Value Added Tax (VAT) Case Study

CLIENT

Our Fortune 500 client is one of North America’s largest automotive companies. It develops, manufactures, markets and distributes passenger and commercial vehicles, SUVs, service parts, and accessories to customers in the Americas, Asia Pacific and EMEA regions.

CHALLENGE

Many US companies that do business outside of North America are not aware that Value Added Tax (VAT) is applied to their transactions and struggle with how to best manage and mitigate the VAT risk within their supply chains.

VAT has various touchpoints that impact both sales and purchase transactions. The result can have a significant impact on cash flow, and if not properly managed, may result in a significant risk of assessment liability and ultimately a strain on the bottom line. With over 160 jurisdictions around the world and average tax rates exceeding 20%, most companies do not have VAT experts on their tax teams who can effectively navigate the numerous VAT jurisdictions around the world. Our client was incurring VAT on vendor tooling located in foreign countries and not availing itself of tooling concessions available in certain countries in Europe, thereby paying VAT between 19% and 21% on the value of tooling that should otherwise have been exempt from VAT.

SOLUTION

Chosen for its comprehensive VAT knowledge on cross-border transactions, DMA thoroughly reviewed the client’s complex cross-border supply chain of tool shops, Tier I suppliers, and other suppliers in the business tooling process. DMA reviewed the applicable tooling agreements’ terms and conditions, invoices, and the client’s logistics process related to parts produced from the tooling located at the vendor manufacturing site and third-party tool shop.

RESULT

Our client was able to realize instant cash flow once the VAT on tooling was no longer applied by the vendor. In addition, the tooling concession was communicated to vendors to ensure that there would be no future VAT charged for tooling in countries that provide concessions, resulting in millions of dollars in future savings.

“DMA’s VAT team not only helped us increase our cash flow by over $8 Million, they took the time to educate our tax team on the business activities related to VAT and helped us understand the VAT rules for the countries in which we do business. They have been a great resource for us!”
—Tax Manager, Fortune 500 Automotive Company

WHY DMA?

DMA’s VAT professionals have over 80 years of combined experience and can assist your company in navigating the complex VAT rules, providing solutions to properly manage and minimize your VAT exposure. Our clients represent many industries in the Fortune 1000, including automotive, oil and gas, manufacturing, pharmaceutical, life sciences, material logistics and planning.

DMA, a proudly employee-owned company, has been solving corporate tax challenges for its clients around the world since 1972. Focusing on several key areas of corporate taxation—property tax, state income and franchise tax, transaction tax, tax technology, Canada sales tax, value added tax, unclaimed property, telecommunications tax, fuel and excise tax, severance tax, credits and incentives, customs and duty, and crown royalties—DMA professionals assist companies with minimizing their taxes, enhancing the efficiency of their tax administration through industry-leading technology solutions, and managing their tax compliance obligations.