As the world business organization, the International Chamber of Commerce (ICC) promotes international trade, responsible business conduct, and a global approach to regulation. In today’s interconnected global economy, value added tax (VAT) has become an increasingly important source of revenue for countries worldwide.
With more and more countries implementing or reforming existing VAT regimes, ICC has published the ICC International Best Practices and Guidance on Value Added Tax Implementation to provide a common roadmap for tax administrations and business before, during, and after VAT implementation.
Above all, the ICC guidance stipulates that an efficient VAT regime ensures certainty, neutrality, simplicity, and cost effectiveness for both business and tax administrations. The consistency of national VAT laws with regional and global VAT regimes can help facilitate cross-border transactions and foster economic growth. By adhering to consistent standards, countries will safeguard VAT revenues for tax administrations and ensure a level playing field for business operating within their borders.
The first part of the ICC guidance outlines general recommendations for government representatives involved in the design and implementation of VAT regimes. In particular, ICC calls upon government representatives to establish a collaborative partnership between tax administrations and business.
This collaborative partnership involves establishing an ongoing dialogue between stakeholders working together throughout the whole design and implementation phase. ICC recommends strong communication measures, such as public consultations, as well as question and answer sections related to VAT regimes on tax administration websites.
The ICC guidance also outlines key features associated with efficient VAT regimes, such as VAT refunds, VAT exemptions, registration for non-established entities, and free trade zones. With regard to importers and exporters, the ICC guidance provides specific recommendations for effective VAT processing. In particular, “the import of goods should be subject to postponed accounting with payment on the VAT return, rather than at the point of entry,” according to the ICC guidance. Other key features of an efficient VAT regime include registration for non-established entities and specific considerations for digital services.
After considering the role of government, the ICC guidance also offers a VAT implementation roadmap for business representatives. From the perspective of business, the ICC guidance stresses that project planning, especially budgetary considerations, must be given early attention in order to secure the appropriate resources for VAT implementation.
ICC emphasises that proactive business engagement and involvement from the outset is essential. Based upon the nature of a transaction-based tax, VAT regime has a significant effect on organisations – all business functions are impacted. As part of the preparation process, the ICC guidance recommends that business conducts a detailed review of incoming and outgoing business flows, considers the legal implications of long-term contracts, and reviews employee benefits. By considering these aspects, business can adequately prepare for the implementation of VAT regime and institute a project plan. Given the wide organisational impact of VAT, the ICC guidance recommends that business create a well-defined step-by-step project plan to ensure adherence and avoid disruption.
ICC considers VAT implementation to be a journey. There are many unknowns when the journey first begins, therefore preparations must start early in time to overcome later challenges and complexities. As more countries continue to consider VAT regimes, ICC will continue to review and update this guidance to provide government and business representatives with helpful recommendations for before, during, and after implementation.
Read ICC’s full guidance on Value Added Tax implementation.