Tax 'Audit Defense' Strategy support


What we offer

  • Assess and improve company's tax audit defense strategy
  • Dispute resolution
  • Pre-filing agreements
  • Reportable transaction disclosures
  • Voluntary disclosure
  • Record retention processes
  • Representation and litigation with authorities
  • Settlement


Statutory Audit work will never be part of what we do as an organisation, therefore we will never be in a position where audit conflicts our work. As a result, we can be confident that audit independence conflicts will never arise during the course of our work or during future tax audits. We have as well a business network of senior tax lawyers  at (international and national) law firms when considered needed (e.g. opinion letters, etc.). 

See for further detailed information Tax Audit DefenseTax Risk Management and Tax Trends.

For questions please contact us


Audit Defense Objectives

Tax controversy considerations and requirements are built into the preparation of the tax return and those responsible for tax controversy review tax returns to verify tax positions are properly disclosed, presented and documented.

An overview of some best practice approaches:

  1. There is a process for managing tax positions and documentation
  2. Documentation is updated throughout the life cycle of an tax position
  3. Workflow/document management tool supports the process
  4. The tax function seeks proactively to engage with tax authorities and tax policy makers on a global basis to establish strong relationships in all jurisdictions in which the business operates
  5. Developing a winning strategy to support an tax position requires having clear insight about your tax policies and execution, how the tax authorities conducts their examination, anticipate next moves, etc.
  6. Standard global processes exist for tax enquiries and litigation with supporting documentation stored in a central repository

Tax authorities peeking at your data

 


An non-exhaustive overview of questions that could be useful as a guideline

  1. What is the nature of the desired relationship between taxpayer and tax authorities?
  2. Who decides what resources to allocate to audit issues?
  3. What are the typical blockers to managing audit information?
  4. What are the audit approaches of the tax authorities?
  5. What is the impact of any new approaches?
  6. What information has to be shared mandatory on tax authorities request (understanding the rules of the game)?
  7. What is the company's strategy re disclosing exposures?
  8. Why is the audit conducted?
  9. What is the time schedule and scope?
  10. What is the financial impact re any non compliance?
  11. Is there a reputational risk that needs to be considered?
  12. How can the audit be more streamlined or even accelerated (e.g. how to set up a joint tax audit plan)?
  13. Is there a tax policy to maintain an audit summary sheet (outstanding issues, status etc)?
  14. What is the number and amount of penalties assessed or paid on tax assessments?
  15. What is the number of unanticipated exposure assessed or paid and what is the root cause?
  16. What is the cost of audit defense?

Risk process



Take aways 

  • Set up a project charter that will take effect preferable during feasibility but ultimately during design
  • Write a business case and problem statement
  • Define scope of the project
  • Define objectives and goals of the project
  • Involve stakeholders and define priorities
  • Set measurable milestones
  • Ensure that the right sponsors provide buy-in.
  • Identify (project) risks and how to manage them
  • Jointly validate and refine the project plan and develop a roadmap to success
  • Hold regular meeting to track progress of the various work streams

VAT should be considered in every aspect of the process, from concept through completion and beyond.

Looking at any process or transaction from end to end and factoring in all the requirements and controls essential to designing and optimizing a compliant VAT process.

The key to success in the management is the ability to translate tax knowledge into workable business processes.

With indirect taxes intertwining through the day- to-day operations of a company—raising sales invoices, moving inventory, paying suppliers, collecting cash—indirect tax risk can have a distinct and domino-like effect on the commerciality of an organization.

More than 80% of businesses are still using spreadsheets to manage their VAT compliance in at least one jurisdiction in which they operate, despite tax authorities around the world investing in better tools.

The SAF-T standard, originally created by the OECD (similar as BEPS), is intended to give tax authorities easy access to the relevant data in an easily readable format for both corporate income tax as VAT.

What if there are glitches in your data, input errors, empty fields, awkward descriptions in fields or apparent inconsistencies?

Identify the lowest performing indirect tax processes that have the most direct impact on the company’s business and tax objectives. These are then targeted for improvement. Generate and select a set of solutions to improve the performance.

The tax department risk management strategy differentiates between strategic, operational, financial and compliance risks and contains detailed action plans for managing these risks. Managing risk is about making decisions at all levels of an organization, to limit the effect and likelihood of threats happening and to increase the effect and likelihood of opportunities.

Assess that tax advice given is also correctly implemented:

  • Factual pattern has not change
  • Procedures and risk monitoring functions accordingly
  • Configured in system(s) or manual processes
  • etc.


And impact of changes in business, laws and regulations on implemented tax planning.

In order to quickly gain insight into the level of tax risks (i.e. calculation of the potential assessment), statistical sampling can be used. By selecting a few elements (euros), the reliability of the composition of tax items can be determined to a high degree of certainty.

If not correct, the tax authorities might seek to recover tax due from this supplier via a levy of a tax assessment. If the applicable VAT rate is 25%, the tax assessment will be 25/125 of the consideration charged. This assessment will be increased with interest and penalties to determine the total tax burden.

In order to solve a problem, we also have to identify it completely, and not just settle for the most apparent symptom of that problem.

In order to fix a problem, we have to first understand the root cause thoroughly. We have to accept the possibility that the problem involves far more than what is immediately apparent and will require more work than is estimated at the beginning. 

Define the causes of defects, measure those defects, and analyze them so that they can be reduced.

  • How did the results happen?
  • Why did they happen?
  • What specifically caused them to happen?

An ERP review should highlight where the VAT configuration could be improved or if additional control measures should be added to the business’s Tax Control Framework.

In order to get senior management's buy-in for change and accept indirect tax priorities it is important that proper visibility exist of the amount of VAT/GST under management in the key jurisdictions.

To avoid any reputation damage and negative publicity around taxes, through building a tax control framework.

The internal tax function should always have insight into the areas for attention through this logbook. The risk register should contain the following labels: number, name of the risk, risk definition, cause for the risk to occur, risk category and the risk owner.

  • Apple’s and Coca Cola’s tax assessment might exceed $2,5 bn
  • Material and reputational risk
  • Will ‘tax assurance’ mandatory be reviewed by External Auditors
  • What information will be requested?
  • What will be the impact on Internal Audit?
  • How will review likely take place (e.g. Big Data discussions)
  • What is the overlap with tax authorities tax audit approach?

Ascertain that unacceptable but existing tax risks will be identified.

The tax department consists of the right number of tax personnel and the right level of skills and capabilities.

Creating and maintaining an efficient, effective, pro-active, highly skilled tax department identifying opportunities and managing tax risk and thereby creating value

To develop and apply a people development, recognition and retention model and to allocate resources in line with employee skills and prioritized business requirements.

Individual career development plans created and maintained and career paths for tax professionals to senior roles within and outside tax department encouraged.

The added value to involve the tax department is understood by internal customers (e.g. business, legal, procurement, supply chain, etc).

The efficiency and effectiveness of the tax department is periodically measured and compared with financial and operational KPI's. Interaction with the business is evaluated and improvement points are identified and action plans executed.

The cost effectiveness of the tax department is periodically measured. Outsourcing is considered as an option for routine work.

The quality of the output of the tax department is periodically assessed both internal and by external parties (internal audit / independent testing / external parties).

A systematic approach exists to tax planning using consistently applied criteria and sufficient consideration is given to the extent and type of work carried out by external advisers. Tax planning is applicable to cash flow planning and impact analysis of changes in business and tax laws.

The resources and budget is aligned with the outcome of the tax risk assessment: tax resources spent most of our time on high risk areas. Ensure that tax department has sufficient resources and budget to fulfill its role and carry out the corresponding responsibilities.