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Depending on the sponsorship at hand of senior management we could start with writing a tax strategic plan for the short and long term and perform assessments to measure performance and set priortities. However, if the startpoint is a zero measurement we show that such beginning could have an endgame.
Below scope, description and PowerPoint shows an eagle eye view
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In response to increased scrutiny from senior management, tax administration and other regulators, many businesses are now formally documenting their indirect tax strategy and implementing formal processes to evaluate and approve planning ideas. A strategy may be defined as:
"A plan or method for obtaining some goal or result. The responsibility of management to identify the key processes of their organization, measure their effectiveness and efficiency, and initiate improvement of the worst performing processes."
For leading companies, a tax strategy is a dynamic framework that is shaped by internal and external drivers. An indirect tax strategy should cover all business locations and should be aligned to the overall business strategy.
The benefits of a well-defined and documented Indirect Tax Strategy that is linked to the overall business strategy include:
The strategy and the group’s overall approach to indirect tax compliance, risk management and indirect tax planning should be clearly documented, signed-off my senior management and regularly reviewed to ensure that consistent minimum standards are defined and implemented. The approach should also implement an effective communication plan, as part of the change management process, to ensure all impacted entities understand what is required of them and clarify their commitment to the strategy.
Document and challenge the overall indirect tax strategy of the group to ensure there is clear linkage to the business strategy and how the indirect tax strategy contributes value to the business’s overall objectives.
Define the indirect tax risk management framework of the group covering processes both within and outside the tax function. This includes the development and maintenance of a group indirect tax risk register, and the review & oversight of processes of decentralized and overseas locations. Define the group’s overall indirect tax risk tolerance parameters which should be applied to all significant transactions.
See for further detail our chapters 'An indirect tax strategic plan', 'Structure the tax function', 'Setting the objectives of the tax function, 'Roadmap to indirect tax function effectiveness' and 'VAT control framework'.
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.
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.
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.
Tax department utilizes leading edge tools and technologies in an integrated manner fully leveraging the functionality offered.
To apply an efficient data gathering process including standardized input by other departments and multiple use of data.
Easy access to data and the majority of tax data is collected once and reused by departments.
Spreadsheets are replaced by technology tools and systems to make information more efficient available.
The ability to contribute and exchange knowledge is technology enabled and fully supported by the tax department.