Richard Cornelisse

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Change VAT management

In Business Strategy, Indirect Tax Strategic Plan on 14/05/2015 at 1:51 pm

The tax function should ascertain proper implementation and determine the impact of changes in businesses, laws and regulations on implemented tax planning.

Operational changes have a tax consequence due to the change in transactional flows and the change in a company’s assets, functions and risks profile. Important is to ensure that the new operating model is not only implemented correctly from a tax perspective, but also ensures that business processes are tax aligned realizing support of the business in the areas of compliance, finance & accounting, legal IT systems, indirect tax and regulatory matters. That means teaming is a necessity with various work streams.

Technology-related tax risk: understand and address the potential harms and benefits of (new) technology

The selling arrangement may change from a buy/sell to broker/agent or vice versa. Goods purchasing may become centralized. The flows and storage locations of goods may change. In any of these cases, new VAT registration obligations may be created in different countries. Likewise VAT could be chargeable by different entities and the recoverability of the VAT could change and different billing flows are created.

That means that tax risk management continually influences operating decisions and strategic direction and indirect tax professionals are appointed to support multidisciplinary teams in projects and programs. That should ascertain timely input from indirect tax function before transaction, changes in activities, operations, structure and ensuring that unacceptable tax risks will be prevented where possible.

VAT should be considered in every aspect of the migration 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.

Written by Richard Cornelisse, one of the articles published on Global Indirect Tax Management

Sponsorship and management buy-in

In Benchmark, Business Strategy, Indirect Tax Strategic Plan on 12/05/2015 at 3:47 pm

Effectiveness and efficiency of operations, the reliability of tax reporting, and compliance with applicable laws and regulation

Assume that a Tax Function of a company should work under the same market principles as tax advisers and that the in-house customers are the executive management, finance, procurement, IT, logistics, internal audit, HR, legal etc.

Customer satisfaction is achieved by managing the expectations and relationships of internal customers, tax authorities, external auditors and other stakeholders

The first is to determine the requirements of client satisfaction of senior management (C-level). Based on the above it seems that C-level executives consider indirect tax of lower priority than the indirect tax function generally does. Is the root cause misinterpretation or not understanding and speaking the same language?

The next step – to achieve mutual understanding – is to get agreement with senior management at the level of indirect tax risk appetite of the company in the worst-case scenario.

  • Review the categories of VAT risk the company is facing as well as the likelihood of occurrence, its potential impact and mitigation measures
  • Review the company’s risk appetite and risk tolerance and the way in which risks is measured

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.

Indicate how long the problem has been going on, describe the gap between the current and desired state, describe the impact of the problem, perceived solution or root cause. It should also include an estimate of savings or the amount of hours currently lost due to rework.

Identify a problem, measure its magnitude, determine why the problem exists, and generates a set of solutions to ensure that the problem goes away

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 for change of systems, processes and controls etc.).

In the worst 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 will more than likely be dealt with accordingly, because it has now become a mutual responsibility.

Written by Richard Cornelisse, one of the articles published on Global Indirect Tax Management

Structure the tax function

In Business Strategy, Indirect Tax Strategic Plan on 09/05/2015 at 10:19 am
For a long time, the indirect tax profession has been an individual sport. Due to changes in the tax market and in client needs, the tax profession has evolved into more of a team sport. What has changed over the years?

The changing world from an adviser’s perspective

What is different nowadays? 

When I started around 20 years ago, indirect tax specialists were scarce, there were hardly any in-house indirect tax functions and content, which nowadays is freely available on the Internet, could still be sold.

“In the land of the blind the one-eyed man is king”

An adviser could work more reactively. A comparison can be made with a doctor who has patients in the waiting room, can diagnose the patients, can find the problem and can then prescribe some pills to remedy the situation. We had full access to all kinds of VAT planning schemes, and the tax profession—both the buyer as the seller—was much more product-focused.

As advisers, we were targeting new patients. Many consultancy firms companies sold VAT content-based knowhow. In the past, that system was closed. Only a few organizations had access to specific content – often gathered via their worldwide network of people. At that time and under those circumstances, the content still represented significant added value for the client and therefore market value.

The system evolved from closed to open due to internet innovations such as search engines, and more people started to contribute and share content. Information can be posted, forwarded, shared and communicated. This is all free of charge: all kinds of content can be searched, found quickly and is available 24/7 as long as you have internet access.

Let’s do an exercise. Look back 5-10 years ago and think about the basic content that clients were willing to pay for and that content providers are now providing free of charge. Use Google’s search engine and enter that same question. What do you see? Google probably already has the answer to your question.

The consequence is that prices are going down and that the life cycle for this kind of paid product is at an end. Everybody can search and find it himself. The current impact of Google and Wikipedia is already huge since, from a pricing perspective, much content has become less valuable or even worthless.

When I started, the (starting) salaries were much lower, and that meant lower charge-out rates. Increased salary is one of the reasons why tax professionals now must grow up more quickly. A higher salary means a higher charge-out rate, and from the client’s perspective, a higher bill means higher expectations.

We must deliver higher quality and higher practicality; this is just a fact of life.

The changing world from the client perspective

In addition to the introduction of anti-abuse law, clients themselves (and their needs) have also changed. To continue our analogy of the doctor, the patients have become doctors themselves by setting up their own in-house indirect tax functions.

Thanks to tax industry networks and social media, tax knowledge is shared and communicated within the industry. The result is that the service and the ability of an external adviser have had to evolve as well. Changing client needs have also resulted from factors, including:

  • globalization
  • the use of tax technology
  • scandals such as the global credit crisis and Enron
  • increased tax authority scrutiny, etc.

Discussions regarding accountability put both the external adviser and the in-house indirect tax function in a more proactive mode.

One man’s weakness, is another man’s strength

Because of these changes, technical tax expertise has become more a basic skill from the adviser’s perspective. The soft skills of the adviser are—and will become—the key differentiator. Due to all of the technological developments, this is already part of our present and future.

Technical tax advice must be implemented in systems, processes and controls. Instructions must be given to people who are outside of the tax function. Alignment with the business is essential for the tax function to plan in a timely manner and to avoid future firefighting.

In order to challenge and support a client in his mission, an adviser should possess—in addition to excellent technical skills—a clear understanding of communication and collaboration, project management, change management, information technology, negotiation and leadership.

All of these skills are needed in order to be successful.

The indirect tax profession has been an individual sport for a very long time. The profession is still about the individual’s technical tax strength and personal practical experience, and the future generation of advisors are often trained by that individual.

It is my opinion that the indirect tax professional of the future will need to take a different approach.

Why? 

It is simply no longer possible to excel at everything regarding global indirect tax management. Thus, some people can excel in certain areas of indirect tax, and the overall outcome of the team’s effort will make the real difference from a quality standard perspective.

In other words: “One man’s weakness, is another man strength, so let’s team up”

The right skills and priorities

For large companies, it is often not a question of the right skills, but more whether those skilled team members are sufficiently focused and whether they have the time and information needed to plan effectively. More often than not, tax functions spend their time on necessary compliance and reporting matters, or collecting and reworking the information needed for planning and forecasting.

The indirect tax department needs to consist of the right number of tax personnel and the right level of skills and capabilities to be successful. In order to realize the mission statement in the tittle of this paragraph the following also needs to be assessed to test whether set objectives can be actually realized.

  • Are the right tax competencies available?
  • Is enough skilled tax personnel available?
  • Is training and specialization available?
  • Is there access to external expertise in a timely manner?
  • How is attracting and retaining experienced indirect team managed?
  • Is there sufficient budget available to realize objectives, considering the tasks and responsibilities assigned to our tax department?

Written by Richard Cornelisse, one of the articles published on Global Indirect Tax Management

Big 4 surveys: VAT risks too high, VAT controls too low

In Business Strategy, Indirect Tax Strategic Plan on 09/05/2015 at 10:11 am

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.

The importance of indirect tax has increased over the last couple of years. While the rates for direct tax, corporate income tax, are decreasing, the rates for indirect tax keep rising. At multinational companies we’re easily talking about amounts of over 5 billion euros of indirect tax flowing through the books.

Yet according to big4 surveys, the related control mechanisms are still inadequate. Not only can an error in the accounts lead to major additional tax assessments and substantial penalties, with amounts like these, it can be devastating for the reputation of a listed company.’

The global Big4 bench mark studies among multinationals (clients and relations), inter alia, show that most companies have not yet developed an effective VAT/GST approach.

Tax authorities, due to technological innovations, have become increasingly better in executing their tax audit. The probability that the Tax Authorities will issue additional assessments and penalties in the near future because errors in indirect tax are detected, increases by the day.’

These Big4 surveys are useful as they give insight into what others are facing or have faced and how you could improve yourself.

A cash in and a cash out?

VAT is a tax on consumption. It is collected in stages by the businesses (or intermediaries) and is fully borne by the final purchaser. As a consequence, VAT is a transactional tax with the potential to impact all transactions with suppliers and customers.

Measuring risks is often based on the balance between output VAT and input VAT and not on the total amount of VAT/GST throughput (also called VAT ‘under management’).

The findings listed in below YouTube are not surprising as often the question is asked what risk management even has to do with VAT/GST. The reasoning behind this question is that VAT/GST is typically cost neutral for most businesses: “a cash in and cash out” scenario. However, every indirect tax function knows that deductible input VAT and liable output VAT have to be managed separately to avoid substantial VAT assessments, penalties and interest payments.

It is a risky business to monitor only the balance between output VAT and input VAT. Neutrality can only be achieved – better is the word ‘earned’ – if certain formal and material requirements are met.

CFOs apparently still focus more on direct tax than indirect tax. This is interesting as from a tax revenue perspective the current trend is a shift from direct tax to indirect tax by decreasing direct tax rates and increasing VAT/GST rates.

From Global Indirect Tax Management: A roadmap to indirect tax function effectiveness

Written by Richard Cornelisse

Benchmark your VAT control framework

In Audit Defense, Business Strategy, Indirect Tax Strategic Plan on 30/04/2015 at 4:14 pm

Benchmark information, templates, modules and approaches are shared to support VAT process improvements and meet business objectives

The added value of benchmarking the VAT function against best practices in the market is to gain objective evidence to what has already been achieved but also what still needs to be done to get there.

Our ‘free’ community Global Indirect Tax Management (GITM) website shares benchmark information about the effective management of VAT. It shows the area where risk based controls are to be expected and in addition shares templates and methods for self assessments purposes.

The article ‘Roadmap to Indirect Tax Function Effectiveness’ summarizes the GITM content:

  1. Why is management necessary and what needs to be done?
  2. How to realize objectives via best practice approaches, tools and methodology?
  3. How to increase indirect tax function’s effectiveness?
  4. Achieving stakeholder satisfaction
  5. Writing a business case / problem statement and calculate Return on Investment (ROI)

A webcast sample

Non-routine transactions

One of the chapters relate to non-routine business transactions such as:

Those significant transactions will always exceed the company’s risk appetite and these articles explain why, what and how it should be managed.

The following selection of articles supports overall effective VAT management: Company’s ‘governance’, ‘operation’ and ‘infrastructure’ and ‘VAT Control Framework‘.

A webcast sample

All our ‘learning lab webcasts’ are in English and contain subtitles in YouTube mode.

We hope you appreciate our initiative. GITM is continuously updated via input of the reader’s community all over the world.

Your feedback is therefore welcomed.

Audit committee agenda: Tax risk in focus

In financial audit on 28/04/2015 at 10:42 pm

KPMG has provided a valuable reference re: 2015 audit committee topics, providing insight into company risks and the importance of governance.

The following extract, from the report provided as reference, addresses tax risks in the following manner:

Pay particular attention to the global “tax transparency and morality” debate being driven by notions of “fairness”and “morality,” and consider the impact of tax risk on the company’s reputation.

Tax is no longer simply an expense to be managed; it now involves fundamental changes in attitudes and approaches to tax globally.

Ensure that tax decisions take into account reputational risks and not simply whether the company has technically complied with tax laws.

Monitor OECD and governmental efforts globally to address perceived transfer pricing abuses.

Help shape the company’s tax risk appetite, and establish a clear communications protocol for the chief tax officer to update the audit committee regularly. Help ensure the adequacy of the company’s tax resources and expertise globally.

Highlights of future trends:

  • Transparency
  • Reputation risk
  • OECD monitoring
  • Transfer pricing abuse
  • Tax risk appetite

To the extent the Audit Committee has not inquired into BEPS, tax risk frameworks, OECD Actions and transfer pricing governance,  a proactive effort should immediately begin to align the Board with the MNE’s tax risk posture and ongoing governance.

It is imperative a robust tax risk framework is established and communicated effectively.

Source:  Audit committee agenda: Tax risk in focus — WordPress.com.

M&A Integration and Indirect Tax: managing the moving parts before, during, and after a transaction

In Business Strategy, Indirect Tax Strategic Plan, Processes and Controls on 16/04/2015 at 4:41 pm

The aim is to provide insight into these risks and build into the contract adequate coverage in case risk history repeated itself. Armed with this information, the buyer can negotiate a reduction of the selling price or secure indemnification from the identified risk.

Although fundamental tax due diligence is still a requirement for the purchase of a company or assets, it is only the opening chapter.

Equally important are exploring and thinking through options for structuring the indirect tax profile and how it will function in the organization post acquisition and throughout implementation and integration.

Note that the webcast has subtitles in English.

Richard H. Cornelisse

Webcast the Intersection of VAT and Shared Service Centers

In Indirect Tax Strategic Plan on 12/04/2015 at 9:51 am

Many companies look for ways to improve processes, manage costs, increase functionality and customer satisfaction,  and extract additional value.

One approach that is growing in popularity is the migration to a shared service center model. As varied as the drivers for and uses of such a model may be, there is one common denominator that is too often missing from the strategic or planning elements of the shared service discussion — indirect tax. And although these tax considerations may not be among the issues that drive a shared service decision, tax can certainly give rise to some significant and costly challenges. That is particularly true of value added tax.

Note that the webcast has subtitles in English.

Richard H. Cornelisse

Webcast about realizing indirect tax objectives

In Indirect Tax Strategic Plan on 27/03/2015 at 11:11 pm

In this webcast, based on slides that we normally use during our workshops, we show how the company’s business control framework could bring the right VAT message across to senior management.

This might facilitate in obtaining extra indirect tax resources and budget but also in an upgrade of roles and responsibilities. The final outcome will be that the different stakeholders work together on issues that exceed the company’s risk appetite and that risk based VAT controls are implemented, aligned with the company’s business control framework.

Workforce efficiency is achieved as company’s resources do no longer spend time on further reducing indirect tax risks that are already at an acceptable level.

This way of communication we explain in the webcast will support business cases for future investments.

Note that the webcast has subtitles in English.

Richard H. Cornelisse

VAT Cross Border Rulings (CBR) – European commission

In Indirect Tax Strategic Plan on 27/03/2015 at 9:56 pm

What is it?

A pilot project has been set up to allow taxable persons to obtain advance rulings on the VAT treatment of complex cross-border transactions.

This project has started in June 2013 and is now scheduled to continue till 30 September 2018.

Several Member States are participating in this project, set up by the EU VAT Forum.

Taxable persons planning cross-border transactions between two or more of the participating Member States can ask for such a ruling with regard to the VAT treatment of the transactions they envisage.

Which Member States participate and how to ask for such a ruling?

More detailed information regarding the Member States currently participating, the conditions and the procedure can be found in the information notice.

Schermafbeelding 2015-03-27 om 21.49.54

Access

More information on Cross Border Rulings

The current list of cross-border rulings is available on line.

VAT Cross Border Rulings (CBR) – EU Pilot project

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