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.
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”
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.
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’.
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.