Restructuring International Operations: A Total Tax and Global Value Chain Perspective

International restructurings and reorganizations require companies to evaluate their total tax liability across the global value chain (GVC).  While this includes the combined impact of multiple types of taxes — income tax, withholding taxes, and other relevant direct and indirect taxes, as well as transfer pricing rules — VAT often becomes the most immediate and operationally disruptive element during a restructuring. This makes it crucial for companies to understand their tax obligations across the entire GVC, the interconnected network of suppliers, production sites, and distribution channels spanning multiple jurisdictions. 

A holistic approach is essential. Companies should assess how their business model, contracts, and systems interact with local tax rules to verify that the entire value chain supports both tax efficiency and compliance. By mapping the flow of goods and services, contractual relationships, and operational processes, companies can identify potential areas of tax leakage, missed VAT recovery, or compliance risk, and address them proactively. The goal is to achieve the most favorable global tax outcomes, while aligning tax strategy with broader business objectives.

For U.S. businesses with international operations, VAT is a particularly critical component of tax planning during a restructuring. Companies that overlook VAT considerations may face reduced margins and compliance issues. Unlike U.S. sales tax, VAT requires more complex cross-border planning and neglecting it can erode margins or create compliance exposure during GVC shifts. 

Businesses that understand the interplay between VAT and GVC restructuring will be better positioned to protect margins, maintain accurate compliance and reporting, and potentially unlock additional planning opportunities. 

VAT Implications Across the Value Chain

VAT is a transactional tax levied at each stage of the value chain. Each intermediary pays VAT to suppliers and collects it from customers — making most transactions VAT-neutral until the end consumer. Because VAT compliance depends on accurate documentation, including entity registration, invoice coding, and cross-border transaction records, any operational change to a company’s footprint can trigger new VAT obligations. 

Restructuring without parallel VAT planning creates exposure in the form of missed refunds, denied credits, and audit risk. 

Examples of VAT Leakage 

Expanding into a new market without VAT registration: 

A business that does not register for VAT when expanding into a new market forfeits VAT refund eligibility on equipment purchases and other taxable transactions. Retroactive refunds may be possible, though they would be subject to time limits and usage rules.  

Mergers and acquisitions without updating invoices:

Contract terms often change during mergers and acquisitions; for example, one entity may have been the invoicing entity, but after the acquisition or restructuring, another entity becomes the sales entity. Unless systems are updated to reflect the correct billing entity for VAT purposes, invoices may remain coded to the legacy entity, preventing the business from claiming VAT credits. If the new entity attempts to claim VAT credits on invoices issued to a defunct entity, tax authorities may flag the discrepancy during routine reviews, potentially triggering an audit to confirm the business was not attempting to recover VAT for the same transactions across multiple entities. 

Invoices sent to the wrong jurisdiction: 

Relocating operations (e.g., from the U.K. to the U.S.) may result in unwanted VAT scenarios for the U.S. entity:

• Purchases remain subject to U.K. VAT requiring an overseas refund claim (subject to strict timelines and rules) 
• Refunds may be disallowed if claims should have been processed as input VAT through a VAT registration and VAT return filing requirement
• Refunds may be blocked if invoices are sent to the wrong jurisdiction
• New VAT registration requirements may arise for the U.S. entity

Each of these cases shows an instance where a business executed operational changes without aligning VAT registration, invoice coding, and entity records across affected jurisdictions, resulting in the loss of potential refunds. Engaging tax teams early in GVC restructuring discussions can help prevent these outcomes and preserve working capital. 

Operational Considerations for VAT Planning

GVC restructuring affects financial and operational systems — including enterprise resource planning (ERP) systems, accounting, invoicing, and related processes. Misalignment between systems and legal or contractual structures can result in VAT leakage or missed credits. Businesses often need to update systems and processes to maintain compliance and preserve recovery opportunities.

ERP-VAT Alignment

Organizations planning an acquisition, or those that have completed one, should confirm that the acquired entity’s ERP can manage all VAT obligations. If the business plans to consolidate ERPs, it should verify that existing systems can absorb the acquired entity’s VAT requirements and obligations. Misalignment — especially after acquisitions or system consolidations — can create significant exposure. 

Organizations should also incorporate VAT planning when undergoing ERP upgrades or changes to avoid:

• Improper configurations.
• Inconsistent tracking of VAT across the business, limiting the ability to adapt as rates change or new VAT obligations arise in new jurisdictions.
• Misallocated VAT recovery (i.e., the incorrect entity accounts for or reclaims VAT, or no VAT is accounted for at all).

As tax authorities increasingly mandate real-time reporting and e-invoicing, ERP systems must be configured to support these new rules.  

Contracting Considerations

Contracts written without clear VAT and withholding tax (WHT) terms can unintentionally create liability or risk by leaving ambiguity around which party is responsible for charging, collecting, remitting, or bearing the cost of both VAT and WHT, increasing the likelihood of disputes, margin erosion, or noncompliance. For example, if a company brings on a new major supplier or customer and does not engage in VAT and WHT planning, the absence of specific contract language can have unforeseen consequences. If a contract’s final sale price does not specify whether it includes VAT, the resulting ambiguity could leave the seller’s margins eroded significantly or eliminated entirely if the price is deemed to be inclusive of VAT. 

Cross-Functional Collaboration is Essential

GVC restructuring creates ripple effects across tax, accounting, legal, IT, and operations, meaning VAT planning must be integrated — not overlooked or siloed. Cross-functional collaboration is essential to align ERP configuration, contract terms, and other compliance processes. Regular system audits and contract reviews conducted through a VAT-specific lens help maintain accuracy as VAT rules, exemptions, and operational footprints evolve. 

Customized, Client-Driven Approach

Every GVC restructuring is business specific, carrying its own unique facts and circumstances. When you engage BDO during a GVC restructuring, our teams work closely with you to analyze and understand your contracts, supply chain, business model, and country-specific rules to map and navigate all tax planning considerations. 

Drawing on deep experience helping clients across industries, we help mitigate risk, identify opportunities, and tailor recommendations to your business — whether entering a new jurisdiction or market, exiting a jurisdiction, centralizing operations, or strengthening cash flow management. Even without active restructuring, a VAT or broader tax health check can uncover hidden exposures or value leakage.