Sogefi claims back overlooked input VAT just in time thanks to Runview

As the end of 2021 was approaching, and with it the cut-off date to claim back any overlooked input VAT from 2019, Sogefi made use of Runview’s expertise to find, within a limited timeframe, all the irregularities in its relevant accounting records. A race against the clock, made successful by consultants’ commitment, the short learning curve for the Runview-built platform to complete the ratification of irregularities found, and the full cooperation of Sogefi’s staff.

The workload in the accounting and tax departments of major corporations can be substantial, and people can lack the time to investigate certain points in the necessary depth. And yet, deadlines have to be met. So it is that in France, December 31st every year is the last day for claiming back any input VAT that was overlooked two years previously. But if VAT (value-added tax, a type of sales tax common in Europe, which businesses are permitted to claim back) is to be recovered in time, the resources needed to find it have to be available. Here, specialist help can prove useful, as is shown by the success of the assignment to find overlooked input VAT for which Sogefi appointed Runview in the fall of 2021.

An Italian company listed on the Milan stock exchange, Sogefi is one of the world leaders in equipment and components for the automobile industry. It works for all auto manufacturers, either directly or through concessions, and also for independent distribution networks for its filtration systems. The firm generates revenue of €1.3 billion and employs around 6,000 people around the world. It operates worldwide, with presence in Europe, Asia (including China and India) and North and South America. Its North American revenue is €260m; France is about double that figure. Sogefi has three main business divisions, namely Filtration, Suspension and Air & Cooling, with units in France. Each has its own accounting organization, and they all run SAP.

Audit to find overlooked input VAT before the cut-off date

Towards the end of 2021, Sogefi decided to appoint Runview, the Profit Recovery specialist, to conduct a lightning-quick accounts payable audit for its three business units, focused on finding any overlooked input VAT. As Lionel Choukroun, Tax and Legal Manager France explains, “We had already worked with Runview on an audit to reclaim input VAT a few years previously, and we had been happy with the result. On the strength of that, and knowing we potentially had some unclaimed input VAT for fiscal years 2019 and 2020 and that time was running out to claim for 2019, we decided to book the audit anyway, which meant both Runview and our own accounting departments were given a fairly short deadline.” Sogefi’s main objective was to collect unclaimed input VAT, and therefore cash. “The original idea was to hunt down this overlooked input VAT and claim it back, but obviously another benefit was to highlight areas where our treatment of VAT could be improved,” Choukroun adds.

The audit launch meeting was held in mid-November, between Runview’s people and the accounting managers for the three Sogefi business units concerned, who provided the data for the consultants to examine. “We sent some data, such as the computer file of accounting records (FEC - a statutory requirement in France for tax purposes) and a trial balance of accounts receivable and payable,” Choukroun tells us. In total, more than 132,000 accounts entries were analyzed by the data-mining software developed by Runview itself. The next stage entailed Runview visiting the client to examine invoices relevant to the irregularities they had found. To save time, they split into three teams to conduct simultaneous checks at Sogefi’s three sites (in the Paris suburbs, in eastern France and northern France). These visits also helped build stronger connections with their contacts at the manufacturing firm. As Choukroun remarks, “Having met face-to-face made subsequent email and telephone discussions easier.”

Lionel Choukroun, Legal & Taxation Manager France at Sogefi

Although the audit didn’t start until November, fiscal 2019 was processed very quickly, by both Runview and our people. We made efficient progress, and finished in December, managing to remedy the unclaimed VAT situation before the cut-off date.

Exaus® online platform appreciated

Once the list of irregularities found by Runview’s consultants was consolidated, Sogefi had access to Runview’s secure platform to confirm the input VAT to be recovered. “The aim is to reach consensus on the amount of VAT to be claimed, which is done using Runview’s own system, Exaus®. All the consultants' observations and comments are accessible on the platform and our accounting managers can take a position on the basis of this information, and either ratify the irregularity found or see if there is a need for clarification,” explains Choukroun.

Sogefi certainly appreciated this system. “I had a demo that showed Exaus®was easy to use, practical and well-designed. This was borne out when our employees used it. They could see Runview’s work in one click, and ratify the irregularities found, or not as the case may be,” the Tax & Legal Manager points out.

The commitment shown by Runview and the in-house staff meant this race against the clock late in the year was won. “Although the audit didn’t start until November, fiscal 2019 was processed very quickly, by both Runview and our people. We made efficient progress, and finished in December, managing to remedy the unclaimed VAT situation before the cut-off date,” Choukroun explains approvingly. An examination of fiscal 2020 was run at the same time, so the operational phase of the audit could finish in February, as the three business units concerned were able to include their claims to rectifying their situations in their VAT returns.

Findings mainly related to VAT on imports

The audit’s results matched Sogefi’s expectations. The exercise firstly made it possible for Sogefi to claim back a significant cash amount. “The audit gave rise to a tidy VAT repayment, which is always nice to get, especially towards year-end,” the Tax and Legal Manager says. The audit also reassured the accounting departments by showing that, aside from one improvement of which Sogefi was already aware, their VAT treatment was essentially fine. “Runview’s examination brought to light a number of irregularities connected to recovering import VAT. We were aware of this issue and had already pinpointed some shortcomings. However, the audit successfully uncovered all of the relevant amounts, and showed that apart from this one aspect, our treatment of VAT is correct, which is reassuring,” Lionel Choukroun explains.

Such import VAT errors are common and are often linked to the fact that the invoices from customs forwarders - who, until a change in working practices on January 1, 2022, paid VAT on their clients’ behalf and then billed them for it - are not always very clear. “The audit enabled us to properly review these shipping agents’ invoices, and we realized that some import VAT was not being recognized in the accounts correctly,” reports Choukroun.

Discussions about further audits

The audit conducted by Runview was a success. Choukroun continues: “We shared the findings internally, and were very satisfied with how the audit ran, and the savings we were able to generate. With Runview, we are dealing with highly professional people, who know their field very well, and are therefore able to support and guide their clients, even under tight deadlines.” An appointment has already been scheduled to discuss a VAT audit assignment for fiscal 2021. This will be another opportunity for Sogefi to gain the full benefit of Sogefi’s expertise.

Expanding the scope to look for double payments and overpayments to suppliers has also been mentioned. “It might help us recover some cash, and cash is the engine for any business. If we’ve paid something twice, it’s unlikely the supplier is going to tell us,” Choukroun points out. Runview’s analysis of the figures has already detected the presence of potential overpayments. To pinpoint them accurately, Sogefi could therefore once again make use of the profit recovery specialist’s expert services.