NATO does not have to pay VAT so we dont need a tax solution right? Wrong!

Surely they are registered somewhere for VAT?

It took me a while to get my head around the fact that even though NATO is exempt from VAT or rather VAT is not applicable, they don’t have a VAT registration number nor need to submit any VAT returns. Sure we have set up solutions for clients where they have exemption certificates both for the products and services that they buy and for items and services that they sell but they had a VAT registration number and had to submit a return. We also deal with suppliers and customers who don’t have tax registrations and set their tax profile as ‘NOT REGISTERED’ but this just means we still charge them standard VAT when we sell to them. So what do we do for NATO?

the following comes from the exemption certificate, presumably sent to suppliers to make sure no VAT is charged on the invoice;

“The North Atlantic Treaty Organisation (NATO) is exonerated from all taxes in application of Articles 9 and 10 of the Ottawa Agreement and conforming to the regulations of Ministerial Decision no. ET 580L/620 dated 22 February 1967, including VAT in application of CM No. 67/1970 § 13 (article 42, § 2, 2o of the Code). As a consequence, NATO has no VAT registration number.”

Is an indirect tax solution needed?

So are we justified to simply turn tax off tax, not set it up at all and save time and money during our roll out? The answers has to be no. Whilst organisations like NATO, the International Labour Organization or the united nations don’t pay tax because they have exemptions, they will still get charged VAT, whether through accident, through external purchases not through an approved procurement channel or in the case in some countries like France, VAT is applicable on purchases. So when VAT is charged and like any EU country trying to recover VAT from a different member state, the act of submitting to recover VAT is very different from needing to be registered for VAT in the country your are trying to recover the VAT from. And this is the case with NATO, they get charged VAT but are eligible to recover most of that VAT depending on what was purchased and what it was purchased for, business entertainment is going to be 0% recoverable and the VAT has to be paid. So you need to be able to capture the tax entered,

The solution

At eBiz Answers, we provide a solution, it doe snot matter who the client is, they all abide by the same rules of tax and NATO was no exception. The difference however is that rather than having a solution that was needed to capture the tax in the level of detail that our solution is capable of in order to easily submit the tax returns, what we needed was just a way of capturing VAT charged to us so we could submit the claim to recover the tax.

Because we pride ourselves on always providing the best solution possible, we did not simply roll over and replicate exactly what NATO has in 11i, instead we listened to what their issues were and then adjusted our solution to meet their requirements. NATO is made up of many different sections, each with their own budgets and control of their systems. We wanted to ensure that the solution that we put in place for one area of NATO could be easily replicated to any other and also to an area that may have had a VAT registration. So instead of completely changing our global product, instead we created some additional rules that we linked to the operating units rather than to the global configuration.  This meant that the Global Configuration solution was not changed and could be used in any part of NATO but the individual operating units had some very simple rules that turned off the tax for AR and defaulted an exempt tax for all purchases that did not have VAT on them.

The result

We were able to make it easier for the users to capture the tax. The maintenance was much easier too because when there is a rate change, its a 3 minute job to update the system that can be done centrally. No new rules are needed so its very easy for NATO themselves to look after their own system and of course, our support team is always available to help should they run into any difficulties. The major benefits however are when the taxes have to be recovered. The tax rates are now clear in the system with a global naming convention. Our modified report means that we can filter out any invoice under 125 euros so the recovery process is just a click of a button. For the French entity where the tax is only recoverable when the invoice is paid, our modified report also allows only paid transactions to be reported. this means an invoice entered in January will only appear on the report in September because this is when the payment was made! The recovery process is far more accurate and the time taken is just a fraction of what took place before. There is also now no risk of accidently missing transactions to recover the tax for.

 

 

 

Andrew Bohnet
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Andrew Bohnet

Managing Director and Oracle Fusion Tax / eBTax expert at eBiz Answers Ltd
Andrew Bohnet is the current chair for the Oracle Tax Management SIG. He founded eBiz Answers to offer clients complete tax solutions making the most of the rich functionality of the R12 and Fusion tax modules. Whether it is analysis, design, configuration or support, eBiz Answers provide an unparalleled service when it comes to a complete tax solution. Having worked on one of the first Oracle R12 implementations in Europe, Andrew was exposed to the tax module early on and worked closely with Oracle to fix bugs, enhance functionality and present on numerous occasions on the subject of tax and Oracle. When it comes to presenting on eBTax, you wont find a more experienced consultant outside of Oracle.
Andrew Bohnet
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