By Stephan Kuhn, Area Tax Leader for the Europe, Middle East, India and Africa (EMEIA) region at Ernst & Young

Indirect taxes are booming. As governments around the world continue to struggle with the fall-out from the financial crisis, they are increasingly turning to increases in VAT, excises and other indirect taxes as the most straightforward ways of raising additional revenues.

They are also using indirect taxes to influence behavior by taxing consumption of certain goods such as fuel, tobacco, snack food or alcohol. This highly dynamic indirect tax environment poses many challenges for businesses, particularly those that operate across borders.

Rates of VAT, excises and duties vary from country to country leading to errors easily arising on the classification of sales and purchases and uncertainty over how some transactions should be treated.

Therefore companies must deal with the risk of non-compliance and ineffective processes by spending an increasing amount of time managing their indirect taxes and focusing on the changing regulatory trends to manage such complexities.

Supply chain complexity adds to the challenge. In many industries, companies have multiple tiers of suppliers producing components that will cross national borders many times before final assembly.

They will often source manufacturing in low-cost jurisdictions, where tax regimes are often more complex and uncertain. This creates serious risks for corporates, which must ensure that they keep up with obligations, comply with rules for invoice formats and meet payments when they are due.

In the past, companies could afford to see indirect tax as an administrative issue. But the scale of the challenge has now become so great that many are rethinking this approach and ensuring that there is much closer co-ordination between the tax function and the business.

But as well as managing the risks, companies should also consider the opportunities. By taking a proactive approach to managing indirect tax, and including it as a factor in their strategic planning, companies can gain an important advantage over their less agile competitors.

In this issue of T Magazine, we examine current trends in indirect tax and explore their impact on business. We look at the role of indirect taxes in addressing fiscal challenges, and examine how different countries are approaching key policy issues.

But first and foremost, we look at the impact of these trends, as well as decisions which business leaders should take. We show how leading companies are managing their indirect tax burden, and look at the skills and capabilities that are required to manage the risks, and seize the opportunities from effective handling of indirect taxes.

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