Faced with ongoing economic challenges, declining voice and text revenues, and the need to address customers’ quality of service expectations on data-intensive networks, communications service providers (CSPs) are being compelled to consider revamping their operating models and adopting new transformational technologies to survive and thrive, according to a survey from Accenture.

The overwhelming majority (93 percent) of CSP executives surveyed identified the need for new or improved tools to plan, design, and track traffic on broadband or cable networks. One-third (33 percent) said they need to significantly revamp the tools used for broadband deployment, while another 60 percent would consider adding some tools.

All interviewees plan to invest in network analytics tools, and more than half (53 percent) cited customer experience improvements as the most important reason. These tools are typically used to analyze network data alarms, performance measures, trouble tickets, and customer churn due to dropped calls in an effort to improve network service quality.

Paolo Sidoti, global managing director of Accenture’s Network Business Services group commented:

“This survey paints a picture of a telecom industry in transition, buffeted by a storm which is both economic and technological in nature, with an impact across the entire value chain,” Sidoti said. “A challenging global economic climate, combined with reduced consumer spending for telecommunications services, is driving a rapid decline in traditional voice- and text-based revenues. Data traffic continues to rise, but data revenue is growing at a slower rate.”

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In times of economic growth, there is a tendency to achieve increases in scale through acquisitions. In business services, the emergence of the Big4 is an example of this.

The economic recession causes companies to adjust to new market circumstances: demand decreases, fees come under pressure and employee productivity slides, causing the focus to shift to general cost savings and making downsizing necessary.

One complicating factor is that the traditional way of working and the way in which business services are offered is no longer relevant. In times of recession, inefficiency becomes all the more visible when profits fall and there is no room for innovation.

In addition, poor results have an adverse effect on the cooperation among disciplines: employees focus on self-preservation and not on existing or new forms of cooperation.

The tide can be shifted by reinventing oneself and by realizing behavioral changes among employees. The challenge is to change people who have been successful with their traditional way of working for years.

These are difficult and time-consuming processes that are possible only with close management and the involvement of the leaders.

It is no chimera to consider a future involving significant offshoots and where the term Big4 ceases to exist.

The question has been asked more than once and is more relevant today than ever. Does the – relatively less profitable – auditing of financial statements and consultancy still fit under the umbrella of joint profit distribution?

Not only does regulation lead to change, so do the personal motives of the stakeholders. In times of continued economic recession, are people still willing to support each other financially when certain company components consistently underperform?

Time will tell.

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

The post Business services: better results and higher quality using a different way of working appeared first on Big4.com.

In response to increased scrutiny from Boards, Revenue Authorities and other regulators, many businesses are now formally documenting their indirect tax strategy and implementing formal processes to evaluate and approve planning ideas.

For leading companies, a tax strategy is a dynamic framework that is shaped by internal and external drivers.

A tax strategy should cover all key taxes and business locations and should be aligned to the overall business strategy.

Potential Benefits Of A Documented Indirect Tax Strategy Include:

1. Obtaining clarity around the business’ indirect tax risk appetite, which should facilitate the identification of planning opportunities appropriate to the business’ wider commercial objectives
2. Providing the business with a consistent and efficient review and evaluation process over tax-related matters
3. Raising the profile of Indirect Tax with key business and Finance stakeholders
4. Monitoring and strengthening governance procedures in decentralized and overseas jurisdictions
5. Identifying improvements in indirect tax-related systems, processes and controls
6. Identifying areas where additional indirect tax resources or funding may be required

To challenge the Indirect Tax Function’s short and long term business plan objectives the site contains a roadmap of an ‘Indirect Tax Strategic Plan’ and includes examples of ‘Setting the Objectives Of The Tax Function’.

Tax Control Framework

Tax Control Framework forms an integral part of an organisation’s Business or Internal Control Framework, ensuring that the organisation’s processes have been structured so that the tax risks or potential savings become visible on time.

Download

Proving The Reliability Of Accounting Records For Tax Purposes

The New Trend might be to have a more open dialogue between revenue bodies, taxpayers, and tax intermediaries. The at times prolonged operational audits performed by the tax authorities seem to be turning into a thing of the past.

Initiatives Of Tax Authorities

• In 2005, the Netherlands Tax and Customs Administration (TCA) initiated a pilot ‘horizontal monitoring’ programme involving 20 of the country’s largest corporate taxpayers
• In 2005, the United States initiated a Compliance Assurance Process
• In September 2005, the Irish Revenue Commissioners initiated their ‘Co- operative Compliance’ programme with large corporate taxpayers.
• Budget 2009, Senior Accounting Officer sign off in the United Kingdom
• GST Assisted Compliance Assurance Programme (ACAP) in Singapore

We refer also to OECD promotion of ‘enhanced relationship’ (OECD report: Study into the Role of Tax Intermediaries). Even if the authorities have not embraced such an approach (yet), a proactive mode can not only safe time and money but result in a good relationship.

With the arrival of horizontal supervision the Netherlands, combined with the use of audit samples and data analyses, businesses can prove the reliability of their accounting records for tax purposes themselves, which offers the opportunity to avoid supplementary tax assessments and penalties.

The following benefits may be realised if VAT pre-audits are performed using, among other things, data analyses and audit-sample techniques:

1. Improved relations with the Tax Inspector (evidently, by using audit techniques similar to those used by the Tax Office, the first hurdle in any future discussions about the outcome of an audit is already taken).
2. Businesses obtain an understanding of the nature and scope of their tax risks in a statistically reliable, quick and efficient way.
3. The quality of the assessment of procedures performed by external auditors will increase, because they will have to spend less time on assessing risks in the tax chapter in the fields of, for instance, indirect taxes, payroll tax and national insurance contributions.
4. Less “vertical” audits and lower costs to be incurred on using business resources for such audits
5. Lower penalties

Statistical Sampling

Statistical Sampling is the tax audit methodology of the Dutch Tax Authorities and it can be used by companies for proactive audit defense: pre-audit and detective control resulting in quantification of potential amount of exposures and/or savings.

By identifying risks respectively opportunities, an action plan pertaining to both the future and the past may be drawn up to mitigate these risks or realize savings.

Data Analytics

An alternative for performing an efficient tax audit would be data analysis. Data-analysis options have increased and been refined rapidly over the past few years, allowing for large data volumes to be reviewed in an effective and efficiently way. Besides, data analyses can usually be performed using the same software tool as that used to statistical sampling.

Example of executive summary of data analytics – scope both savings as risks evaluation (source: KEY Group)

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Management Of Legislative Change

By The KEY Group specialized in ‘Business Control, ‘Information Technology’ and ‘Indirect Tax Performance’

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

The post Indirect Tax Strategic Plan appeared first on Big4.com.

By: Mary Werner, CPA, MOD, Big4 Guest Blogger  

“In these troubled and uncertain times, we don’t need more command and control; we need better means to engage everyone’s intelligence in solving challenges and crises as they arise.”

~Margaret Wheatley

Command and control leaders. You love to hate them. These leaders are the “my way or the highway” type where the phrase “Just Do It” takes on quite a different meaning than Nike ever intended. But the reality is that this form of leadership has been the long standing default style for many leaders in our Firms and Corporations.

I don’t know about you, but I’ve had the “pleasure” to work with more than a couple command and control type leaders in my years as a practicing CPA.  And my experience is consistent with the research on the negative impact of this leadership style:

No Flexibility - “My way or else.”

No Clarity  – “I only know what not to do.”

No Responsibility – “Just doing my job.”

No Commitment – “I’m just looking out for myself.”

But there is great news coming from a research study of 1,700 CEOs recently completed by IBM. The study reported that these leaders clearly see that the command and control leadership style is outdated and ineffective.

The implications are clear for the CPA profession as well. It’s time for Partners and Managers to move off this outdated and non-productive leadership style and embrace the leadership style that engages, inspires and aligns their professionals to outstanding performance and results. New behaviors can be learned and when CPA leaders see the positive impact on the bottom line, they’ll be more motivated than ever to shift their approach.

A New Era of Openness and Collaboration

The study also revealed what CEOs are looking for in employees, another clue that we’re moving in a direction that’s more open and collaborative. These CEO respondents want to recruit and hire people who excel at working in open, complex, and team-based environments. Highly valued skills are collaboration (75 percent), communication (67 percent), creativity (61 percent) and flexibility (61 percent).

It’s a new day and Firm and Corporate leadership must change with it.

How about you? What is your experience with “Command and Control” leaders? How do you see your leadership style shifting in today’s complex business environment?

To your success,

Mary

Mary C. Werner, CPA, MOD is the founder of Werner Coaching and Consulting, Inc., an executive coaching and organizational change consulting firm.  Mary was formerly with Ernst & Whinney (now E&Y) and Partner with Plante & Moran.  She is also a founding member of  The CPA Consultants’ Alliance, a working group of thought leaders unified in their efforts to further leadership in the accounting profession.  Mary, a certified executive coach through The Hudson Institute, is especially skilled at coaching and consulting with CPAs and other business professionals who are interested in accelerating their personal and professional growth for breakthrough results. She blogs regularly about leadership and change in individuals, firms and organizations.

The post The End of the Command and Control Leader? appeared first on Big4.com.

Posted by Sandie Mowat, Big4.com Guest Blogger

In amongst all the changes that the Government has implemented which, it hopes, will enhance the UK’s position as an attractive place to do business, the introduction of the patent box is possibly the single most important for manufacturing technology and life science businesses. This new initiative is meant to encourage businesses to develop and exploit their new technologies by offering them a lower tax rate. It is a welcome development which should help UK firms in competing with their European counterparts, already benefitting from similar incentives.

From 1 April 2013, companies that develop and exploit their own patents, or ones for which they have an exclusive licence, will be able to gradually reduce the rate of corporation tax on the profits generated from these to just 10 per cent. This is, however, a phased tax break with its full benefit only becoming available from 2017.

It may sound simple, but it has taken years to design a system that enables companies to calculate those profits reliably and prevent them from artificially manipulating their results to exploit the regime. While there is still some fine-tuning to be done, the draft legislation has now been published which forms the meat of this year’s Finance Bill (along with other reforms that are currently in progress).

A detailed explanation of the new rules can prove to be very complex so I would suggest that focusing on the top-line of ultimately paying just 10 per cent tax from any patent-related profits is the simple and least stressful way of interpreting them.

The legislation applies to patents granted by the UK Intellectual Property Office (UKIPO); patents that UKIPO would have granted but for a prohibition on publication on the grounds of national security or public safety; patents granted by the European Patent Office and any similar right that HMRC specifies by order.

It’s also important to be aware of the types of income, subject to anti-avoidance rules, that will qualify for patent box relief. These include licence fees; sales of products that are (or contain) patented items; sales of the patents themselves and any notional royalties from the exploitation of qualifying patents in some other way.

Brands, know how, design rights, copyright or trade secrets will not qualify and there may have to be an adjustment to exclude profits derived from these from the patent box. There will also be an adjustment to exclude a 10 per cent mark-up on basic costs such as labour and premises costs (but excluding research costs). What’s left will be taxed at 10 per cent.

A number of years may lapse between applying for a patent and its grant. The draft legislation therefore allows the company to recognise patent box profits arising once the application is made and for up to six years before the patent is finally granted.

Originally, this incentive was only going to apply to patents first exploited from 2011, however, following consultation it will now apply to older patents as well, a significant benefit to those companies which can utilise this initiative.

Interested companies should get their house in order now in preparation for next year’s implementation of the patent box. Firstly, as it will only apply to companies, now might be the time to incorporate a growing technology or manufacturing business. Existing companies need to review their accounting procedures and patent-related decision making processes to make sure they get the best out of the regime and ensure they can produce the information necessary to support their claims. Groups may even consider moving high profit patents into special purpose subsidiaries.

This new initiative, combined with the Government’s extension of research and development (R&D) tax relief last year, will make a positive impact in the important technology and life sciences sectors.

The challenge now is for more firms to grasp these opportunities. At present we have a very generous tax incentive through R&D relief yet only a fraction of Scottish companies are applying for it. Many businesses are not identifying what actually qualifies for R&D and we’ve seen an often inaccurate perception amongst some SMEs that they do not qualify and that it is not financially viable to make a claim. As a result they are losing tax relief. We’ve secured £23m in R&D tax savings just amongst our own client base with no rejected claims from HMRC so there is surely further scope for more firms to benefit.

With both R&D relief and the forthcoming patent box it’s important that companies get some expert advice or they could miss out. Of course, as with so many of the tax reforms currently under way, the devil is in the detail and the Government is under pressure to simplify its proposals before they are finalised. In the meantime the patent box is a welcome development which should give many companies a much needed boost in these challenging times.

Written by Simon Burton, Tax Director at Johnston Carmichael.

The post Johnston Carmichael: What’s in the Patent Box? appeared first on Big4.com.

“Could a greater miracle take place than for us to look through each other’s eye for an instant?”

~Henry David Thoreau

My dog Zoey should have been named “Radar.” She has an uncanny ability to sense what family members are feeling and react to those feelings in kind. Whether we’re watching an exciting basketball game on TV (she goes crazy when we do), or one of us is feeling sad or discouraged (she makes a bee line for our lap), Zoey, completely without judgment, is in tune with our feelings.

Possessing accurate radar is in a sense what the EQ skill of empathy is all about. And empathy is the fifth and final skill that I’ll discuss as being critical to becoming a “trusted advisor.”

When you have empathy, you are “tuned in” to how others are feeling. You are able to look at a problem or conflict from another person’s perspective. Empathy is also a critical skill for negotiation as well, understanding what the other side wants and working to create a win-win result. (So it’s far from a “touchy-feely” skill.)

Empathy involves understanding another’s perspective, even if theirs’ is much different from your own. (Remember, it’s without judgment.) It involves letting the other person know that you have understood them, thus creating a bond and a relationship that surpasses “box checking” or “order taking.”

According to David Maister, one of the key hallmarks of a trusted advisor is their “focus on the client rather than themselves.” That is the essence of empathy. To put yourself in the shoes of the client in order to see a challenge from their perspective, understand what they are feeling and why.

This key EQ skill allows you to forge a strong bond of collaboration that helps you to solve your client’s problems and create successful and lasting client relationships.

Five EQ Skills Critical Trusted Advisor Skills

To recap, over the last several posts I’ve shared five key EQ skills:

1. Pursuit of Meaning: Your goal, desire and motivation to become a trusted advisor.
2. Emotional Self Awareness: You are aware of your emotions and how they impact your behavior and others.
3. Interpersonal Relationships: You have an ability to build and develop mutually satisfying relationships.
4. Problem Solving: You effectively use your emotions in the process of solving a problem by gathering information and making decisions without being emotionally distracted, stuck or overwhelmed in the process.
5. Empathy: You are “in tune” with how others are feeling, understanding their perspectives and forging a bond that builds outstanding relationships.

The good news is that each of these EQ skills can be learned or enhanced. If your goal is to move your role from client server to the next level of trusted advisor, add these five skills to your foundation of technical expertise.  I know it can happen. I’ve witnessed my previously reticent coaching clients successfully make that shift.

What do you think? What are your perspectives on what it takes to be a trusted advisor?

To your success,

Mary

Mary C. Werner, CPA, MOD, formerly with Ernst & Whinney (now E&Y) and a Partner at a regional CPA firm, is the founder of Werner Coaching and Consulting, Inc., an executive coaching and organizational change consulting firm.  She is also a founding member of  The CPA Consultants’ Alliance, a working group of thought leaders unified in their efforts to further leadership in the accounting profession.  Mary, a certified executive coach through The Hudson Institute, is especially skilled at coaching and consulting with CPAs and other business professionals who are interested in accelerating their personal and professional growth for breakthrough results. She blogs regularly about leadership and change in individuals, firms and organizations.

The post How’s Your Radar? appeared first on Big4.com.

The Current State Of Many Multinationals

Determining the VAT liability and VAT recovery of businesses’ transactions (the system’s indirect tax functionality) can be automated within Enterprise Resource Planning (ERP) systems such SAP and Oracle, or by way of a manual processes. Such determination logic can be hugely complex.

Multinationals run often various versions of ERP systems without harmonization. The ERP set-up is often per business unit and thus multiple kernels per country are more likely than not.

This could cause difficulties in running exception reports to look for missed opportunities, under claimed VAT and potential fraudulent transactions. A lot of (manual) work is required when reconciling the periodic VAT compliance reports from these different sources (divisions, different systems).

As the ERP systems do not have flexible reporting solutions, multiple spreadsheets are often used to reconcile VAT numbers. Manual processes are subject to human error and often inefficient due to the amount of rework (‘hidden factory’).

‘Remediate Own ERP System’ Or ‘Third Party Solutions’

Indirect Tax functionality can be automated (full or to a certain extend) in a company’s own ERP system.  The problem might be that multiple ERP systems are used and that interfacing via a  third party tax engine is considered an alternative.  That option means that part of the system functionality is actually outsourced.

Some important questions from a tax software selection to answer are:

• Does remediation of own ERP systems close any gaps?
• Is setting up a single ERP platform within the company a practical solution to consider?
• Are third party solutions available to harmonize multiple ERP systems?
• What is the advantage of third party solution compared to upgrade own ERP system(s) (GAP versus SWOT analysis: complexity of business model, number of tax codes needed now and in the future , resource requirements to manage the rules and VAT rates, monitoring and controls)?
• Is a third party solution required for determination and calculation of indirect tax or only for the reporting?
• What reporting functionality does my organization need?
• Are risks of outsourcing functionality known, documented and managed?
• Are the liability clauses of the third party known and evaluated?
• Is the financial position known of this third party?
• Is the market position known of this third party (sustainability, competitor’s strength)?
• What is the feedback of customers (references and credentials)?
• What is the amount of staff of this third party?
• What is the company’s history where it relates to upgrades its technology to trends in the tax market and client needs (amount of upgrades)?
• Is the solution compatible with existing ERP environment?
• Is the IT architecture of the third party solution compatible with the existing IT landscape?
• Is the interface of the solution “approved/supported” by the ERP system supplier (i.e. SAP Netweaver partner)?
• What will be the level of configuration / customization in ERP system and/or third party solution?
• How much time does it normally take to implement a country, region or even a big bang roll out?
• Does the third party have an example of a roadmap for implementation that includes each others roles and responsibilities and milestones?
• Which countries and indirect taxes are supported by the third party solution?
• What is the impact on the company’s own resources?
• What does the price tag look like (initial fee, configuration fee, license / usage fee, maintenance fee, etc.)?
• What is the level of support a vendor gives in case of trouble shooting, legislative updates, irregular maintenance, etc.?

These are some important questions that need answer to make sure that the technology is a right fit for contributing value to the organization’s business objectives.

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

The post Tax Engines – Questions to Ask Before You Commit appeared first on Big4.com.

, Big4 Guest Blogger  

“It is very important to understand that emotional intelligence is not the opposite of intelligence,

it is not the triumph of heart over head, it is the unique intersection of both.”

~David Caruso

My last three blog posts discussed your desired movement from technician to becoming a trusted advisor for your clients and the EQ skills you must possess to make that move. The three EQ facets I’ve shared so far are:

1. Pursuit of Meaning: Your goal, desire and motivation is to become a trusted advisor
2. Emotional Self Awareness: Your awareness of your emotions and how they impact your behavior and others
3. Interpersonal Relationships: Your ability to develop mutually satisfying relationships

But even if you possess each of these emotional intelligence skills, in order to become a true trusted advisor you must still solve your client’s most challenging problems. And at the leader level, you must regularly solve their problems when the pressure is on, when the stakes are high and all focus is squarely on you. All while keeping your emotions in check.

In the realm of EQ, what does this problem solving skill entail? Problem solving in an EQ sense is not about the quality of your solutions, but rather at how effectively you use your emotions in the process of solving a problem. It’s your ability to gather information and make decisions without being emotionally distracted, stuck or overwhelmed in the process.

You can possess all the technical knowledge in the world but if your emotions cause you to be frozen in your decision making, unable to consider various perspectives or  avoid dealing with the problem all together, your technical expertise is of little use to your client.

It’s fitting that I’m writing this blog post on the day that one of my former business partners (and trusted advisor extraordinaire) retires from Plante & Moran. My dear friend, Brent Cousino, is one of the most amazing trusted advisors I’ve ever worked with.

Brent had many client facing roles at P&M and, regardless of his position, his clients could always count on Brent to solve their most challenging problems calmly, methodically and effectively. Pressure, deadlines, budgets and client expectations were a constant in Brent’s consulting role and he managed these challenges brilliantly. His clients knew that he would utilize his technical expertise combined with exceptional problem solving skills to make a difference for them

Oh, and he also possesses the first three EQ skills in droves! Brent will certainly take his trusted advisor skills on the next leg of his leadership journey.

How would evaluate your problem solving skills when emotions are in play? Can you be relied on to be there for your clients, cool headed, focused and determined?

Becoming a trusted advisor truly demands these superior problem solving skills.

To your success,

Mary

Mary C. Werner, CPA, MOD, formerly with Ernst & Whinney (now E&Y) and a Partner at a regional CPA firm, is the founder of Werner Coaching and Consulting, Inc., an executive coaching and organizational change consulting firm.  She is also a founding member of  The CPA Consultants’ Alliance, a working group of thought leaders unified in their efforts to further leadership in the accounting profession.  Mary, a certified executive coach through The Hudson Institute, is especially skilled at coaching and consulting with CPAs and other business professionals who are interested in accelerating their personal and professional growth for breakthrough results. She blogs regularly about leadership and change in individuals, firms and organizations.

The post Solving Problems: Trusted Advisor Style appeared first on Big4.com.

By: Mary Werner, CPA, MOD, Big4 Guest Blogger  

“At its core, trust is about relationships.”

~David Maister

In my last two blog posts, I talked about two of the five key EQ skills needed to move from technician to trusted advisor: self actualization and emotional self-awareness.

It won’t come as a shock to you that the third EQ skill is your ability to build mutually satisfying relationships. The key words here are mutually and satisfying.

We’ve all been in client relationships that are one-sided or give us heartburn. Those relationships can never make it to a true trusted advisor status.

What I’m talking about in a trusted advisor relationship is based on a mutual give and take. You must give a favor to earn a favor.  In trusted advisor speak, you must “display your willingness to make an investment in the relationship in order to earn your client’s trust.”

What efforts do you put into maintaining healthy and effective relationships with your clients? Is your talk all technical and single focused? How do you get to know them on a personal level? What matters to them? Do they know what matters to you?  In the end, building a strong relationship requires a certain level of vulnerability and a willingness to open yourself up.

And we all know that a relationship that’s strong and satisfying is one based on thoughtfulness and openness to another’s ideas. The idea of collaboration and connection to others is something that trusted advisors value. And when a conflict arises, both parties work to resolve issues in a manner that is respectful and professional.

There is a misconception that strong trusted advisor relationships can only be built when the advisor is extraverted or gregarious. Quite the contrary. One of the most effective legal advisors I know is quite introverted but has forged strong relationships with his clients in a more reserved, one on one manner. Still strong. Still effective. Still a trusted advisor. He just accomplishes it in a more low-key manner. And his clients love him. He is their “go to guy.”

How would you rate your client relationships? Excellent? OK? Box Checking?

If you didn’t choose excellent, what’s holding you back from building deeper, more meaningful relationships with the clients you serve? Regardless of whether you’re an introvert or extravert, you can begin today to build the skills that it takes for forge mutually satisfying relationships with your clients and move yourself to that coveted “trusted advisor” status.

To your success,

Mary

Mary C. Werner, CPA, MOD, formerly with Ernst & Whinney (now E&Y) and a Partner at a regional CPA firm, is the founder of Werner Coaching and Consulting, Inc., an executive coaching and organizational change consulting firm.  She is also a founding member of  The CPA Consultants’ Alliance, a working group of thought leaders unified in their efforts to further leadership in the accounting profession.  Mary, a certified executive coach through The Hudson Institute, is especially skilled at coaching and consulting with CPAs and other business professionals who are interested in accelerating their personal and professional growth for breakthrough results. She blogs regularly about leadership and change in individuals, firms and organizations.

The post Rate Your Client Relationships: Are You a Trusted Advisor? appeared first on Big4.com.

McGowan will primarily focus on ensuing KPMG addresses the varied tax needs of its member firms’ clients using the latest technology. The firm’s International Executive Services practice was recently awarded “Most Innovative Use of Technology in Global Mobility” (Program Management) and “Highly Commended Best Vendor Partnership” at the Expatriate Management and Mobility Awards (EMMAs).

Rick Smith, head of Global Delivery for KPMG International welcomed McGowan, noting that, “John understands the needs of our clients, having worked with some of the largest organizations around the world. He knows how complex tax is and that it is getting more so each day. It’s great to have John on the team”

McGowan, CPA, joined KPMG LLP in 1993 and has led the U.S. firm’s Tax Technology practice since 2004. He is a member of the American Institute of Certified Public Accountants (AICPA). He holds both a master of accounting degree and bachelor of science degree in business administration from the University of North Carolina at Chapel Hill.

The post John Q. McGowan is the new Chief Information Officer, Global Tax for KPMG appeared first on Big4.com.

The aim of the blog is to discuss fraud in general and more specific VAT fraud.  What is the positive correlation? What is the impact on tax controversy, company’s prioritization and the game plan needed to mitigate risks?

“While 37.6 percent of respondents expected to find fraud among the accounts they audit, they anticipated their competitors would find fraud at a much higher rate of 66.9. That represents a disconnect between a given auditor’s expected fraud exposure risk and the general expectations for the industry” Auditors Anticipate Finding Fraud at Clients: Accounting Today.

Top Official Arrested For Bribery

In the Netherlands a top official of a housing organization has been arrested. The housing organization had invested in derivatives and speculated on interest rates. It went wrong and the housing organization needed EUR 1.6 billion to make the payments to the banks.

According to the prosecutor the top official received a kick back for purchasing these financial products and is now investigated for bribery, tax fraud, and money laundering.

In order to survive the housing organization has to raise rents and sell 15,000 houses (within a period of 10 years). The housing organization is the biggest Dutch provider of affordable housing, owning about 89,000 houses.

KPMG withdrew its approval for Vestia’s 2010 annual account.  KPMG said it doubts whether all derivatives have been processed properly in the annual account (Bloomberg).

VAT Fraud

Evaluating post Enron has much really changed from an internal and external control framework if top officials can still execute their ‘evil’ plans.

I have written in my recent blogs about VAT fraud.

Do external auditors investigate and review company’s indirect tax policies and controls?

The same question can be raised about the mandate and associated risks of top officials.

From Netherlands Intensifies Efforts To Combat VAT Fraud:

1. Nasir Khan had a successful accessories business, a jet-set lifestyle and reputation as a pillar of the community. But all that vanished in December when he was jailed for his part in a £250m VAT fraud - March, 2012
2. According to a PwC report: “11 percent of VAT revenue is lost annually through fraud – principally ‘missing trader’ or ‘carousel fraud’ – which equates to in the region of €100 billion.

Based on benchmark findings it is doubtful whether VAT fraud (caused internal or external) is in general managed and monitored closely via good functioning internal VAT controls.

“Only 32 percent rate their VAT / GST policies as very good or excellent. Worse still, only 20 percent rate their implementation as very good or excellent. Sounds like most businesses are well behind where they need to be” - KPMG Benchmark Survey 2012 

According to survey findings C-level (including external auditors) often considers VAT still a ‘cash in’ and ‘cash out’. That impacts prioritization and thus likely spending time and money on the set up of  good functioning internal VAT controls.  I refer to my Blog ‘How To Manage The Perception of C-level and Realize Tax Objectives‘.

However, it is recommended due to the intensified efforts to combat VAT fraud by the governments, the cause effect an increase of tax authority scrutiny, to reevaluate the prioritization of VAT overall and set up the right detection controls to manage VAT risks.

From VAT Throughput – Calculating The Taxes:

“What is the effect of increasing VAT/GST rates on this “VAT throughput”?  Governments increase the VAT rates to balance their budget. More VAT/GST in the system equates to more tax authority scrutiny and higher penalties for errors – the greater the amount of tax in the system, the greater the tax risk. Could be that an update of the tax risk register and tax risk evaluation is necessary.”

KPMG says that fraud is on the rise

We have seen similar fraud where goods or companies were sold lower than market value and a company’s official received a kickback or direct or indirectly ownership of the property sold.

Property traders were suspected of forgery, corruption and money laundering and involved in stealing some €250m from their companies. The two most important suspects were the former heads of Bouwfonds (Rabobank)  and the Philips pension fund.

‘The case came to light when a tax inspector checked out one of top official’s (red: name removed) receipts’ (red: a former director at Rabobank’s property development arm Bouwfonds)

‘He asked questions but did not get a clear answer. He then came across a money trail which led to more dubious bills.” DutchNews

KPMG says that fraud is on the rise. According to the latest KPMG Fraud Barometer a total of 546 large frauds were brought before the courts between 2008 and 2011, costing the Australian economy an aggregate value of over $1 billion.

“We have previously found a positive correlation between levels of fraud and periods of financial instability. We are seeing the first of frauds committed against organisations with gaps in internal controls in this cash-constrained environment”  Gary Gill, National Head of KPMG Forensic

Significant findings in this Fraud Barometer include:

• “80 percent of frauds against commercial businesses are ‘inside jobs’ committed by rank-and-file employees or managers, averaging $1.8 million per fraud. The largest recorded fraud in the Barometer ($45 million) and the largest against an Australian listed company ($19 million) were both insider frauds;
• frauds committed by management cost Australian businesses $400 million over four years, averaging over $2.78 million per fraud, almost triple the average for non-managers. Managers were the culprits in nine of the eleven ‘superfrauds’ (frauds greater than $10 million);
• accounting fraud, which invariably involves insiders, weak controls and a lack of detection processes, remains the most common type of fraud;
• cases related to bribery and corruption are starting to come before the courts as Australia plays catch-up with many other developed economies in toughening its anti-bribery and corruption regime.”

The above study and findings relate to Australia. Are these findings also applicable for the rest of the world?

A Game Plan For Detection And Management

Based on the above examples it might seem that this relates to the real estate industry. That is not the message I want to get across as greed by top officials – Enron scandal, Parmalat scandal, Ahold scandal, Baring Bank (rogue trader Nick Neeson), Societe Generale (rogue trader Jerome Kerviel), Global Financial Crisis etc –  goes beyond that industry.

Sometimes it relates to budget-based incentive targets of the brass. Artificially boosting up company’s performance is not integer but profitable when your bonus is related to that KPI. Often it is simply greed and the opportunity as proper oversight is lacking.

I have written about pitfalls of Budget-based Compensation Targets in my Blog “Pitfalls Of Actual To Budget Exercises Especially In The Downturn“.  I focussed in that blog on disconnect and internal competition within an organization by employees, but a code of conduct such as integrity and common values is something to practice within the entire organization.  The brass has to be role models.

People are getting caught because the fraud itself becomes unmanageable or the company is suddenly not able to fulfill their financial obligations or somebody had reason to whistle. Based on Accounting Today it is not because of proper risk management and controls:

“… typically shows that external audits historically have been among the least effective means of uncovering wrongdoing—well behind accidental discoveries and whistle-blowing” Auditors Anticipate Finding Fraud at Clients: Accounting Today.

An example of a game plan

“Fraud continues to cost Australian organisations and in many cases it’s an internal problem, but fraud should never be seen as an unavoidable cost of doing business. Undertaking robust risk assessments, using data analytics to identify potential fraudulent activity, providing staff with fraud awareness training and putting in place an effective plan for responding to fraud will go a long way in minimising or avoiding losses,”  Gary Gill, National Head of KPMG Forensic

Above game plan can be copied paste from VAT strategic and VAT control framework perspective.

What is your view? Do you agree?

Related Topics

From Management of Reputational Risk:

“The contribution of a tax professional is nowadays not only on not paying more tax than necessary and evaluating associated tax risks when implementing (rate level of tolerance on a risk scale), but should also take in consideration the impact of such planning on the reputation of the company.”

From Recognizing Tax Avoidance Schemes:

“Check out this video by Paul Clitheroe a financial expert and financial commentator. Recommended as it is entertaining and educational at the same time.”

From Audit Defense: Key Considerations:

“The new trend is to have an open dialogue between revenue bodies, taxpayers and tax intermediaries.”

” (…) written ‘agreement’, by which the taxpayer undertakes principally to “actively notify the Tax Administration of any issues with a possible and significant tax risk.”

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

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Ireland’s Department of Finance has received the draft of new legislation that would lower income tax paid by foreign executives in the country.

The law is receiving scrutiny in the European nation after it was revealed that KPMG and Deloitte submitted draft legislation for a new, special program that would lower the tax rate for foreign managers and executives in Ireland. The new law would apply to 30 per cent of all income earned between €75,000 and €500,000, and it could save an executive employee as much as €52,275, if earning the half-million euro figure.

Additional benefits would be included in the tax relief law, such as a tax exemption for school fees for private schooling.

The details of the proposal were revealed to The Irish Times, who also reports that KPMG partner John Bradley emailed a draft of the law to Gary Tobin, head of the business tax team at the Department of Finance for the Irish government.

An earlier draft of the tax relief law had been viewed by KPMG employees and members of the International Asset Finance group, another government agency in Ireland. Tobin said that members of the IAF had felt a “great deal of disappointment” about the bill.

KPMG’s Bradley emailed the next day to say that multinational companies were disappiponted in the tax relief measures.

Deloitte partner Padraig Cronin has been cited as another source for the draft legislation.

The post Deloitte, KPMG Colluded on New Irish Tax Law appeared first on Big4.com.

On the 29th of March George Osborne dropped Lin Homer (CEO of HMRC) a wee note outlining his expectations for HMRC.

Entitled “Remit for HM Revenue and Customs 2012-13” the letter, after congratulating Homer on her appointment, sets out what he wants Homer to do.

Unsurprisingly, “maximising the collection of taxes” takes tops billing – an additional £17BN is required in fact! Coupled with “efficiency savings of 25%” by 2015 HMRC has its work cut out for it.

The government’s “flagship” policy RTI also receives a mention.

By way of encouragement, Osborne has said that he will pop over to HMRC in the coming months, to thank staff personally for their achievements (something to look forward to in the calls centres, eh folks?;)).

I do not know that Homer’s reaction to the letter has been. However, the ICAEW is a tad underwhelmed and notes that Osborne’s “great expectations” could damage its level of service if the headcount continues to drop.

Paul Aplin, chairman of ICAEW’s tax faculty, said:

“The chancellor has set HMRC a very challenging target for raising additional revenue while coping with further cuts in headcount. While fully understanding the need to cut costs across government to reduce the deficit, there must be serious concerns – based on experience over recent years – about the potential effect on service.
Further reductions in resource could easily damage prospects for the improvement in HMRC service delivery that is vital for the effective operation of the tax system. The department needs more resource, not less and if deployed effectively it should be self-funding. 

It is important that HMRC only mandate RTI when it has been fully tested and has proved itself to be operating efficiently and effectively in accordance with the Carter Principle. RTI is an ambitious, project being pursued on an ambitious timescale and it is essential that it works as intended on launch.”

As and when RTI fails, Osborne will throw Homer to the wolves.

Ken Frost qualified with KPMG London in 1988. He runs www.hmrcisshite.com

The post Georgie Porgie’s Great Expectations! appeared first on Big4.com.

By Richard Cornelisse

In the last decade, companies have increasingly automated their business processes. The most common method is by using an Enterprise Resource Planning (ERP) system. Such a set up can be hugely complex. This is definitely the case where it relates to European based indirect tax. As manual processes are subject to human error, automation could – under circumstances – result in performance improvements and savings.

A third party tax engine might be a better solution than improving the indirect tax functionality of its own ERP systems when the organization uses multiple ERP systems. Interfacing via a bolt-on could be a better alternative.  Outsourcing is a topic for a next blog.

ERP Systems

ERP systems such as SAP and Oracle either determine the VAT treatment (liability and VAT recovery) of businesses’ transactions automatically or this is a (semi) manual process.

Multinationals run often various versions of ERP systems or legacy systems without harmonization. The ERP set-up is often per business unit and thus multiple set ups per country are possible.

This could be the root cause that:

1. running of system’s exception reports to look for missed opportunities, under claimed VAT and potential fraudulent transactions is still a challenging exercise
2. a lot of manual (re)work is often needed to file the VAT reporting and reconcile the VAT numbers due to the use of multiple spreadsheets and various data sources (divisions, different systems)

The latter is interesting as spreadsheets are usually found at critical points in the audit trail
 and are designed by non-specialists with no system expertise
.

An ERP system is not just an accounting system but also provides information about planning and production as well as being able to produce invoices and various reports.

Tax Controversy Strategy

The advantage of these systems is that management information is readily accessible and that should give some food for thought for tax auditors as well. Transactions from various business units can be monitored and managed on time. Is this something to take in consideration during updating or setting up your ‘Tax Controversy Strategy‘?

A ‘Material weakness’ Audit Item

The decision to adopt a particular ERP system is usually made for business reasons whereby the VAT administration is only a minor consideration or not considered at all.

Despite that according to Sarbanes Oxley the configuration of the VAT rules in an ERP system is a ‘material weakness’ audit item (a 1% mistake or less often impacts shareholders value), in practice, it is often still overlooked. The Global Survey of ‘KPMG Benchmark 2012′ confirms again that indirect tax policies are either not documented or monitored properly.

VAT as a transaction tax is an essential element within the ERP system.  The impact of the ‘VAT Throughput‘ should be understood and managed properly within the organization (See also ‘Managing The Perception Of C-Level‘).

Performance Improvement

The advantage is that Indirect Tax functionality can be automated (full or to a certain extend) in a company’s own ERP system especially if SAP or Oracle is used. It is about mitigating of risks and reduce the amount of manual work and rework (the ‘hidden factory’).

Is the functionality of the ERP system used at full VAT capacity? What are the gaps and consequences?

The perception of Plug and Play

If you provide goods and/or services locally subject to the standard VAT rate it might be ‘Plug and Play’. That is the most simple VAT business model I could come up with.

In practice, configuration (the amount depends) is needed when companies deal cross border and/or complex business models are set up such as a centralized principal structure with for example a “Limited Risk Distributor” or a “Commissionaire”.

VAT Automation of Complex Business Models

There are all kinds of business reasons for centralizing supply chains and set up models like “Limited Risk Distributor” or “Commissionaire”. The challenge from an implementation perspective is indirect tax.

What makes it complex

Lets take LRDs/Commissionaires as an example.

LRDs/Commissionaires have neither legal ownership to the inventory during storage nor during transport as the Principal is at that stage still the legal owner. It is often the case that the Principal delivers the goods physically and directly to the final customer. This creates only one physical departure of goods (`goods issue’) in the ERP system. However, two invoices should be raised (one from Principal to LRDs/Commissionaires and one from the LRD/Commissionaire to the final customer.

In the ERP system, the correct ‘ship from’ information at the LRD/Commissionaire level might be missing so that the VAT treatment by the system is determined based on the ‘ship from’ and ‘ship to’ information present at the Principal level. In principle, for cross-border transactions this results in an incorrect VAT treatment.

Therefore, in practice, it is time consuming to correctly configure the ‘Tax determination logic’ set up. You need to know your practical workarounds, preferable in the design stage.

Even More Bottlenecks In Case of a Commissionaire Structure

A “Commissionaire model” has some more bottlenecks. A “commissionaire” is never the legal owner of the goods. From a VAT perspective, the commissionaire acts as though he were the owner and a fictitious supply takes place to and subsequently by the commissionaire.

Since according to civil law, the commissionaire does not have ownership, the commissionaire does not own any inventory not even temporarily.

That is different with the LRD as normally LRD gets ownership via flash title for a very short period. Tax technical risk analysis about e.g. “flash titles and transfer of economic ownership” is outside scope of this blog.

Based on the above the commissionaire has to issue invoices in his own name which can create problems if there are no bookings with respect to inventory.

There are all practically workarounds of course but that needs planning in time again preferably in the design phase.

For what can go wrong see “Indirect Tax Exposures Others Have Faced“.

General Overview VAT and Systems

If you like to know more about where VAT impacts the systems watch ‘Systems For Dummies‘.

Richard’s other Big4 publications

• How to Execute A Tax Strategic Plan And Be Successful
• About Market Leadership And Non Traditional Competitors
• How To Manage The Perception Of C-level And Realize Tax Objectives
• The Conflict Between ‘Actual To Budget’ Controls And ‘Budget-based Compensation Targets’
• Tax Controversy Strategy: ‘Proactively Managing The Changing Landscape’
• About ‘Business Integrity And ‘Being Inspired’
• The Indirect Tax Profession Is Evolving From An Individual To A Team Sport
• Would European Value Added Tax Work For The United States?
• US VAT Introduction Versus The Proposed Changes Of The ‘European Union’ VAT System

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

The post Centralized Business Models And ‘Indirect Tax Automation’ appeared first on Big4.com.

In my blog “The Value Of Benchmarking: Get Some Objective Evidence” I wrote that both negative as positive experiences (e.g. (the first and final) assessments, the amount of savings) would be something to register ongoing and communicate effectively within the organization. These are the benchmark findings of the own company and extremely useful for setting also the own ‘tax audit defense’ strategy. Important as their is a shift from direct to indirect taxation, increase of VAT rates and an increase of tax authority scrutiny are methods of government to balance their budgets.

Overview of Indirect Tax Objectives

Tax Planning: identify, recommend and successfully implement indirect tax projects that assist in achieving the objectives of the indirect tax department part of the business objectives.

Tax Accounting: proactively anticipate on changes in the business and outside the business and successfully communicate these changes to the concerning departments. Furthermore look after a correct implementation of these changes.

Tax Compliance: look after a correct, complete and timely Indirect Tax reporting of all entities. This includes that additional reporting relating to these Indirect Tax returns is taken into account.

Tax Governance: all corporate departments are well informed and/or have the availability of a VAT work instruction so it is clear when to consult the indirect tax department.

Support Other Departments: activities of departments that are being affected by VAT risks have been successfully identified and these departments have been well instructed to reduce these risks.

Audit Defense: roles and responsibilities have been determined who deals with the tax authorities during an audit (announcement) and tax authorities questions and procedures “how to act” (e.g. appoint one contact person, never provide documents without first making copies) have been documented and rolled out.

Tax Controversy Strategy: ‘Proactively Managing the Changing Landscape’

Developing a winning strategy to support your tax position requires having insight on how the tax authorities conducts their examination and anticipating their next move.

Some ‘Best Practice’ quotes

“be polite and cooperative, but don’t forget your rights, choose one room where auditors will be placed, don’t let them wander unattended (…) appoint one contact person to communicate with auditors and never provide documents without first making copies and list what has been handed over” Alexander Bychkov, Baker &McKenzie Russia

“give the auditor a presentation on the company and its business model to create trust” Nicole Looks, Baker &McKenzie Germany

A new trend: open dialogue between revenue bodies, taxpayers and tax intermediaries

The new trend is to have an open dialogue between revenue bodies, taxpayers and tax intermediaries. I refer to OECD promotion of ‘enhanced relationship’ (OECD report: Study Into The Role Of Tax Intermediaries). Even if the authorities have not embraced such an approach (yet), a proactive mode can not only safe time and money but result in a good relationship.

The Dutch ‘horizontal monitoring’

In 2005, the Netherlands Tax and Customs Administration (TCA) initiated a pilot ‘horizontal monitoring’ programme involving 20 of the country’s largest corporate taxpayers. At the core of the programme is a concerted effort by the TCA to build greater trust with this taxpayer constituency as a means of encouraging greater disclosure of tax uncertainties and risks.

The TCA and all participating taxpayers enter into a non-binding but written ‘agreement’, by which the taxpayer undertakes principally to “actively notify the Tax Administration of any issues with a possible and significant tax risk.” In turn, the TCA promises, having received such disclosure, to “state its views concerning any legal consequences” of the matters disclosed, and to “take into account real commercial deadlines” when doing so. Importantly, the agreement covers both uncertain tax positions taken by the taxpayer in the past, and those which it is contemplating taking in the future.

Responses to the programme have been generally positive, with the majority of participating taxpayers and of relevant tax collectors agreeing that it has resulted in more effective and efficient working relationships. (Source: OECD report: Study Into The Role of Tax Intermediaries)

Some similar initiatives of Tax Authorities

1. In 2005, the United States initiated a Compliance Assurance Process
2. In September 2005, the Irish Revenue Commissioners initiated their ‘Co- operative Compliance’ programme with large corporate taxpayers.
3. Budget 2009, Senior Accounting Officer sign off in the United Kingdom

Audit Defense – Key Considerations (overview via YouTube)

Watch Here Via YouTube an overview of the ‘Audit Defense – Key Considerations’

Richard’s other Big4 publications

• How to Execute A Tax Strategic Plan And Be Successful
• About Market Leadership And Non Traditional Competitors
• Centralized Business Models And ‘Indirect Tax Automation’
• How To Manage The Perception Of C-level And Realize Tax Objectives
• The Conflict Between ‘Actual To Budget’ Controls And ‘Budget-based Compensation Targets’
• About ‘Business Integrity And ‘Being Inspired’
• The Indirect Tax Profession Is Evolving From An Individual To A Team Sport
• Would European Value Added Tax Work For The United States?
• US VAT Introduction Versus The Proposed Changes Of The ‘European Union’ VAT System

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

The post Tax Controversy Strategy: ‘Proactively Managing The Changing Landscape’ appeared first on Big4.com.

This blog dots all the postings to the building blocks of the Indirect Tax Strategic Plan (by Richard Cornelisse) and shows what a best practice should look like. It not only about the plan to be produced, but also gives my view about implementation. That could mean that some bottlenecks have to be conquered first.

I start with the “Company’s Culture and Code of Conduct” as it is a top down approach.

This blog includes the highlights of the various postings tagged to these building blocks. More detail about how I see things can be read via clicking on the links.

Company’s Culture and Code of Conduct

From ‘Business Integrity And ‘Being Inspired’ (by Richard Cornelisse): If integrity is an important part of your organizations values, you should always act accordingly and proactively manage as leadership. It is always about doing the right thing and never bargain these values.

Leadership, Integrity, Trust…and Ski-Racing: “Without integrity, an organization is eventually doomed to failure–karma”

Greg Smith: “Why I Am Leaving Goldman Sachs: “The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for…. To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money…I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.”

Maureen Broderick: ”In a profession that sells a promise of performance versus a tangible product or service, a firm’s vision, values, and culture lie at the heart of that promise. Vision is where the firm is headed. Values are the behaviors the firm holds important, and culture is the feel, the energy, the society within the organization. Collectively, they form the core around which the business is built.”

From ’The Conflict Between ‘Actual To Budget’ Controls And ‘Budget-based Compensation Targets’’ (by Richard Cornelisse):

“A Ferrari is a beautiful, very fast and a state of the art car, but we should not put Stevie Wonder in the driver seat. He is an excellent song writer and performer but he never ever will be the next Michael Schumacher. It will be risky business if he controls the throttle”

The above might be considered a ridiculous example, but strangely enough happens often in our daily practice. The downturn might even make it worse. Why? It is because of budget-based incentive targets.

Everybody feels now the pressure and the focus is on making personal budget first. We might know the best driver, understand that he is the best option, but that does not mean we want Michael actually in the driver seat. It does not matter if Michael works for the same company or that it is in the best interest of the client. Stevie, wants to make his own comfort zone first. It is in his personal interest.

• Should we be surprised?
• Is this not part of our human nature?
• Is that not the reason we have our company culture?

Exactly, the reason why proactive management of common values is needed.

Business Strategy

The Tax Function has to contribute value to the company’s business strategy. What is the impact on business strategy of social media and technology developments and the market entry of non traditional competitors.   Are new business priorities needed?

From ”About Market Leadership And Non Traditional Competitors“ (by Richard Cornelisse): The current impact of Google and Wikipedia is already huge as much content has become less valuable or even worthless from a pricing perspective. Will search engine functionality develop further? Will more content be available and contributed on the Internet?

Adrienne Graham: “With the Internet being so widely available loaded with free information, people automatically assume that you too have to provide information for free. My response to that is go ahead and read the free stuff. But when you still find yourself lacking answers, then apparently the FREE stuff doesn’t work. You can’t come to a professional and ask them to work for free. In essence, that is what you’re doing when you ask to pick someone’s brain. How would you feel if your boss came to you and said, Hey since we can get this done from information from the Internet, I won’t be paying you today. Go ahead, let it sink in. Got that visual yet? Good. That’s exactly how I feel whenever someone wants to take me to lunch or call me to pick my brain”

Benchmarking

From A Spotlight On “Management”: About Being Ambitious And Realizing Goals (by Richard Cornelisse): Negative experiences but also positive experiences (e.g. (the first and final) assessments, the amount of savings) would be something to register ongoing and communicate effectively within the organization. These are the benchmark findings of your own company and extremely useful for your strategy moving forward.

You need to know where you want to go and set up a roadmap how to get there. Benchmark against trends in the market might be supportive in your aim. It provides an overview of the experiences of others and is useful for setting own priorities going forward. It is always interesting to get insight of what others have experienced for own validation purposes.

Watch ‘Benchmark Findings’ Via YouTube

Overview of the ‘Key Risk Areas of VAT paid and VAT charged’ and ‘System Set Up’

From ‘The Value of Benchmarking: Get Some Objective Evidence” (by Richard Cornelisse): Watch an overview of the ‘Key Risk Areas of VAT paid and VAT charged’ and ‘System Set Up and Process Errors’.

Watch ‘Key Risks’, ‘System Set Up And Process Errors’ Via YouTube

This material might be useful for (internal) communication, risk analysis or self assessments:

• “The European Union VAT system – High Level Overview” (by Richard Cornelisse)
• “Why Manage Indirect Taxes” (by Richard Cornelisse)
• “Indirect Tax Exposures Others Have Faced” (by Richard Cornelisse)
• “Audit Defense“
• “System For Dummies“
• “Surveys And research“

Setting the objectives

From Setting The Objectives Of The Indirect Function (by Richard Cornelisse):

• Tax Planning: identify, recommend and successfully implement indirect tax projects that assist in achieving the objectives of the indirect tax department part of the business objectives.
• Tax Accounting: proactively anticipate on changes in the business and outside the business and successfully communicate these changes to the concerning departments. Furthermore look after a correct implementation of these changes.
• Tax Compliance: look after a correct, complete and timely Indirect Tax reporting of all entities. This includes that additional reporting relating to these Indirect Tax returns is taken into account.
• Tax Governance: all corporate departments are well informed and/or have the availability of a VAT work instruction so it is clear when to consult the indirect tax department.
• Support Other Departments: activities of departments that are being affected by VAT risks have been successfully identified and these departments have been well instructed to reduce these risks.
• Audit Defense: roles and responsibilities have been determined who deals with the tax authorities during an audit (announcement) and tax authorities questions and procedures “how to act” (e.g. never provide documents without first making copies) have been documented and rolled out.

From A Spotlight on “Management”: About Being Ambitious And Realizing Goals (by Richard Cornelisse): At the moment that these objectives are validated,  specific goals have to be set within these boundaries. The goals have to be specific, measurable, acceptable, realistic and timely (SMART goals).

Getting support and the tools to make it happen

From ”How To Manage the Perception of C-level And Realize Tax Objectives“ (by Richard Cornelisse): In order to allocate resources to risk and reward areas that matter, the maximum level of risk appetite of the company in the worst case scenarios need to be determined. This facilitates such prioritization as defined acceptable levels of risk means that resources do not spend time on further reducing risks that are already at an acceptable level.

If you know the risk appetite, you have to identify the lowest performing indirect tax processes that have the most direct impact on the company’s business objectives (e.g. benchmark and measure). Short problem statements for the gaps found should be written. It should include an estimate of savings or the amount of hours currently lost due to rework. These statements can subsequently be prioritized and validated with top management. Various solutions are presented with cost benefit analysis, so a constructive discussion with top management can be held about what is needed to close these gaps (e.g. budget and/or resources needed or necessary change of systems, processes and controls etc).

In the worse case the gap(s) will not be closed, but at least you have achieved mutual awareness and hopefully responsibility. However, if the problem is material and addressed in the right way it more than likely it will be dealt accordingly. Why? It has become now a mutual responsibility.

From ”VAT Throughput – Calculating The Taxes“ (by Richard Cornelisse and Kelvin Hulsebos): Insight in the amount of VAT that globally has to be paid or recovered is important for creating proper internal awareness (top down, peers and bottom up), determining the risk appetite of the company and monitor as indirect tax function trends and changes. Throughput gives some insight where the scarce resources of the tax function should focus on.

Change Management:  legislative change

Tracking relevant changes across the globe can be realized via regularly monitoring these Website links (e.g. latest country updates, Global VAT rates and VIES validation, etc). Check this Blog’s Indirect Tax Newsreader often.

Richard’s postings about management of legislative change:

• “VAT Rate Increase Results In Extra Saving“ (by Richard Cornelisse)
• “European Commission – Greenpaper On The Future Of VAT – Towards A Simpler, More Robust And Efficient VAT System“ (by Richard Cornelisse)
• “Would Europe’s Value Added Tax Work For The United States” (by Richard Cornelisse and Kelvin Hulsebos)
• “My Own View” ((by Richard Cornelisse)
• “About US Tax Reform – Larry Lindsey, Former Fed Governor: “A Value Added Tax Should Be On The Table” (by Richard Cornelisse)
• “US VAT introduction: Any Lessons To Be Learned From European VAT Fraud?“ (by Richard Cornelisse and Kelvin Hulsebos)

Change Management:  business change

From a tax perspective the difference between future firefighting or being in control has to do with being involved and the timing of that involvement. A tight connection to the business units and their decision-making process is essential. Leading practice example re non routine transactions by Richard Cornelisse:

• Merger And Acquisition – Integration And Indirect Tax: Managing The Moving Parts Before, During And After A Transaction (by Richard Cornelisse )
• The intersection Of VAT And Shared Service Centers. A Site For Global Savings Or A Source For Worldwide Risk? (by Richard Cornelisse and Katie Downs)

Structure the tax function and people development

From ”The Indirect Tax Profession Is Evolving From An Individual To A Team Sport“ (by Richard Cornelisse): Due to all technological developments it is already part of our present and future. A tax technical advice has to be implemented in systems, processes and controls.  Instructions have to be given to people outside the tax function.  Alignment with the business is key for the tax function to plan in time and avoid future firefighting.

In order to challenge and support a client in his mission an adviser should besides excellent technical skills have a good understanding of communication and collaboration, project management, change management, information technology, negotiation and leadership.

These competences overall are needed to be successful. This is not only applicable for the individual adviser, but as well for an organization with the aim to achieve or maintain market leadership. It is simply no longer possible to excel in everything re global indirect tax management. That means that certain people excel in certain areas of indirect tax and the outcome of the overall team effort will make the real difference from a quality standard perspective.

Jack Welch: ”Break down barriers and improve teamwork up, down, and across organizational lines.  A considerable amount of money is lost due to disconnects or competition between groups that should be working for a common cause: providing value to customers”

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

The post How to Execute A Tax Strategic Plan And Be Successful appeared first on Big4.com.

I recently placed a candidate in a considerably lower level role than I normally do. Most of my recruiting assignments are for senior level positions with experienced executives. It’s always personally rewarding to enhance someone’s career, both professionally, financially and personally, but this recent placement gave me a different buzz. One I remember liking from earlier in my own career. It’s the great feeling of making a difference in someone’s life, probably one they’ll always remember and knowing I helped create a turning point in their careers.

This also put me in mind of experiences placing  candidates coming directly out of Big 4 for the first time. I did my fair share of these transitions in the good old pre-IPO, pre-SOX days, circa mid-late 1990’s. Hard to believe the many changes that have occurred since, from Enron to the great recession. The one thing that hasn’t changed though is how young talent feels, making the leap of faith from a public accounting firm to private industry. I’m quite sure attorneys and accountants struggle with some of the same questions when leaving the world of prominent law firms and the Big 4. After all, they’ve been groomed for success and high expectations, pitted against their peers for recognition, fostered in an environment of similar professionals; all hard working, bright and ambitious up and comers. Some see a clear path towards partnership while others dread yet another busy season.

And then someone like me comes along – whispering in their ear of opportunity, title, compensation increases, the chance to have a more structured lifestyle. Maybe they’ll work just as hard, after all I believe cranking out the hours is just ingrained in the Big 4 psyche. Regardless of the inducement, there comes a time when the right opportunity hits a nerve and the considerations of change come into play.

What makes transitioning out of Big 4 so different? In addition to their accounting firm experience usually being their first role out of a college they were recruited from, there’s the comfort level of professional commonality and equality. Everyone starts off in a comparable position, with similar skills and education. Everyone is working towards the same goal. Expectations are set and met; there are mentors and an established pattern for growth.

It’s no wonder the thought of leaving the prestigious society created in their firms is such a difficult decision. Here the CPA can rely on mentorship, interesting work and variety. Their peers share the same workload, similar challenges and are bound together in a culture of hard work and long hours. And even though they have worked with and alongside their clients, going to work for them is a completely different ball game. Contemplating submitting their work for the Auditors to review, getting involved in everything from journal entries to financials and often a big challenge in learning how to motivate and lead non professional staff.  Leaving the cocoon of a big 4 environment is a daunting proposition and let’s face it – Managers and Partners will always encourage their star performers to stay.

Despite all the inducements to stay (excluding the long hours!), Big 4 talent often does make it’s way into the private sector. Most do it successfully, embracing private industry, thriving in new challenges and learning how to lead and motivate. Transitioning into the corporate world is almost a right of passage. Their talent is welcomed and embraced whichever side of the fence they ultimately choose.

Cindy Cremona, CPC has over twenty years experience as an Executive Recruiter. Her main focus is in Accounting and Finance, primarily placing senior level roles for clients mainly in the technology sectors.

The post Musings From Cindy Cremona, CPC – Recruiter Of Big4 Candidates appeared first on Big4.com.

This Blog is about managing the perception of C-level and realize own tax objectives. Writing a set of standard indirect tax objectives is not that difficult. It is a paper exercise. Why? At the moment that these objectives are validated, specific goals have to be set within these boundaries. The goals have to be specific, measurable, acceptable, realistic and timely (SMART goals).  You need to know where you want to go and set up a roadmap how to get there. The next steps is to sell this within the own organization in order to get access to the tools to make it happen. That might mean: “Managing the perception of C-level”.

Benchmarking

Benchmark against trends in the market could be supportive. It provides an overview of the experiences of others and is useful for setting own priorities going forward. This is the first step, measuring ongoing performance the next.

The Indirect Tax Strategic Plan has various building blocks. To make it more user-friendly, the benchmark findings I gathered from Big4 surveys, are tagged to these building blocks.

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The root cause of defects

If you look at the overall picture some defects shown are the cause effect of other defects. Based on these finding, the root cause is likely the company’s culture, organizational structure, overall business processes and/or maybe a wrong perception of top management about indirect tax.

This follows from this ‘top down’ overview:

• Executive considering indirect tax not material and a high priority. The low risks evaluation of indirect tax likely results in budget constraints
• Lack of specific VAT/GST measurable performance goals visible to the CFO
• Lack of proper prioritization between lower value activities and higher value activities. Indirect Tax function has many competing priorities and insufficient time or resources
• Historically, the tax function in general focused on other areas, allowing other departments and local offices a free hand to deal with the company’s indirect taxes
• Finance and Accounting is in the majority considered accountable for Indirect Tax
• It seems that the indirect tax department is often the last to know what is going on, is forced to be the show stopper when other parts of the business thought they were are ready to ‘go live’

I refer to my guest Blog ‘The Conflict Between ‘Actual To Budget’ Controls And ‘Budget-based Compensation Targets’. That Blog dealt with company’s culture, business objectives and the conflict sometimes of personal performance targets.

Some governance and mandate needed first

If you know 1) the current state, 2) where you want to go and 3) have set up a roadmap how to get there, it is important to get a clear view of what is needed to meet these goals.

Someone wrote in literature that the first step to improve indirect tax management is to put someone in charge. Is it that easy or is that an example of one minute managership.

Assume that the significant majority of the findings are applicable to your organization. Do you want to have end responsibility under these circumstances?  Is delegating end responsibility to a new recruited global or regional leader going to contribute any positive change?

Having the responsibility without the tools is like being Michael Schumacher without a car. Not likely you are going to win a Formula One race. That means an unhappy Michael.

Accountability for indirect tax is often still in Finance & Accounting.  If you look at the findings is it likely that top management is going to support any change via issuing new policies about governance and mandate? More important, provide the new recruited or appointed indirect tax leader with the necessary tools for success such as:

• Budget
• Extra resources
• Performance evaluation of people who work outside the tax function but has a role in managing indirect taxes  (e.g. people in the finance function preparing VAT return, Shared Service Center staff re posting of AP invoices).

Without such support being end responsibility is in my view not a favorable position. If culture or organizational structure has to change, involvement of top management is mandatory. Without their support you will be on a mission impossible.

How to get their support?

Being effective and efficient at the same time

Is being fully compliant a realistic goal?

Effectiveness is the degree to which organization meets and exceeds the needs and requirement of their customer. When is effectiveness achieved? For the tax function if all risks are managed and opportunities spotted and implemented.

As indirect tax resources are normally scarce it is important that the available time is used in the most efficient and effective way. I refer to the findings about competing priorities and insufficient time or resources. Besides that managing all risks is cost inefficient and will have impact on efficiency beyond indirect tax.

Efficiency refers to the amount of resources consumed in being effective. Efficiency can be measured in time, cost, labor, or value. It is about being efficient and effective at the same time and therefore about making the right choices.

In order to allocate resources to risk and reward areas that matter, the maximum level of risk appetite of the company in the worst case scenarios need to be determined. This facilitates such prioritization as defined acceptable levels of risk means that resources do not spend time on further reducing risks that are already at an acceptable level.

Speaking the language of C-level

What are the requirements of client satisfaction of the C-level. Based on the above it seems that C-level consider indirect tax of lower priority than often the indirect tax function does. Is the cause effect misinterpretation or not understanding and speaking the same language?

The first step – to achieve mutual understanding – is to get agreement with top management on the level of indirect tax risk appetite of the company in the worse case scenario.

What do we know further about C-level?

They have to manage a lot and that means that prioritization is part of their natural skill set. It is about measure of risk and opportunity (selection via being material or not) and if indeed material what is needed to make it happen (balancing costs against gain).

If you know the risk appetite, you have to identify the lowest performing indirect tax processes that have the most direct impact on the company’s business objectives (e.g. benchmark and measure).  Short problem statements for the gaps found should be written. It should include an estimate of savings or the amount of hours currently lost due to rework. These statements can subsequently be prioritized and validated with top management.

Various solutions are presented with cost benefit analysis, so a constructive discussion with top management can be held about what is needed to close these gaps (e.g. budget and/or resources needed or necessary change of systems, processes and controls etc).

In the worse case the gap(s) will not be closed, but at least you have achieved mutual awareness and hopefully responsibility. However, if the problem is material and addressed in the right way it more than likely it will be dealt accordingly.  Why? It has become now a mutual responsibility.

How do you see this? Do you agree?

Richard’s other Big4 publications

• How to Execute A Tax Strategic Plan And Be Successful
• About Market Leadership And Non Traditional Competitors
• Centralized Business Models And ‘Indirect Tax Automation’
• The Conflict Between ‘Actual To Budget’ Controls And ‘Budget-based Compensation Targets’
• Tax Controversy Strategy: ‘Proactively Managing The Changing Landscape’
• About ‘Business Integrity And ‘Being Inspired’
• The Indirect Tax Profession Is Evolving From An Individual To A Team Sport
• Would European Value Added Tax Work For The United States?
• US VAT Introduction Versus The Proposed Changes Of The ‘European Union’ VAT System

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

The post How To Manage The Perception of C-level And Realize Tax Objectives appeared first on Big4.com.

For a long time the indirect tax profession has been an individual sport.  Due to the change of the tax market and client needs the profession evolves or is evolving in more a team sport. It is simply no longer possible to excel in everything re global indirect tax management. What has changed over the years?

The scientific method

If the mutual aim is learning and growing together, it can never be about being right or wrong. It should be about recognizing together the problem, measure the size of that problem, determine why the problem exists, and generate a set of solutions to make sure that the problem goes away. This is the scientific method we know from high school and/or university.  The daily practice was about debating and challenging each other.

I have studied tax law myself. Based on factual information provided we had to find and analyze the appropriate tax and case law, take position and defend. That meant the ability to interpret and translate the somewhat ‘foreign’ language used by the legislator and judges.

Such scientific thinking could be trained and challenged further by simply changing the factual pattern and subsequently predict the impact and generate solutions to make the problem go away or to realize the opportunities.

Our profession will become a team sport

The next step is to think about an approach how to confirm any of these new risks or opportunities in an efficient and effective way at client’s level. What do I need to know to check whether the risk or opportunity exists for a specific client? The endgame is the ability to effectively communicate the solution, both internal (own organization) as external (clients, tax administration).

We learn a lot from others especially if we disagree, take position and keep an open mind. We might have forgotten to practice this scientific ‘teamwork’ method structurally in our day to day practice, but I believe the future role of an indirect tax professional needs such an approach to make a difference. Why? I believe our profession will become more a team sport.

The changing world from an adviser perspective

What is different nowadays?

When I started about 19 years ago, indirect tax specialists were scarce, hardly any in-house indirect tax functions and content that nowadays is free available on the internet could still be sold.

“In the land of the blind the one-eyed man is king”

The adviser could work more reactive.  A comparison can be made with a doctor:  patients in the waiting room, diagnose the patients, find the problem and give some pills to remediate or optimize the situation.  We had full access of all kinds of VAT planning schemes and the tax profession – both buyer as seller – were both much more product focused. We as advisers were targeting new patients. That is how I did my first baby steps in the profession. An approach that I nowadays dislike.

When I started the (start up) salaries were much lower and that meant lower charge out rates. The cause effect of increase of salaries is one of the reasons why tax professionals nowadays have to grow up faster. Higher salary means higher charge out rates and from a client perspective higher bills means higher expectation. We need to deliver higher quality and practicality. That is a fact of life.

The changing world from a client perspective

Besides the introduction of anti abuse law, clients themselves and also their needs have changed. The patients have become doctors themselves via setting up own in-house indirect tax functions.  Via tax industry networks tax knowledge is shared and communicated within industry. The result is that the service offering and the level of ability of an external adviser had to evolve as well.

Change of client needs also took place because of factors such as:

• globalization,
• the use of technology,
• scandals like the global credit crisis and Enron,
• increased tax authority scrutiny, etc.

Discussions about accountability put not only the external adviser but also the in-house indirect tax function in a more proactive mode. I refer to my Blog of March 5.

My guest blog ‘About Market Leadership And Non Traditional Competitors‘ was about social media and technology developments and the impact on both clients needs and the service providing industry in general.  Technology development will simply change clients needs further.

One man’s weakness, is another man’s strength, let’s team up

Because of these changes tax technical expertise has become more a basic skill from an adviser perspective. The soft skills of the adviser are and will become the key differentiator.  Due to all technological developments it is already part of our present and future. A tax technical advice has to be implemented in systems, processes and controls.  Instructions have to be given to people outside the tax function.  Alignment with the business is key for the tax function to plan in time and avoid future firefighting.

In order to challenge and support a client in his mission an adviser should besides excellent technical skills have a good understanding of communication and collaboration, project management, change management, information technology, negotiation and leadership.  These competences overall are needed to be successful. This is not only applicable for the individual adviser, but as well for an organization with the aim to achieve or maintain market leadership.

The indirect tax profession has been an individual sport for a very long time.  It is still about the individual tax technical strength and personal practical experience and the supporting staff are often trained by that individual.

Without any doubt many are and will remain successful. It is, however, my opinion that the future indirect tax professional will need a different approach.

Why? It is simply no longer possible to excel in everything re global indirect tax management. That means that certain people excel in certain areas of indirect tax and the outcome of the overall team effort will make the real difference from a quality standard perspective.

“Break down barriers and improve teamwork up, down, and across organizational lines.  A considerable amount of money is lost due to disconnects or competition between groups that should be working for a common cause: providing value to customers” Jack Welch

That means:

“One man’s weakness, is another man strength, let’s team up” Richard Cornelisse

• Do you agree with the above?  
• Is teaming supported and stimulated within your organization? 
• How does your people performance matrices evaluate teaming? 
• What are the Key Performance Indicators? 
• What is the weight ‘in practice’ of team effort in overall performance evaluation?
• Looking back do you need any improvement?

Richard’s other Big4 publications

• How to Execute A Tax Strategic Plan And Be Successful
• About Market Leadership And Non Traditional Competitors
• Centralized Business Models And ‘Indirect Tax Automation’
• How To Manage The Perception Of C-level And Realize Tax Objectives
• The Conflict Between ‘Actual To Budget’ Controls And ‘Budget-based Compensation Targets’
• Tax Controversy Strategy: ‘Proactively Managing The Changing Landscape’
• About ‘Business Integrity And ‘Being Inspired’
• Would European Value Added Tax Work For The United States?
• US VAT Introduction Versus The Proposed Changes Of The ‘European Union’ VAT System

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

The post The Indirect Tax Profession Is Evolving From An Individual To A Team Sport appeared first on Big4.com.

What do I consider important from a business perspective?  I am rather new in the blogger society – published my first post on my own site on February 12 – got today my 2,500 views – and it is nowadays all about writing, introducing and getting introduced. It is about maintaining and building new relationships. My personal Blog is my brand-name (it is also my own name) and you have to be selective and careful to avoid any reputational damage. That means all the hard lessons of the real world are applicable.

This is what someone wrote me as way of first introduction:

“I do not lie, cheat or steal, nor do I tolerate those who do”

He started with mentioning his values and what he expects from me. That message still inspires me. It is all about doing the right thing and if that is lacking walk away as fast as you can. It triggered me to write a blog: “Richard, Why Are You Doing This?“. It was published on March 9, 2012.

Why I Am Leaving Goldman Sachs?

Social Media is great as on March 19, I received a Tweet of Ed Oakley ” Leadership, Integrity, Trust…and Ski-Racing“.

Greg Smith: “Why I Am Leaving Goldman Sachs: “The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for…. To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money…I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.”

The great thing about the above is that it confirmed my own state of mind.

Do great artists really steal?

In the academic world we have experienced lack of integrity as well. Once respected professors are outcasted now. They either fabricated their scientific analysis or copy paste other people’s work without source mentioning.

Can this happen in our tax profession? If you publish an article in tax literature and have not provided any contribution, have no practical experience in the matter and the only personal aim is to establish the perception of being a subject matter expert in the market, is that integer?

What is the similarity with the professor who was outcasted? You not only lie to yourself, but you lie to your audience and that is not the way to maintain and start relationships.

If integrity is an important part of your organizations values, you should always act accordingly and proactively manage as leadership. It is always about doing the right thing and never bargain these values.

“In a profession that sells a promise of performance versus a tangible product or service, a firm’s vision, values, and culture lie at the heart of that promise. Vision is where the firm is headed. Values are the behaviors the firm holds important, and culture is the feel, the energy, the society within the organization. Collectively, they form the core around which the business is built.”  Maureen Broderick

Where did I get my inspiration?

I am a fan of Jack Welch, Steve Jobs and Richard Branson. They inspire me. Understanding the bigger picture is what I consider important in order to function effectively. I like to know a common aim first and contribute value to make it happen. We simply learn from others especially if we disagree, take position and keep an open mind.

In the start up phase of my own site I read other Blogs simply to find a role model. I have found one in Chris Brogan. It is about common values.

My own mission statement

“How often do you see me selling directly to you? How often do I ask for your money? I ask for your time sometimes, but I usually trade you that time for something of value to you. Do you know why? I give away over 90% of what I do for free. There’s a method to this. I do it because my primary goal is to earn your sense of community. I want you to feel like we are going to learn and grow together. I want you to share with others that you’ve learned something. I want you to be successful. And there’s a reason for this, too. If you are successful, then two things will happen. One, you will do better and that just makes me happy. Two, if you’re successful, you’ll think of me when there’s an opportunity that might be of benefit to me, or to both of us. That’s the opportunity” Chris Brogan

Chris inspires me. My own mission statement is already written: this time all copy paste or as Picasso said steal.

Richard, why are you doing this?

I can repeat in my own words what Chris wrote and try to improve. For a Dutch guy that is definitely “being overambitious” and even if I would write it in my native language first, this will still not be possible. Why? His way of thinking – how it is written down – is exactly expressing what I feel. Don’t change the lyrics, a singer song writer would say.

My Guest Blog”About Market Leadership And Non Traditional Competitors” was about vision. I gave my view on the impact of technology development on among others our profession and ended with a provocative statement about automating the adviser. I consider the use of ‘humor” important. However, I believe you can automate a lot more than we currently can comprehend. Having an open mind was the message I wanted to get across. What likely can not be automated is what we feel and how we interact. That is why it is and remains a people business. The conditions for success are “business integrity’ and ‘being inspired’.

Like to end with a quote:

“I want you to feel like we are going to learn and grow together” Chris Brogan

Richard’s other Big4 publications

• How to Execute A Tax Strategic Plan And Be Successful
• About Market Leadership And Non Traditional Competitors
• Centralized Business Models And ‘Indirect Tax Automation’
• How To Manage The Perception Of C-level And Realize Tax Objectives
• The Conflict Between ‘Actual To Budget’ Controls And ‘Budget-based Compensation Targets’
• Tax Controversy Strategy: ‘Proactively Managing The Changing Landscape’
• The Indirect Tax Profession Is Evolving From An Individual To A Team Sport
• Would European Value Added Tax Work For The United States?
• US VAT Introduction Versus The Proposed Changes Of The ‘European Union’ VAT System

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

The post About ‘Business Integrity And ‘Being Inspired’ appeared first on Big4.com.

My Guest Blog of March 13, 2012 “About US Tax Reform – Larry Lindsey, Former Fed Governor: A Value Added Tax Should Be On The Table” dealt with US VAT introduction as possible option to combat the deficit.

This Guest Blog is about the malfunctions of that “European” VAT systems and proposed improvements.  Based on the law of the handicap of a head start if indeed it is decided to implement a national US Value Added Tax,  it is better to implement “the  remediated” version and improve further of course.

The European Commission – objective statement about future of VAT

“Value added tax (VAT) constitutes a major source of revenue for national budgets of the Member States of the European Union. However, the VAT system, which is based on legislation adopted at European level and applied at national level, suffers from numerous shortcomings which do not make it fully efficient and compatible with the requirements of a true single market.

The aim of this consultation is to launch a broad based debate with all the stakeholders on the evaluation of the current VAT system and the possible ways forward to strengthening its coherence with the single market and its capacity as a revenue raiser whilst reducing the cost of compliance. 

The Green Paper covers in particular the treatment of cross border supplies, as well as other key issues addressing tax neutrality, the degree of harmonisation required in the single market and reducing “red tape” whilst ensuring VAT revenues for Member States”

The European Commission published its Final Report Dated December 6, 2011.

VAT future: simpler, more robust and efficient

An Extract Of Ernst And Young Tax Alert – Click Here For Complete Briefing 

“To move the current VAT to the future system, the Commission wants to implement the following short-term measures as a first step: 

• Setting up an EU VAT web portal that provides information in several languages on basic issues such as registration, invoicing, VAT returns, VAT rates, special obligations and limitations to the right of deduction
• In 2012, publishing the Guidelines agreed by the VAT Committee on EU legislation and explanatory notes on the new legislation before its entry into force, in order to inform businesses 
• Setting up a tripartite EU VAT forum (involving the Commission, Member states, and stakeholders) in the course of 2012
• Proposing a standardized VAT declaration (VAT Return) to be available in all languages and optional for businesses across the EU by 2013
• Ensuring the smooth introduction of the mini one-stop shop scheme (registration in a single EU Member State) in 2015 and envisaging a managed broadening of the concept from 2015 onward - Ernst & Young

I have a lot of questions and to be honest hardly any concrete answers. That is not that strange as we need more detail first. It is maybe all too soon, but we know that a small (legislative) change can have a big impact.

Can you imagine the impact when you completely change an entire VAT system, such as abandon the ‘origin principle’ and replace that by ‘destination principle’. I am aware of the VAT jargon used but to simplify, it means that the country that is allowed to tax the transaction changes. All supplies will be taxed for VAT in the country where the supply to the final consumer occurs. Systems, processes and detective and preventive controls will have to be amended.

It is about being well prepared, look at the bigger picture, plan and set already some key priorities where possible.

The EU VAT web portal, Guidelines and tripartite EU VAT forum are good initiatives and fit in the trend of tax authorities having an open dialogue with the tax payer. I refer to OECD ‘Enhanced Relationship’. Such a portal might for many tax authorities be the first baby steps to go in the direction of such an ‘enhanced relationship’. I am the opinion that such a relationship is the right strategically way for the authorities to manage that tax payer’s are in compliance with tax law and reporting requirements.

For every positive, there might be a negative that needs proactive management.  Does an open dialogue negatively impact tax risk management? Does it result in an increase of tax risks? That could be if such a dialogue results in for example higher penalties or an increased risk of (joint) liabilities. Will tax payer’s”Good Faith” towards the authorities even more difficult to prove? If you receive ‘how to do it’ instructions (EU VAT portal, Guidelines), can you still take the position that you could not have known? I don’t think so.

• How do you see this?
• What is the impact on company’s processes and controls?
• How do you see the trend of ‘enhanced relationship’ develop?
• What is the impact on Tax service offerings in general’?
• What can we expect more?

The above EU VAT Code is a regulation to replace the present VAT Directive. A directive has to be translated in national regulation first and that has as cause effect that Member States might have different views or interpretations. Root cause is delegation of authority. Besides that some ‘directive’ provisions are optional and that means that not in every country the same VAT rules apply.

A VAT code applies directly in all Member States as it becomes national law immediately and would increase harmonization between the Member States. Flexibility in view, interpretation or the optional model does in principle no longer exist. At least that is the aim of such an EU VAT code.

It triggers already the following questions:

• Is the playing field of the future indirect tax professional going to expand from an one country ‘VAT’ expertise to an European Union league perspective?
• How about litigation and national interpretation of the code? Nowadays the national court decides whether questions are raised to European Court of Justice, will that change?
• What is the impact of collaboration among tax administration?
• What about cultural differences from a people perspective?
• What is the impact on tax profession as in-house tax function can use its own indirect tax expertise in 27 countries?
• What is the cost benefit analysis on setting up an own in-house function indirect tax function compared to an outsource model to external advisers?

When is change going to take place?

I am aware that many questions are taking it too far. But if you consider this a brainstorm exercise you need to post first as many ideas as possible.  The next phase is about categorizing and selecting.

We don’t have to hurry as this will take a couple of years before this gets into force. It is all about politics and the right timing again. Last but not least at the end the Council of all Ministers have to approve.  The real political challenge would be to first agree on and implement the ‘All for One and One for All’ principle. A bottleneck could be the competition for tax revenues and the perception that somebody else wins. When somebody wins, somebody else must lose.

Back to the US introduction

Is the above also a bottleneck for the US?

Maybe everybody could learn something from the Canadian system.

“A benefit of an Canadian HST-styled VAT for the US is that the federal government computes the tax attributable to each province through a formula (based on census data, other economic indicators). There is no need for businesses or the tax authority to separately track the taxes of each province on returns or on invoices. As a result, such a VAT structure can more easily accommodate states wishing to have different rates from each other (which could well be a deal breaker otherwise). That said, it is of course simpler if the individual states all buy in to the same rate — if the rate is the same, and there is an HST-type formula driven revenue allocation to states, there would be less need to develop complex place of supply rules to determine which state’s VAT rate applies.”  Brian Wurts, PwC Canada

Richard’s other Big4 publications

• How to Execute A Tax Strategic Plan And Be Successful
• About Market Leadership And Non Traditional Competitors
• Centralized Business Models And ‘Indirect Tax Automation’
• How To Manage The Perception Of C-level And Realize Tax Objectives
• The Conflict Between ‘Actual To Budget’ Controls And ‘Budget-based Compensation Targets’
• Tax Controversy Strategy: ‘Proactively Managing The Changing Landscape’
• About ‘Business Integrity And ‘Being Inspired’
• The Indirect Tax Profession Is Evolving From An Individual To A Team Sport
• Would European Value Added Tax Work For The United States?

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

The post US VAT Introduction Versus The Proposed Changes Of The ‘European Union’ VAT System appeared first on Big4.com.

Methods of governments to balance their budgets are a shift from direct to indirect taxation, increase of VAT rates and tax authority scrutiny.

“The global spread of Value Added Taxes (sometimes referred to as Goods and Services Taxes) has been the most remarkable development in taxation over the last 50 years. Operated in less than 10 countries in the late 1960s, VAT now raises one fifth of the world’s tax revenue and still more countries are adopting it. The increasing importance of VAT as a source of government revenue is likely to continue as countries deal with fiscal consolidation pressures in the wake of the economic crisis while seeking to restore growth.”  Jeffrey Owens Director, Centre for Tax Policy and Administration at the Organisation for Economic Co-operation and Development

From an economic point of view the question is what the impact will be on the economy in the downturn. Increase of prices and often the same or even lower available consumer’s budgets will result in less spending.

Levy of VAT and Impact on shareholder value:

“(UK) Budget 2012: Greggs shares fall on VAT blow. More than £20m was wiped off the value of bakery company Greggs on Thursday, following the Government’s announcement that all hot takeaway food would be subject to VAT.” The Telegraph

US Value Added Tax is considered

The effectiveness of indirect tax revenue is – based on considerable amount of tax literature and Reuters‘ article of March 14, 2012 (by Stella Dawson and its quotes are used) - also seen in the United States. Several prominent commentators, politicians past and present have suggested that the introduction of a VAT or GST may be the “least worst” option open to the US government to raising revenue and to combat the deficit.

“Very large changes are necessary. They need to be structural, they need debating, and this is the year to start the process,” Paul Volcker, former head of the Federal Reserve

” About tax reform: the one thing that unites people right now. It is not only central to reducing the budget deficit and increasing growth, but also vital to economic fairness and social cohesion in a society that has largely lost faith in the political system. The richest 1 percent cannot expect a tax cut, and the U.S. budget deficit cannot be reduced by cutting spending alone. A creative approach to taxes must be part of the solution. We should be open to every possibility”  Larry Summers, former U.S. Treasury Secretary and Democrat.

“a value added tax should be on the table. We need a combination of tax increases and spending cuts. But we need quality rather than quantity,” Larry Lindsey, a Republican and former Fed governor

“Growth-oriented tax reforms would generally involve shifting revenue from corporate and personal income taxation or social security contributions onto consumption and property taxes, including housing taxation.” Recent OECD analysis of growth- oriented tax reforms concluded that “A revenue-neutral tax reform that shifts the balance of taxation more toward consumption and recurrent residential property taxes could [...] strengthen the growth of output over the medium term.” as “… corporate taxes are the most harmful type of tax for economic growth, followed by personal income taxes and then consumption taxes, with recurrent taxes on immovable residential property being the least harmful.” (OECD (2010), Tax Policy Reform and Economic Growth, OECD Publishing).

Some highlights of European Union Value Added Tax system

What does it actually mean: an ‘European’ Value Added System?

In its most elementary form a business will charge VAT (‘output tax’) on its sales (‘supplies’), but will be entitled to deduct the VAT (‘input tax’) that it has paid on its costs and purchases (a multi-stage tax). We note that VAT can only be deducted if the invoice meets the invoice requirements (the conditions for this are summarized in national VAT Act) and is reclaimed in the right country (e.g. Italian VAT must be reclaimed in Italy) in the correct period. If these requirements are not met there is a substantial risk of additional VAT assessments increased with penalties and/or interest as a result of e.g. a VAT audit.

In the European VAT system one of the basic principles is that input VAT (VAT paid) can be off sett against output VAT (VAT charged). In case of a surplus of input VAT a refund of tax is claimed and often paid by the authorities.

Neutrality can only be achieved – better is the word earned – if certain formal and material requirements are met.

That means in practice that input VAT deduction and output VAT has to be managed separately to avoid substantial VAT assessments, penalties and interest payments. It is risky business to monitor only the balance between output VAT and input VAT.

Allowing businesses the opportunity to collect and retain large amounts of tax can leave the system open to fraud and manipulation by dishonest taxable persons.  VAT fraud is for a while a key issue for all European Member States.

“11 percent of VAT revenue is lost annually through fraud – principally ‘missing trader’ or ‘carousel fraud’ – which equates to in the region of €100 billion” PwC report

Macroeconomic effects – National Retail Organization reports

The National Retail Organization published their report about introduction of a VAT system and the macroeconomic effects.  It was on their request written by Ernst & Young LPP, Tax Policy Advisers LLC and Baker Institute for Public Policy and Economic Department, Rice University.

The executive summary:

• “As a consumption-based tax, an add-on VAT would be shifted forward to consumers through higher consumer prices. As a result, private consumption would fall. By increasing consumer prices, the VAT also reduces real or inflation-adjusted wages, which would cause labor supply to fall as well.
• An add-on VAT would have particularly adverse effects on the retail industry. There would be an especially pronounced reduction in retail spending because nearly all retail goods would be subject to double-digit VAT rates, while many other consumer purchases would be exempt under a narrow-based VAT. In addition, some consumers would evade the tax – experience in other countries suggests 12 percent non-compliance with the VAT – driving up the VAT rate.
• Moreover, an add-on VAT leaves the economy considerably worse off than a similarly-sized reduction in government spending on income transfers. With an add-on VAT, GDP would initially be lower and the economy would lose jobs; by comparison, GDP and employment would increase with a reduction in spending. Although lower deficits and debt would have positive long-run economic effects for the economy, most middle income Americans who are working age or older at the time of enactment of the VAT would be worse off.
• Perhaps the most troubling aspect of a deficit-reducing VAT is that, if enacted in the near future, its negative effects on GDP, consumer spending, and employment would occur in the face of the current economic climate of weak economic growth, high unemployment, and low consumer confidence. The near-term drop in output, loss of jobs, and sharp decline in consumer spending described by this report would raise additional economic worries, rather than shoring up the weak economy. With the CBO projecting unemployment to not fall below 7 percent until 2013, the initial reduction in employment from a VAT, estimated to be roughly equivalent to 850,000 jobs, would make full economic recovery much more difficult.” - National Retail Organization -
  

  The NRO complete report

Timing

Is the time right?

Some quotes from Reuters article:

“While tax reform as part of a budget overhaul is unlikely immediately after the November elections, progress needs to be made in crafting solutions” Larry Summers, former U.S. Treasury Secretary and Democrat.

“There is a realistic chance that Republicans and Democrats after the election would be ready to strike a bipartisan accord on the budget deficit and taxes” Robert Rubin  former U.S. Treasury Secretary and Democrat”

• Based on the macroeconomic data is it smart to introduce a VAT system in the downturn?
• Is the first priority not to realize economic growth, establish trust in the market and therefore should the focus not be on findings ways to increase consumer spending?
• Is the introduction of a VAT system not counterproductive?

“Raising the standard VAT rate has often been considered as the easiest way to increase revenues from the tax, particularly at a time when many governments are seeking ways to address large fiscal deficits. Some countries have even explicitly linked rate increases to the objective of fiscal consolidation. For instance the Slovak Republic has temporarily increased its VAT rate until the deficit will be reduced to below 3% and in Poland the VAT rates will automatically increase if the public debt to GDP ratio increases above a certain level.” Jeffrey Owens Director, Centre for Tax Policy and Administration at the Organisation for Economic Co-operation and Development

How do you see this?

Lobby groups

When somebody wins, somebody else must lose. Without any doubt indirect tax is the right and maybe only way to combat the deficit, unless of course the US government is going to cut their spending substantially. I don’t consider that likely.  Do you?

Who might feel a loss and what do politicians need to manage to make it happen?

Besides the end consumer, companies might consider it a loss. The implementation and compliance costs (e.g. managing ongoing the VAT numbers) and associated tax risks are bottom line costs of companies and a decrease of corporate income tax is above the line.  The question is whether the shift from direct (e.g. lowering corporate income tax) to indirect tax introduction is seen still as a positive.

The retail industry in general will face substantial costs and it is not a real surprise that the negatives are highlighted in the executive summary of the report of National Retail Organization. It seems that the lobby against has already started. The drop of Greggs share value is a good war story to use in that quest.

Public support for a VAT introduction – assuming it exists – will likely be lost when anti-fraud/tax evasion legislation causes disruption to daily business and is the cause effect of substantial implementation costs.

How do you see this?

Richard’s other Big4 publications

• How to Execute A Tax Strategic Plan And Be Successful
• About Market Leadership And Non Traditional Competitors
• Centralized Business Models And ‘Indirect Tax Automation’
• How To Manage The Perception Of C-level And Realize Tax Objectives
• The Conflict Between ‘Actual To Budget’ Controls And ‘Budget-based Compensation Targets’
• Tax Controversy Strategy: ‘Proactively Managing The Changing Landscape’
• About ‘Business Integrity And ‘Being Inspired’
• The Indirect Tax Profession Is Evolving From An Individual To A Team Sport
• US VAT Introduction Versus The Proposed Changes Of The ‘European Union’ VAT System

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

The post Would European Value Added Tax Work For The United States? appeared first on Big4.com.

In one of my blogs on my personal website, I took the position that the tax profession evolves from an individual sport to a team sport. It is no longer possible to excel in everything re global tax management. Due to all technological developments it is already part of our present and future. A tax technical advice has to be implemented in systems, processes and controls. Instructions have to be given to people outside the tax function.  Alignment with the business is key for the tax function to plan in time and avoid future firefighting. That means that certain people excel in certain areas of tax and the outcome of the overall team effort will make the real difference from a quality standard perspective.

If teaming is part of a company’s business objective, the company’s “informal” culture or budget-based compensation targets can be the bottleneck to realize such teaming.

Is it good to have Stevie Wonder in the driver seat?

“A Ferrari is a beautiful, very fast and a state of the art car, but we should not put Stevie Wonder in the driver seat. He is an excellent song writer and performer but he never ever will be the next Michael Schumacher. It will be risky business if he controls the throttle” Richard Cornelisse

The above might be considered a ridiculous example, but strangely enough happens often in our daily practice. The downturn might even make it worse.

Why?

It is because of budget-based incentive targets. Everybody feels now the pressure and the focus is on making personal budget first. We might know the best driver, understand that he is the best option, but that does not mean we want Michael actually in the driver seat. It does not matter if Michael works for the same company or that it is in the best interest of the client. Stevie, wants to make his own comfort zone first. It is in his personal interest.

• Should we be surprised? 
• Is this not part of our human nature? 
• Is that not the reason why we have our company culture? 

Exactly, the reason why proactive management of common values is needed.

“In a profession that sells a promise of performance versus a tangible product or service, a firm’s vision, values, and culture lie at the heart of that promise. Vision is where the firm is headed. Values are the behaviors the firm holds important, and culture is the feel, the energy, the society within the organization. Collectively, they form the core around which the business is built.”  Maureen Broderick

Budget to actual exercises

Before I continue, I consider budget exercises still a necessity, especially for large organizations that need to manage the performance of a lot of people. The budget process provides top management some level of control.  Actual to budget exercises are and will remain an important part of people’s performance targets.

It is more about being aware of the pitfalls and its impact. After the budget is set, manipulation of the internal environment to make budget – at all costs – might results in disconnect and internal competition. Such behavior is in my view in conflict with the company’s business strategy such as growth, increase market share or market leadership.

One of the reasons could be that the personal performance -meeting budget-based incentive targets- is considered of a higher priority than the company’s own business objectives.  If this is something structural it becomes the company’s “informal” culture and result in:

1. power struggle over clients (protectionism, claiming clients and wins)
2. own “people first” attitude (no best team approach)
3. service offerings proposed that are actually outside the own area of expertise (no standard quality, increased liability, pricing variation)
4. lack of willingness to share relevant client related information (protectionism)

Budget-based compensation targets might also themselves create an incentive to underperform even in times of growth. Substantially exceeding budget could give discussions about how much the budget has been sandbagged last year with the result you getting higher targets next year. To avoid this, positive results might be carried forward to next year.

Jack Welch’s view

Jack Welch has his own view about budgeting.  He considers it number crunching and a waste of time that could be used in a more productive way. It is all about internal politics and time could be used better by focusing on the external environment: the customer.

What is the amount of time spent on budgeting?

The Beyond Budgeting Round Table, an industry research organization, estimates that the average corporation spends four months and 20-30% of senior executives’ and financial managers’ time on the budget.

“Making a budget is an exercise in minimization. You’re always getting the lowest out of people, because everyone is negotiating to get the lowest number”

” The budgeting process at most companies has to be the most ineffective practice in management. It sucks the energy, time, fun and big dreams out of an organization. It hides opportunity and stunts growth. In fact when companies win, in most cases it is despite their budgets, not because of them” Jack Welch

I like and admire Jack Welch and this kind of statements.

Budgeting a waste of time

Jack Welch’s complaint was that he was being sandbagged in the planning process itself.  Waste of productive time starts during setting the budget.  It is all about managing an internal conflict. The aim of the leadership is to get the budget as high as possible, the manager has an opposite strategy: “negotiation to the lowest”. That is the side effect of budget-based incentive targets.

Such a behavior – “passionately defending modest projections of mediocre performance” – conflicts with business objectives, when the company’s mission statement is to increase its market share and/or maintain or achieve market leadership. Is that not strange?

Jack Welch’s hope was not a better way to negotiate budgets, but an end to the negotiation. However, is it likely that managers propose themselves aggressive goals? If not, does the company’s culture have to change?

Assume that the company’s business plan was to grow with 15% overall and one of the business units exceeds and realizes 25% growth.  The budget is made. What does that say about the responsible manager? Did he do a good job? Should he earn a big bonus? That all depends. If you focus internally only a confirmative yes is the obvious answer. However, it could simply be underperforming when the growth is the cause effect of unexpected increase of demand in the market (external factors).  The same is applicable if competition shows much higher growth figures.

In an ideal world everybody knows how competition is performing, how the teams are set up and what the client portfolio is.  The own strength and weaknesses have been analyzed and measured ongoing. A gap analysis is made with competition and the gaps found can be prioritized and validated with top management. The impact of these gaps on the company’s overall business objectives are discussed. For the various solutions cost benefit analysis are made, so a constructive discussion with top management can be held about what is needed to close these gaps.

In the worse case the gap(s) will not be closed, but at least you have achieved mutual awareness and hopefully responsibility.

The above example is not only applicable for external advisers, but this method could be used by in-house (indirect) tax functions during their budget negotiation (about external spending) and/or getting extra resources.

The strength of this approach is that you look forward and focus on what still can be managed.  Budget to actual is a ‘look back’ exercise.

Maybe the best of two worlds is the winning combination.  Life is often about a good compromise.

How do you see this all?

Richard’s other Big4 publications

• How to Execute A Tax Strategic Plan And Be Successful
• About Market Leadership And Non Traditional Competitors
• Centralized Business Models And ‘Indirect Tax Automation’
• How To Manage The Perception Of C-level And Realize Tax Objectives
• Tax Controversy Strategy: ‘Proactively Managing The Changing Landscape’
• About ‘Business Integrity And ‘Being Inspired’
• The Indirect Tax Profession Is Evolving From An Individual To A Team Sport
• Would European Value Added Tax Work For The United States?
• US VAT Introduction Versus The Proposed Changes Of The ‘European Union’ VAT System

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

The post The Conflict Between ‘Actual To Budget’ Controls And ‘Budget-based Compensation Targets’ appeared first on Big4.com.