By Richard Cornelisse, Big4.com Guest Blogger
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:
- Obtaining clarity around the business’ indirect tax risk appetite, which should facilitate the identification of planning opportunities appropriate to the business’ wider commercial objectives
- Providing the business with a consistent and efficient review and evaluation process over tax-related matters
- Raising the profile of Indirect Tax with key business and Finance stakeholders
- Monitoring and strengthening governance procedures in decentralized and overseas jurisdictions
- Identifying improvements in indirect tax-related systems, processes and controls
- 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.
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:
- 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).
- Businesses obtain an understanding of the nature and scope of their tax risks in a statistically reliable, quick and efficient way.
- 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.
- Less “vertical” audits and lower costs to be incurred on using business resources for such audits
- Lower penalties
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.
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)
Management Of Legislative Change
|Tracking relevant legislative changes across the globe via regularly monitoring these ‘Website Links’ (e.g. latest country updates, Global VAT rates and VIES validation, case law search). The site’s ‘Tax Newsreaders’ capture automatically the latest indirect tax and direct tax news across the globe:
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.