Oracle AGIS – Should we always create a VAT invoice for intercompany recharges?
One of the main reasons why the Oracle AGIS module was created was to ensure that the correct VAT was charged on intercompany transactions when an intercompany journal was created. However, many sites that I work on will still recharged or allocated costs from one legal entity to another as a direct journal with no VAT considerations. Is this correct or should every intercompany recharge where it is form one legal entity to another be subject to VAT. I am not a VAT expert, so would like to through this out there to see what the correct action should be.
As an example, take a situation where Company A is registered for VAT but company B is not. Over the course of the month, company A incurs the costs of several services that is recovers the VAT on fully. But then at the end of the month it recharges a proportion of these costs to company B. If AGIS is used to recharge these costs but no AR or AP transaction is created and so no VAT is calculated, then has VAT fraud been committed as VAT that would have otherwise been absorbed as an expense for company B has actually been fully recovered by company B!
What is the correct way – should a VAT invoice always be charged between two legal entities? Are there cases when VAT is not required, are there certain expenses such as interest and insurance that do not need to have a VAT invoice raised or should a VAT invoice still be raised with a VAT Exemption made clear? What if the two legal entities shared the same VAT number as part of having one VAT number of the Group?
Anonymous
05/03/2013 at 2:39 pmWhere both the supplier and recipient are located in the UK, in the majority of circumstances charges between two legal entities will be within the scope of UK VAT and must be reported on the VAT returns of both entities. The only time that intercompany transactions can be ignored for VAT purposes is if both parties are in a VAT group (and therefore share the same VAT number).<br /><br />You
Moses Adeyemi
05/03/2013 at 2:53 pmMoses Adeyemi:The litmus test would be Arms length transaction! Transactions between two legal entities with differing VAT Registrations should be seen to be at arms length and that also means raising a Legal Document being an Invoice..Which would contain the companies Tax Registration details etc etc
Anonymous
06/03/2013 at 11:43 amLegal entities located in different countries, but within the same corporation are from a tax and legal point of view treated as independent companies. Any I/C invoice has to follow the local legal and tax requirements which means that any I/C invoice has to show the same invoice requirements like a 'normal' supplier/customer invoice. It depends on what is invoiced whether VAT is
Anonymous
06/03/2013 at 11:44 amI can only answers based on what I have experienced before on my implementations and what I have seen and done.<br /> <br />First key rule is ‘arms length rule’ vs standard inter-co trading.<br /> <br />Arms length is where you have inter-co but you have agreed with the authorities that you will treat these as seprate entities … here at activision its arms length as each country pretty much
Anonymous
06/03/2013 at 3:22 pmHi, this is a challenging topic but indeed the main principle is to look at an intercompany transaction in the same way you would as with a third party. Insurance and certain financial transactions that are exempt or outside scope of VAT do usually not require an invoice at all (but often it doesn't hurt if there is one, which helps automation), an intercompany payment obviously doesn't
Marie Stein
11/03/2013 at 11:09 amHi Andrew, lots of different issues involved here and I'd echo the comments made by the previous respondents. I am asked a lot about intra-group transactions and you might find it useful to read my article http://www.vatexchange.co.uk/Intercompany-charges-april-2010 where I've outlined the main issues that can arise in such situations and how to deal with such charges. Hope this helps.
Anonymous
13/03/2013 at 9:49 amI echo all comments here and bring a word of caution: in some jurisdictions (e.g. Brazil) even transfers of goods between branches of the SAME legal entity require formal/statutory invoicing.
Anonymous
13/03/2013 at 9:50 amDo not overlook whether there is a supply by the recharging entity at all and if so what type (and thus liability) of supply it is. There can be (at least) 3 different scenarios to consider. 1) that the transaction is simply a recharge by the company incurring the cost of an individual expense which has been incurred by it either as principal or undisclosed agent/commissionaire for the party
Anonymous
13/03/2013 at 9:50 amHi Andrew, you asked whether charges between two entities with the same VAT number (i.e. same VAT group) are vatable and the answer is no.<br />To your other question "should VAT always be charged between legal entities" Assuming these entities are NOT in the same VAT group then the VAT liability is dependent on whether there is actually a supply. Not all recharges are supplies for VAT
Andrew Bohnet
13/03/2013 at 9:51 amMy objective is from an application setup point of view and primarily with Oracle Financials but I am sure other ERP products would work in a similar way. I need to put in a solution for my clients that means that they will be compliant when it comes to VAT. I would, from reading the many great comments posted already assume that it would be better to calculate a VAT invoice on all intercompany
Anonymous
15/03/2013 at 11:33 amRuth Hasson • I think you are exactly right, Andrew. The system should be set up so that whenever anyone raises an intercompany cross-charge, this action generates an invoice document that requires a VAT coding. There are some cross charges which do not give rise to a supply for VAT purposes but these invoices can then be allocated a suitable code indicating "no supply". There are
Anonymous
04/12/2013 at 1:30 pmSusidiary is in UK and paretn in US.There is a cost plus arrangement between the companies whereby susidiary inovices the parent a % of costs.Should the subsidiary be charging VAT on the invoice or should it be outside the scope?
Andrew Bohnet
10/03/2014 at 7:44 pmSorry for late reply to this post.<br /><br />This is a yes and no answers.<br /><br />Yes you should be calculating tax on this transaction but no, there is no vat due as it is out of scope.<br /><br />You could get away with not calculating any tax but I always say that if you don't calculate a tax rate the. A) how do you know if the tax engine has worked or not and b) if there is no tax