Richard Cornelisse

Indirect tax function effectiveness: If one isn’t Cooperating, Change is Difficult to Accomplish

In Audit Defense, Indirect Tax Automation, Indirect Tax Strategic Plan, Processes and Controls on 10/06/2014 at 12:00 pm

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If the risks are truly this high, then shouldn’t it receive more attention from the CFO?

613-01535203The surveys of the Big4 are clear: we are talking about extremely large amounts of money that lack appropriate control, but because KPIs have never been developed for this particular purpose, the risks remain outside the CFO’s field of view.

One of the tools the Global Indirect Tax Management initiative offers, are aimed at achieving better awareness.

The fact that direct and indirect tax work in a different way must also be taken into account.

The Head of Tax should be more involved in the Indirect Tax Function. The Head of Tax mainly gets his information from corporate finance and not so much from other departments. And that is precisely where the indirect tax is managed and must be operated. It is therefore often not visible for the Head of Tax how important the controls on indirect tax are.

If the Head of Tax and the Indirect Tax Function would figure out how to cooperate more efficiently, they will also bring indirect tax more into the spotlight of the CFO.’

How can change be accomplished?

Cornelisse: ‘It’s essential that change comes from the organization itself. An advisor can repeat this over and over, but if it isn’t carried out within the organization, by the people who actually have to work with it, nothing will change. It starts with the people in the organization becoming aware of the amounts that are at stake and the risks of something going wrong.

Big4 surveys show unanimously that we’re easily talking about amounts of 5 billion euros concerning indirect tax. Benchmark studies repeatedly create the same picture: too little control, too few KPIs and when a mistake is made in the control, it usually concerns large amounts of money.

A mistake of one percent can make the difference between profit and loss for a multinational company. Explain that to your shareholders.

’The reason is that both from within the organization – that is, via the Indirect Tax Function, the Head of Tax and the internal audit – and from outside – that is, financial auditor – insufficient signals reach the CFO in order to raise priority of indirect tax.

Cornelisse: ‘That’s right. And that deadlock must be broken. The internal and external stakeholders are all chains in the process and if one isn’t cooperating, change is difficult to accomplish. It is essential that financial auditors also read the surveys, acknowledge the risks and discuss them with the CFO.

The best outcome would be if the indirect tax would be controlled by default in audit or if a stand point would be taken not to do that. In case control is required, all methods and tools developed by one’s own Tax Advisor Consultancy Practice are to be deployed in order to ensure quality.

This influences the CFO externally, can bring about change top down and can lead to new instructions for Internal Audit and Head of Tax. As a result, the Indirect Tax Function can have the tools, mandate, resources, budget etc. necessary to execute its tasks adequately.

Via Risks too High, Controls too Low – Interview / Richard Cornelisse

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