VAT and contracts | KPMG | BS

VAT and contracts

VAT and contracts

Complex transactions typically require well drafted contracts. But how close do you look at the tax clauses of your contracts or written agreements? A poorly drafted contract can often result in unintended consequences when it comes to Value Added Tax (VAT) and the parties’ responsibilities.

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Contract

VAT has four fundamental areas that impact contract terms:

  • Nature of supply (e.g. goods, services, tangible property, real property, intellectual property)
  • Consideration paid (e.g. cash or in-kind payments)
  • Place of supply (e.g. domestic or foreign transaction)
  • Time of supply (i.e. when the VAT is payable)

A contract should address each of these fundamental areas to avoid ambiguity and limit risk of VAT liability.  No business person wants to face the costly mistake of being unable to collect the VAT from their customer or having to absorb unexpected VAT costs in their bottom line. Below are some common areas where tax ambiguity often exists.

The tax bulletin provides further insight into:

  • Tax inclusive pricing
  • Real property transactions
  • Sale of a business
  • Construction contracts
  • Barter transactions
  • Changes to tax rates
  • Place of supply

© 2017 KPMG Advisory Services Ltd., a Bahamian limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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