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How to realize objectives via best practice approaches, tools and methodology?
Setting realistic objectives is the starting point for any successful change effort. In order to increase indirect tax function effectiveness it is important to set SMART objectives.
Effectiveness is the degree to which an organization achieves the objectives. When is effectiveness achieved? For the tax function this is if all risks are managed and opportunities spotted and implemented. Efficiency refers to the extent to which time, effort or cost is well used for achieving the objectives.
As indirect tax resources are normally scarce it is important that the available time is used in the most efficient and effective way. Beside the fact that managing all risks is cost inefficient, it will have negative impact on efficiency beyond indirect tax (e.g. time spent by finance department on VAT matters). It is about making the right choices.
In order to allocate resources to risk and cost saving areas that matter, the level of risk appetite of the company has to be determined. This facilitates prioritization in the deployment of resources. Having defined acceptable levels of risk leads to resources not having to spend time on further reducing risks that are already at an acceptable level.
The resources and budget is aligned with the outcome of a risk assessment. Most of our time on high risk areas. The efficiency and effectiveness of the indirect tax function is periodically measured and compared with financial and operational KPI’s. This is discussed in review meetings and corrective actions are identified.
Sometimes percentages are used to prove the apparent level of control. The most famous is the 80-20 rule. Another example is statements like 95% of our transactions are compliant. These numbers can cause misperception of senior management when the overall feeling within the business is that the company is in control. For potential impact of such error rates, we refer to VAT throughput calculation described below.
An example - What does the following statement say about risk management: tackling master data can contribute to getting over 80% of your invoices VAT compliant. If 80% of these invoices qualify as a low risk and 20% exceed the risk appetite level of the company if it goes wrong, the solution supports efficient deployment of employees, but does not support the achievement of risk management objectives.
Note that currently I assumed that the 20% is a high risk. In practice, of course this should be investigated first and measured to become useful from a management perspective.
Keep a logbook – risk register – of all identified inconsistencies. 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.
This all allows tax managers to set the right priorities and take measures timely
We combine technical knowledge with industry understanding and knowhow of technologically advanced tools and methodologies available in the market or developed by ourselves.
Technology-related tax risk: understand and address the potential harms and benefits of (new) technology.
Ascertaining proper IT support for ensuring efficient, timely and reliable reporting.
VAT should be considered in every aspect of the process, from concept through completion and beyond. Managing by design — 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.
Although the potential application is just to the UK, you will clearly want to consider being consistent across jurisdictions.
The tax department objectives and strategies are aligned with the company’s business objectives. Updates take place periodically.
Without a proper tax policy it depends on your personal influence within your organization to kick-start a change. Often that results in a fragmented approach, as not all stakeholders will be convinced. The outcome is that this will negatively impact defining standardized and global controls.
To ensure that group companies act consitently globally and to ensure that group companies benefit from best practices applied by other group companies, but also to ascertain acquaintence with policies and subsequent appropriate application of tax policies across the group.
Policies, procedures, working instructions and manuals are accessible and distributed to relevant employees.
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.
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:
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.
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.
Do not spend time on further reducing risks that are already at an acceptable level.
Tax department professionals are appointed to support multidisciplinary teams during non routine transactions and or substantial business transactions.
Lack of support by management means that any improvements in quality are often temporary. The aim is that management will be encouraged not only to support change, but to become actively involved in making it happen.
Identify the key processes of their organization, measure their effectiveness and efficiency, and initiate improvement of the worst performing processes.
In order to allocate resources to risk and cost saving areas that matter, we determine together the level of risk appetite that the company considers (non)acceptable.
Having defined acceptable levels of risk leads to resources not having to spend time on further reducing risks that are already at an acceptable level.
If the startpoint is a zero measurement we could show that this beginning could have an end game: how a tax strategic plan for the short and long term should look like and what needs to be done to get there.
A split should exist of roles, functions and responsibilities between tax department and the business are well documented in manuals, procedures and working instructions.