Richard Cornelisse

Posts Tagged ‘Tax Function’

Change company’s indirect tax culture for the better

In Business Strategy, Indirect Tax Strategic Plan, Processes and Controls on 16/07/2014 at 12:00 pm

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

1174766_40509785To evaluate your role in customer service, you should define first your customer, both external and internal.

Who depends on the indirect tax service?

Everybody who receives a service or a product is a customer. This includes end users, other departments, subcontractors, and regulators.

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

We have to ensure that the internal processes meet customer requirements on every level; and that to the extent an internal service provider is also a customer, their requirements have to be met as well.

It seems according to Big4 surveys that senior management consider indirect tax of lower priority than the indirect tax function generally does.

Is the root cause misinterpretation, not understanding and speaking the same language or is from a senior manager’s perspective indirect tax risks already at an acceptable level?

To achieve mutual understanding – it will be important to get agreement with senior management what the level of indirect tax risk appetite actually would be of the company in a worst-case scenario.

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.

  • Identify the key indirect tax processes, measure their effectiveness and efficiency, and initiate improvements of the worst performing processes
  • Identify a problem, measure its magnitude, determine why the problem exists, and generate a set of solutions to ensure that the problem goes away.

Short problem statements for the gaps found should be written. They should include an estimate of savings or the amount of hours currently lost due to rework. These statements can subsequently be prioritized and validated with senior management.

Various solutions are presented with cost-benefit analysis, so a constructive discussion with senior 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 as visibility exists why a higher level strategic business objectives are not being met and senior management should see the need to start fixing broken processes.

A good way to estimate the potential value of a project/solution is to imagine how much you could save if the problem was completely eliminated.

  • Hard Savings: reduce expenses and result in financial improvement
  • Soft Savings: financial benefits that may occur, but are not a direct result of the product, solution etc
  • Potential Saving: are hard savings but require some action or decision to be become realized (e.g. go ahead after feasibility study)

An example of a Taxmarc™ ‘Return on Investment‘ overview

return-on-investmentBy Richard Cornelisse

 

Global Indirect Tax Management

In Audit Defense, Benchmark, Business Strategy, EU development, Indirect Tax Automation, Indirect Tax Strategic Plan, Processes and Controls, Technology, VAT planning on 14/09/2012 at 7:26 pm

Indirect Tax Strategic Plan

Iresponse 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:

  1. Obtaining clarity around the business’ indirect tax risk appetite, which should facilitate the identification of planning opportunities appropriate to the business’ wider commercial objectives
  2. Providing the business with a consistent and efficient review and evaluation process over tax-related matters
  3. Raising the profile of Indirect Tax with key business and Finance stakeholders
  4. Monitoring and strengthening governance procedures in decentralized and overseas jurisdictions
  5. Identifying improvements in indirect tax-related systems, processes and controls
  6. 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:

  1. 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).
  2. Businesses obtain an understanding of the nature and scope of their tax risks in a statistically reliable, quick and efficient way.
  3. 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.
  4. Less “vertical” audits and lower costs to be incurred on using business resources for such audits
  5. Lower penalties

Statistical Sampling

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.

Data Analytics

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)


By The KEY Group specialized in ‘Business Control, ‘Information Technology’ and ‘Indirect Tax Performance’

CEO, Richard Cornelisse

Action programme for customs in the European Union for the period 2014-2020 (Customs 2020)

In EU development, Technology on 03/09/2012 at 7:37 pm

On 29 June 2011, the Commission adopted a proposal for the next Multi-Annual Financial Framework for the period 2014-2020: a budget for delivering the Europe 2020 Strategy proposing among others a new Customs programme.

The Customs 2020 programme will contribute to the Europe 2020 Strategy for smart, sustainable and inclusive growth, by strengthening the functioning of the customs union.

The customs union protects the financial interests of the Union and its Member States collecting duties, fees and taxes.

It requires that goods originating from third countries comply with Union legislation before they can move around freely within the Union.

This implies the management of large trade volumes on a daily basis – handling 7 customs declarations every second – requiring customs to strike a balance between the facilitation of trade for business and the protection of citizens against risks to their safety and security.

This can only be achieved through intense operational cooperation between customs administrations of the Member States, between them and other authorities, with trade and other third parties.

The proposed programme will support the cooperation mainly between the customs authorities but also with other parties concerned.

It is the successor programme of the Customs 2013 programme which ends on 31 December 2013.

The proposed programme will support customs cooperation in the Union clustered around human networking and competency building, on the one hand, and IT capacity building on the other hand.

The first cluster allows for the exchange of good practices and operational knowledge amongst the Member States and incidentally other countries participating in the programme.

The latter enables the programme to fund appropriate IT infrastructure and systems that allow customs administrations in the Union to evolve to fully-fledged e-administrations.

The main added-value of the programme is generated by enhancing the capacity of Member States in raising revenue and managing increasingly complex trade flows, while cutting costs in developing the tools for these purposes.

Read more: EUR-Lex – 52012PC0464 – EN.

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.

Taxes In The Boardroom

In Audit Defense, Benchmark, Business Strategy, Indirect Tax Strategic Plan, Processes and Controls, Technology on 29/07/2012 at 2:38 pm

With increased regulation, a heavy state and local tax burden, and election uncertainty, today’s corporate boards are increasingly focused on tax risk management.

Ultimately, it is the board with oversight of the company’s tax policies and actions.

As a result,  boards are adding skilled tax resources to its seats.

Because tax issues have material impacts on earnings and cash flows, today’s board agendas include topics such as:

  • Tax function resources and adequacy of skills, data and software to support the function;
  • Tax risk and corporate governance;
  • Expiring attributes and tax provisions;
  • Cross-jurisdiction taxing authority enforcement and audits;
  • Uncertain tax position management and disclosure;
  • The legislative landscape and tax reform; and
  • Information reporting and withholding

Senior tax executives have regular seats in the audit committee meetings where they should be prepared to address:

  • How is management keeping current on tax issues and the potential for changes in tax policy?
  • How does the company monitor changes in tax legislation and tax policy (domestic and foreign)?
  • Does the company have adequate resources (funding and skills) to address responsibilities and opportunities related to the changing tax policy and legislative landscape?
  • How can legislative changes and tax policy affect the company’s effective tax rate and financial reporting?
  • Are the company’s tax disclosures in its financial reporting accurate, understandable and complete?
  • When is tax consulted by operations — before or after proposed transactions?
  • What are the company’s most significant tax risks related to process and technical issues?
  • What were the results of recent audit activity?
  • What do the results say about the tax function?
  • What assumptions are embedded in transfer pricing, UTP, and establishing reserves?

In addition, organizations with a sound tax risk management structure share some or all of these characteristics:

  • An internal audit function which includes tax audit plans
  • A deep integration of organizational IT resources and risk management policies with tax software
  • Organizational level process optimization which doesn’t stop before it reaches tax
  • Appropriate training and skill redundancy in tax personnel
  • Tax personnel performance measurements that are aligned with tax risk management policies

The tone at the top that a tax savvy board directs to properly address tax risk will maximize stakeholder value in many ways and it critical to sustaining compliant, yet minimized tax expenditures. Does tax have a seat in your boardroom?

To hear what other progressive tax departments are doing, read the entire article “CFOs Warm to More Frequent Tax Talk.”

Taxes In The Boardroom : ONESOURCE Blog

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EUROPA – Press Releases – Algirdas Šemeta European Commissioner /Brussels 11 July 2012

In Tax News on 11/07/2012 at 3:13 pm

Statement Following Commission Proposal To Protect Financial Interests Of The EU

Today’s proposal ties in to the overriding theme in the EU today.

Just as we are united in our shared economic interests, so we must be united in safeguarding them. Greater coordination of national policies is not an option – it is a requirement for our common well-being.

This is as true for the protection of EU funds as it is for re-building national economies.

We cannot share a common pot to invest in infrastructure, create jobs, support our farmers and promote research, and yet take 27 different approaches to protecting the money.

This is becomes all the more evident when we see that the more lapse approach in some Member States is undermining the more diligent work of others.

The statistics tell it all. Conviction rates for fraud range from 80% to as low as 14%, depending on the Member State in question.

And penalties for the same crime range from many years in jail to a mere fine, depending where you are in the EU.

If ever there was an incentive for fraudsters to exploit European borders to their advantage, this is it.

We therefore need a more unified, harmonised stance in criminal law when it comes to protecting the EU’s financial interests and tackling fraud.

OLAF

At EU level, we have a robust framework in place to protect the EU budget. And it is one that the Commission is constantly working to reinforce.

In addition to multi-level rules, controls and audits for EU funds, we have the European Anti-Fraud Office. Since 1999, OLAF has investigated around 5000 cases of suspected fraud involving EU money.

It has become a cornerstone in protecting our common budget and in fighting fraud. Moreover, work is underway to make OLAF even stronger and more efficient, through the reforms that I proposed last year.

However, OLAF is only one cog in the machine – albeit a very important one.

If the Member States don’t follow up on OLAF’s findings;

If they don’t actively pursue suspicions of fraud involving EU funds;

If they don’t adequately penalise such offences;

Then the fraudsters win.

And when fraudsters win, the honest tax-payers lose.

Limitation Periods And Confiscation

The proposal that we are presenting today therefore seeks to close national loopholes.

It seeks to create a more harmonised and more effective approach to deterring and punishing fraud.

And it seeks to send a clear message that fraud will not be tolerated, regardless of where it takes place in the EU.

In addition to the sanctions and common definitions that Viviane has just outlined, today’s proposal sets down minimum statutes of limitation.

At the moment, national statutes of limitation are adapted to the needs of fighting national fraud cases. However, they are often insufficient for cross-border investigations, given the extra time and complexity these involve.

So our proposal will greatly facilitate investigators and prosecutors, by providing them with adequate time to do their work.

We have also included provisions for the confiscation of goods linked to the offences in question. This links up with Commissioner Malmstrom’s proposal earlier this year on the confiscation and freezing of criminal assets.

Confiscation will increase the chances of recovering illegally used funds, which is essential in protecting the EU budget.

Conclusion

To conclude, let’s remember what we are ultimately talking about today.

We are talking about upholding two fundamental principles that must underlie all policies in a democratic society: Justice and Fairness.

Justice in the form of an even-handed approach to fraud, wherever it occurs in Europe.

We need punishments that fit the crime and a clear deterrent to those considering de-frauding the EU budget.

And fairness for the honest citizens, who are left out of pocket when EU money is lost to fraud.

Because the EU budget is not for “Brussels”. It is for villages, towns and regions; workers, students and pensioners across Europe.

It is a key contributor to our growth agenda. And we must take every measure we can to protect it.

EUROPA – Press Releases – Algirdas Šemeta European Commissioner for taxation, Customs Union, Anti-Fraud, Audit and Statistics Statement following Commission proposal to protect financial interests of the EU PRESS CONFERENCE ON PIF DIRECTIVE /Brussels 11 July 2012.

Why needed?

Here are a couple of 2012 examples:

  • “Nasir Khan had a successful accessories business, a jet-set lifestyle and reputation as a pillar of the community. But all that vanished in December when he was jailed for his part in a £250m VAT fraud. Jasper Jackson discovers how a 10-year investigation by HMRC led to his downfall. By Jasper Jackson - Mobile News March, 2012
  • “Two men have been jailed for their role in a plot to smuggle nearly 24 million counterfeit cigarettes into the Midlands, following an investigation by HM Revenue & Customs (HMRC). The conspiracy would have seen nearly £4 million drained from the UK economy through duty evasion.” HM Revenue & Customs, March, 2012
  • “A 34-YEAR-OLD man was yesterday convicted of a €680,000 VAT fraud after a 10-day trial that heard he produced 141 bogus invoices on non-existent transactions with imaginary sub-contractors.” By Gordon Deegan - Irish Times.com, March 2012
  • “A 64-year-old man has been arrested in a dawn raid into a £1 million suspected VAT fraud involving a Workington business.” News & Star, January 2012
  • “Yacht broker jailed over VAT fraud – A Dorset yacht broker who charged £210,000 VAT on the sale of six luxury yachts and then pocketed the cash has been jailed. James Williams, 51 was found guilty on six counts of cheating the public revenue and one count of false accounting. He was sent to prison for three years. John Cooper, HMRC Assistant Director Criminal Investigation said: Williams used his position as director of a yacht brokers to commit VAT fraud. He sold boats which had previously been supplied VAT-free for export to the Channel Islands, but failed to account for the VAT on their subsequent sale in the UK. This blatant attack on the tax system not only robbed the Exchequer of public funds, but is also unfair to those businesses that diligently abide by the rules. Tackling VAT fraud is a priority for us and we will not hesitate to pursue those who commit this type of offence. Anyone who has information about suspected VAT fraud can call the Customs’ Hotline on 0800 59 5000 or email customs.hotline@hmrc.gsi.gov.uk.” By Dick Durham of Yachting Monthly, March 23, 2012
  • “An antique jewellery trader who fraudulently claimed over £1.6 million in VAT repayments by creating fake invoices for expensive Rolex and Cartier watches has been jailed. Jonathan Uri Shohet (45) of Baldock, Herts, used stolen invoice books and fake invoices to claim back VAT from HM Revenue & Customs (HMRC) but had never purchased many of the watches he claimed repayments for.” HM Revenue & Customs, April 25, 2012
  • “A 15-STRONG GANG has been found guilty of an attempted £176m VAT fraud by engaging in complex mobile trading scams.Ring leader Dilawar Ravjani received a 17-year stretch in prison for his part in the scheme, the longest sentence handed down in the UK for this type of fraud.  The gang claimed it sold four million mobile phones worth £1.7bn, despite failing to prove the existence of many of these, while about 250,000 were not yet launched in the UK. In order to give the operation a veneer of legitimacy, more than 5,700 false business transactions were created in order to claim large amounts of VAT. Confiscation proceedings are now underway to recover any assets the gang members received as a result of this crime. The actual tax loss totalled £107m.” Read more: Carousel fraud gang jailed - Accountancy Age, July 12, 2012

Related Topics

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.

Tax Management Consultancy welcomes your opinion on any of the issues raised, so feel free to join in the discussion on LinkedIn | Twitter | Facebook.

Setting the Objectives Of The Tax Function

In Audit Defense, Benchmark, Business Strategy, EU development, Indirect Tax Automation, Indirect Tax Strategic Plan, Processes and Controls, Technology, Training on 18/02/2012 at 1:21 pm

By Richard Cornelisse

The Tax Function has to contribute value to the company’s business strategy. The posting “Is ‘Google’ The Tax Adviser Of The Future?” is about social media and technology developments.  It deals with the entry in the market of non traditional competitors and the impact on business strategy. It includes success stories of such entries. How we see the market develop, have we made the right choices, do we need to set new business priorities? Today’s Blog is about aligning the tax strategy to the business strategy.

As tax management is part of something much bigger the idea behind the “Google adviser’ Blog was to get readers to walk with me for a bit and facilitate thinking outside the box re business strategy and objectives. Look beyond tax and focus first on a company’s business strategy.

For the indirect tax specialist, you read ‘free of charge’ in that Blog, what scenarios are in play?  Such way of thinking is important if the company’s business model changes.  The tax strategy and objectives should be aligned with any new business priorities set.

Lets assume that the business objectives is to realize cost efficiencies or increase market share via takeover(s). From a tax perspective the difference between future firefighting or being in control has to do with being involved and the timing of that involvement. A tight connection to the business units and their decision making process is essential. Some soft skills are necessary to make that happen.

I have addressed the ‘why’ and ‘how’ and provided leading practices in my articles about Shared Service Center and M&A Integration.

The Objectives Of The Tax Function

Assume that a Tax Function of a company works under the same market principles as tax advisers and that the clients are the executive, finance, procurement, IT, logistics, internal audit, HR, legal etc.

What do you consider the requirements for customer satisfaction?

Jack Welch is a role model for many. His mission statement was “boundarylessness”:

“break down barriers and improve teamwork up, down, and across organizational lines.  In his view a considerable amount of money is lost due to disconnects or competition between groups that should be working for a common cause: providing value to customers.”

Is everybody’s added value in a certain business process known and communicated?

If not is that something that should be managed top down, bottom up or both?  If the company’s culture has to change the only way is a top down approach. That means that the executive has to be actively involved in order to optimize the success rate.

That is exactly the reason why improvement or remediation of a company’s tax control framework does not work without a good flavor of Jack’s “boundarylessness”.

The level of client satisfaction should in my view at least meet the following requirements:

  • Contribute value to achieving the companies business objectives
  • Manage ongoing risks and opportunities
  • Ensure compliance with tax laws and reporting

How do you see this?

Indirect Tax Objectives

Assume that the executive has validated  the company’s tax strategy. Subsequently, the performance requirements for indirect tax has to be established and translated to indirect tax objectives (Indirect Tax Strategic Plan). The following could be used as guideline:

  • Tax Planning: identify, recommend and successfully implement indirect tax projects that assist in achieving the objectives of the indirect tax department part of the business objectives.
  • Tax Accounting: proactively anticipate on changes in the business and outside the business and successfully communicate these changes to the concerning departments. Furthermore look after a correct implementation of these changes.
  • Tax Compliance: look after a correct, complete and timely Indirect Tax reporting of all entities. This includes that additional reporting relating to these Indirect Tax returns is taken into account.
  • Tax Governance: all corporate departments are well informed and/or have the availability of a VAT work instruction so it is clear when to consult the indirect tax department.
  • Support Other Departments: activities of departments that are being affected by VAT risks have been successfully identified and these departments have been well instructed to reduce these risks.
  • Audit Defense: roles and responsibilities have been determined who deals with the tax authorities during an audit (announcement) and tax authorities questions and procedures “how to act” (e.g. never provide documents without first making copies) have been documented and rolled out.
Other Sources
  1. The Future Tax Function: KPMG’s Framework For Change (published June 2012) 

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.

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