VAT in the Digital Age: The business perspective · A) Business information to maximize Indirect Tax revenue B) The “Eureka” moment: Business information to maximize ALL revenues

Strictly Confidential

December 2019

VAT in the Digital Age: The business perspective

Summary

1) The acknowledgement of the new reality: Relevance of Indirect Taxes

2) Our understanding of the Tax Authorities’ perspective

A) Business information to maximize Indirect Tax revenue

B) The “Eureka” moment: Business information to maximize ALL revenues

3) The renewed relationship with EU Tax Authorities

4) The real challenge – The “friendly” criticism

5) The only way forward: Adaptation and self-improvement

6) Our challenge at AstraZeneca (AZ)

2

The acknowledgement of the new reality: Relevance of

Indirect Taxes

• Indirect Taxes are turning into the preferred source of revenue for

many Tax Authorities worldwide.

• Many countries around the world are changing or recently

establishing Indirect Tax systems very similar to the European model.

• OECD information shows an increasing international trend: Corporate

Income Tax (CIT) revenue as a percentage of GDP is generally

stalling whereas the Indirect Tax share gradually increases.

Please allow me to show you some charts…

3

Evolution of Indirect Tax (VAT) & CIT revenue as percentage

of GDP in 34 largest OECD countries

4

0,0%

1,0%

2,0%

3,0%

4,0%

5,0%

6,0%

7,0%

8,0%

9,0%

10,0%

2007 2017

VAT CIT

* Representation of public information published by the OECD

The acknowledgement of the new reality: Relevance of

Indirect Taxes

How to maximize the trend?

How to efficiently tackle fraud and increase Tax revenue?

To the eyes of the Tax Authorities the answer was simple…

By collecting and analysing large amounts of transactional business

information

Please allow me to share some background information with you…

5

A) Business information to maximize Indirect Tax revenue

• Interested by such trend, the European Commission estimated the total

amount of VAT lost across the EU-27 (“VAT GAP”) in 2015 at EUR 151.5

billion based on the VAT collection figures available at the time.

• The European Commission then proposed 20 measures to tackle the VAT

GAP and among those, the key measure was:

“Investigate the possibility of extending the use of automated access to

data.

It will also explore with Member States the possibility to develop an

automated mechanism that would allow a cross-matching between the

data reported by each party of every single transaction. That would

allow detecting fraud in early stages and ultimately prevent a missing trader

fraud, be it domestic or intra-Community”.

6

A) Business information to maximize Indirect Tax revenue

(cont.)

• Currently almost all European Tax Authorities are running or planning to run

different initiatives to capture large amounts of multipurpose information

aiming to achieve a “real picture” of the business activity that would help

them (i) tackle fraud and (ii) increase the VAT revenue.

• For that purpose, most have enlarged their IT budget and increased the

communication among themselves.

• Their plan is beginning to work! According to the VAT GAP report for 2018:

“The VAT GAP decreased by €10.5 billion to €147.1 billion in 2016, a drop to

12.3% of total VAT revenues compared to 13.2% the year before.”

7

B) The “Eureka” moment: Business information to maximize ALL

revenues

• Upon collecting and processing large amounts of transactional data seeking

to maximize the VAT revenue in many different ways, European Tax

Authorities soon realised the potential of that information... They had their

“Eureka” moment:

VAT is no longer ONLY a very profitable tax…

• It is ALSO a mechanism to allow them gather very large and complex

amounts of business information at an invoice level, at a transactional level.

Detailed business information might be more valuable than immediate

revenue…

• For the first time, Tax Authorities have a “granular - end to end – full picture”

understanding our businesses from a holistic tax perspective i.e. useful for all

taxes…

VAT is now a primary source of multipurpose business information

8

The renewed relationship with EU Tax Authorities

9

Finance

team

Billing /

Accounting

systems

Transactional

information &

documentation

(e.g. invoices)

Tax team

Deals with

transactional

information and

documentation to

prepare VAT returns &

supporting data

Periodical VAT

returns &

supporting data

Queries / Audits

Tax

Authorities

Analyse

VAT returns &

supporting

data

Daily transactional

information

Queries / rejections

Finance

team

Billing /

Accounting

systems

Tax Authorities

Analyse daily

transactional

information &

cross-check other

reported by 3rd

parties

Ongoing

Involvement

Tax team

Assisting to VAT

sensitise

business / re-

design processes

to secure

information is

correct in origin

Pas

t

Present /

Future NEW ROLE

The real challenge – The “friendly” criticism

• Dialogue vs. Monologue

• Need for a common European VAT digitalization roadmap

Coordination with other Tax Authorities e.g. European SII?

Coordination with EU Business operators. Need for EU Business

consultation?

• Business adaptation does not only relay in the Tax Experts and require heavy IT

investments and deep business transformation. Time sensible implementation

• EU Tax Authorities should pre-agree a common EU approach and act in a

coordinated manner which would translate into millions of EUR on savings to EU

business at all levels e.g. IT investment, human hours, sanctions, etc.

• EU MUST be an attractive and business friendly territory! 10

The only way forward: Adaptation and self-improvement

The Indirect Tax expert is NOT going to disappear BUT needs to rapidly adapt to the

new reality by, among other things:

1) Becoming conscious of the new VAT reality:

VAT is now a very detailed primary source of multipurpose business information

2) Spreading the news within the business in an effective way:

Be the “story teller” NOT the “scaremonger”

3) The business MUST control the information in all its processes. Business

information must be correct at creation point.

Guide the message since you are the Subject Matter Expert (SME)

11

The only way forward: Adaptation and self-improvement (cont.)

4) Teaming up with different Functions / Departments to help them get things right

first time

Be a trusted and knowledgeable business partner.

5) Assessing the situation and preparing a remediation plan (assisted by SMEs):

a) Cross-functional VAT review of business processes (“VAT Sensitization”) and

b) Identification of an IT tool/s that suits the specific needs of the business.

NOT all available tools work in all situations…

Prevent them from buying a Ferrari if they do not yet have the road or the gas

station!

12

Our challenge at AZ - Quick glance at us

• Pharmaceutical is perceived to be one of the most complex economical sectors

from the perspective of Indirect Tax compliance among other factors due to:

The complexity and variety of supply chains (e.g. controlled conditions of the

product for testing, circulation, distribution and commercialization).

The large volume and number of high value cross-border transactions.

The need for permanent stock.

The traditional Contract Manufacturing Organizations (CMO)’s arrangements on

product supplies.

• The different European business activities performed by AZ are conducted

through approximately 120+ different legal entities, with multiple VAT

registrations in different EU Member States and operating through 5+ different

accounting / billing systems heavily customized.

13

Our challenge at AZ – Our action plan

• Review of Indirect Tax internal policies and standards to better reflect the new

reality and the tasks and needs of the Indirect Tax experts.

• Business internal informative talks, trainings and published information to explain

the new reality and to socialize potential issues detected.

• Involvement of the Indirect Tax experts in business-wide IT initiatives to secure

adequate design and VAT sensitization.

• Regular meetings with other business stakeholders to better understand

business processes, existing issues and potential solutions.

• Design of an Indirect Tax Data Strategy as part of a global business improving

initiative. 14

Confidentiality Notice

This file is private and may contain confidential and proprietary information. If you have received this file in error, please notify us and remove

it from your system and note that you must not copy, distribute or take any action in reliance on it. Any unauthorized use or disclosure of the

contents of this file is not permitted and may be unlawful. AstraZeneca PLC, 1 Francis Crick Avenue, Cambridge Biomedical Campus,

Cambridge, CB2 0AA, UK, T: +44(0)203 749 5000, www.astrazeneca.com

15

Thank you all for your attention!

Please do not hesitate to further contact me at:

Alfredo Espada Associate Director – EMEIA Indirect Tax & Tax Technology AstraZeneca Corporate Finance – Global Taxation City House, 136 Hills Road, Cambridge, CB2 8PA M: 00 44 795 118 1108 [email protected]