Richard Cornelisse

Why Manage Indirect Taxes?

In Audit Defense, Benchmark, EU development, Indirect Tax Automation, Indirect Tax Strategic Plan, Processes and Controls, Technology, VAT planning on 19/10/2013 at 7:00 pm

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By Richard Cornelisse

KPMG quote

To self assess risks the following non-exhaustive overview might be useful as a guideline:

risks overview 1

risks overview2

risks overview3

The correctness of VAT reporting is checked only afterwards by the tax authorities. Non compliance could result in that over many years an assessment can be levied (depends on country’s assessment period: NL is five years) including interest and increased with penalties.

It is 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.

EY Quote

Optimizing VAT recovery, working capital efficiency

Overall business strategies focuss nowadays on:

  • Release cash
  • Reduce costs
  • Efficient refinancing and restructuring

cash flow

To self assess opportunities the following non-exhaustive overview might be useful as a guideline:

cash flow

Increased Audit Risk due to Fraud Priorities?

A recent European Union study (2013) says the bloc’s 28 member nations may be losing almost 200 billion euros ($267 billion) annually in value-added tax revenues due to tax evasion and a lack of enforcement.

EU Tax Commissioner Algirdas Semeta said  the amount of revenues slipping through the governments’ nets is “unacceptable, particularly given the impact such sums could have in bolstering public finances.”

The study for the European Commission, the bloc’s executive arm, found member states lost an estimated 193 billion euros ($258 billion) in VAT revenues in 2011, or 1.5 percent of the EU’s economic output. European Commission – Press Release – Fight against fraud: new study confirms billions lost in VAT Gap

Actively combating VAT fraud is a priority for the European commission and local governments. New measures are being taken such as the introduction of individual liability for not remitting VAT if the buyer knew or should have known that he was buying from a fraud. To prevent such a condition of liability, the ability to demonstrate that sufficient control measures have been taken is essential.

In the next paragraph an overview is given of the estimated VAT Gap per Member State.

Is it not realistic to state that the risk of a tax audit increases in countries that have lost substantial tax revenue because of VAT fraud. Something to consider from an audit defense strategy perspective and could be a reason to challenge the company’s current indirect tax priorities set.

One of the tasks of the indirect tax function is to timely identify changes in legislation and regulations potentially affecting the group and/or its business. There could be many other arguments why for example review of control measures to avoid such liability should be a top priority.

Top on my list is managing reputational risk.

Estimates of the VAT Gap per Member State

EU study VAT Gap due to Fraud

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