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VAT and cross-border contracts

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Global contracts continue to be popular commercially but equally continue to create irrecoverable VAT costs and significant worldwide compliance burdens for businesses inadvertently signing up to certain contractual structures. These typically involve a master agreement being signed, eg, between the US entities of a supplier and a customer, with the US supplier subcontracting to its global subsidiaries. The US customer onward supplies to its worldwide subsidiaries. If the contract is for goods, eg, IT hardware, both US entities are dragged into the VAT net in multiple locations or irrecoverable VAT costs arise which can significantly impact profitability and increase costs.

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