Many manufacturers use a procure-to-pay (P2P) digital procurement system to help them extract the most value from every dollar they spend. But they’re often overlooking a significant aspect of that spend: the rules around accounting for indirect taxes. At scale, the material impact of sales and use taxes and value-added tax (VAT) can be staggering — and most manufacturing companies aren’t tracking this impact. In fact, in some cases, reverse audits have revealed that they have overpaid tax by millions of dollars.
The first step toward controlling this spend is to understand it. Do you know if you are paying the correct tax? Do you know how to calculate this globally across tax jurisdictions – do your suppliers? To optimize spend and protect your business, you need to know that your suppliers are charging your business the right tax. This will ensure that you are not making costly overpayments and that your VAT credit determination is accurate.
Calculating the tax you should be paying is complex and challenging. Get it wrong and you may end up underpaying or overpaying sales tax and VAT, increasing your audit exposure, incurring tax penalties and interest, being slow to pay suppliers, missing early pay incentives, and more. Two of the most common hazards are overpayment of taxes on purchases and failure to accrue use tax on purchases.
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