacturing for some of the luxury car market is being moved to china.
Not because it is cheaper to build there, but that is where the demand is, so it is better to do it that way.
Jamie. We are talking compliance, and that’s the key thing, is this structure compliant.
However you reclaim, or however you drive the right behaviours, it is compliance that it so important.
The beauty in what we are both doing is we are helping, almost as consultants, educating our clients in terms of that international landscape. And how it operates, so they feel more empowered in their businesses.
To help them take this to different stakeholders, to be able to really understand this through our services.
Nick: Jamie, thank you, thank you for discussing this.
Thank you for joining us for this episode of Insider View. I think it has been useful and if you have found that helpful please do get in touch with us and we can help you to explore this in more detail.
Hopefully saving you some money.
Looking forward to you joining us again next time where we will be looking at some of the legislation specifically, the changes happening and the impacts that will have on organisation.
We will talk about the Brexit word.
Thanks for joining us.
Want to know more about VAT IT? Get in touch with Jamie directly on LinkedIn!
Or check out the VAT IT Website.