Richard Cornelisse

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Tax Risk Management – submitting tax relevant data to the tax authorities

In Indirect Tax Strategic Plan on 09/08/2017 at 1:07 pm
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Tax authorities are besides optimizing traditional tax reporting systems increasingly implementing in addition electronic (almost) ‘real-time’ transaction reporting systems. It is expected that tax authorities due to technological innovations become increasingly better and faster in executing their tax audit.

Complementary to the existing and more traditional tax reporting in countries like Austria, France, Lithuania, Luxembourg, Norway, Poland, Portugal, Spain already (close) to real time data request have to be submitted and/or should be available on short notice when a tax audit is announced.

In countries like Austria, France, Lithuania, Luxembourg, Norway, Poland, Portugal, Spain already (close) to real time data request have to be submitted and/or should be available on short notice when a tax audit is announced.

What is next?

Italy, the VAT invoices data informative reports must be filed with the tax authorities on a six-monthly starting by September 18, 2017. From 2018 the deadlines will be on a quarterly basis. For Hungary realtime invoicing is postponed to 1 July 2018. Companies need to have to solution implemented that is capable of real time data transfer by 1st of July 2018 at the latest.

It is however not clear how the tax authorities actually will analyse the data received. That might change soon as their strategy is an improved and faster tax audit including combatting VAT fraud as an overall EU priority.

Let me explain

VAT Control Framework: how to get from A to B

In Indirect Tax Strategic Plan on 07/08/2017 at 5:47 pm

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The critical conditions for success

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.

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. 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.

The Indirect Tax Function is aware of the fact that it is understaffed and that budget is too limited to optimally execute its tasks, but they often don’t know how to change this and get it on the agenda of the CFO.

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. And that deadlock must be broken.

What should be done to actually break it?

Let me explain

Being ready for GCC VAT introduction when operating SAP

In Indirect Tax Strategic Plan on 26/07/2017 at 9:05 am

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The Governments of the Gulf Cooperation Council (GCC) – Bahrain, Kuwait, Oman, Qatar (status unknown due to GCC politics/friction), Saudi Arabia and the United Arab Emirates that make up GCC – are committed to form a common framework for the introduction of value added tax (VAT) in the region. In order to achieve conformity within the GCC, it is anticipated that the six member states will all aim for implementation of VAT during the period commencing 1 January 2018 or by the end of 2018.

VAT as a process will affect many aspects of businesses operating in the GCC and will require significant time to plan, and integrate into existing processes. The objectives:

  • To be ready in time and a need of an effective and efficient work process between Tax function, IT function and its third party consultants
  • To optimize its VAT deduction and to automate this VAT process as much as possible in SAP
  • To limit VAT risks and meet VAT reporting obligations (e.g. reverse charge mechanism to avoid non VAT compliance)
  • To automate VAT processes via enhancing the SAP ‘as is’ functionality where possible
  • Set up processes and controls when VAT automation is not feasible
  • To test new SAP functionality prior to go-live (sandbox)

Based on above objectives the PDF document ‘More detailed description of Work in booklet’ [see link below] established the scope, schedule and means of initiating the work to be performed by the service provider and describes or references the specifications, instructions, standards, and other documents, which the service provider shall satisfy or adhere to in the performance of the work.

The KEY Group is supporting one of the largest multinationals with the setup of the GCC VAT rules in SAP itself

Read more: Implementation activities in SAP IMG for VAT

More attention for Transfer Pricing

In Indirect Tax Strategic Plan on 21/04/2017 at 7:19 pm

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Many countries nowadays implement the BEPS recommendations such as the ‘master’ and ‘local’ file and the ‘Country-by-Country’ report. In general, this not only leads to an aggravation of Transfer Pricing (hereafter: TP) compliance activities, but also results in the potential discovery of errors that were previously undetectable. Indeed, TP processes are generally not (yet) automated and analysis activities regarding TP are primarily executed manually.

This situation makes it challenging to have all relevant tax data provided in time. This applies to both the collection of the required source data, as well as the TP analysis itself. Often, the supplied formats and templates are unusable or have to be ‘manually’ modified in Excel in order to be used.

The current trend is that increasingly more detailed information is necessary for specific products or services; ranging from who the order was placed by to details about the applied margins for service – and goods transactions and the conditions under which these took place. Timely access to such source data has thus become even more important.

This is also the ‘overlap’ with data required for the indirect tax function. Cross-border intercompany transactions form a risk area that will be included in the VAT risk matrix – risks that exceed the risk appetite – by every multinational and that requires efficient monitoring and checks.

  1. Introduction: Relevant tax data from Transfer Pricing and VAT: explaining the ‘Why’, ‘What’ and ‘How’
  2. The auditor is not (yet) a risk analyst
  3. New tax legislation in the UK: ‘Tone at the top’
  4. More attention for Transfer Pricing

Above is a translation of article published in Vakblad Tax Assurance. Dutch version can be downloaded for free: Download click the link

New legislation UK: Tone at the top

In Indirect Tax Strategic Plan on 15/04/2017 at 11:24 am

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In an increasing number of countries, laws and regulations are established that force companies to be transparent with regard to their handling of tax risks, (fiscal) risk management, risk appetite – also in relation to tax planning – and the way of dealing with tax authorities.

This concerns the actual fiscal management, including the way in which the company makes tax decisions, for instance regarding distributed information about the systems and the means used for effective monitoring of fiscal risks.

The Finance Bill, that was established in 2016 by the United Kingdom, forces the Board of Directors of British multinationals not only to compose a tax strategy, but also to publish it. An important new aspect of this Finance Bill is that it obliges one person within the Board of Directors to be assigned the responsibility for the tax strategy.

The power of this legislation resides in the fact that it forces the Board of Directors to actually determine a position regarding the company’s tax morality. This is recorded in a public statement, which makes it an important criterion in measurement and evaluation of the performance of the Board of Directors itself (fiscal KPI).

Supervisory bodies such as the Supervisory Board (and auditors?) will have to evaluate whether the board indeed conforms to the formulated fiscal norm.

Moreover, as appears from the parliamentary history, it is expected that companies that have not published their business strategy are more likely to accept a higher risk appetite with regard to tax risks, compared to companies that have defined and formally published a strategy, both internally and externally.

There is a clear difference between this new legislation and existing initiatives such as the Senior Accounting Officer (SAO) regime in the UK. Whereas SAO is aimed at adequate tax accounting specifically, the new legislation goes beyond the SAO because it requires companies to provide insight into the business strategy with regard to taxes.

We think that this type of legislation realizes the objective measurability of the ‘Tone at the top’ in the fiscal domain. Without ownership and active involvement of the Board of Directors, the realization of vast changes or large investments is a hopeless mission when coming from change management.

By placing the responsibility for the execution of the fiscal strategy on the Board of Directors, the tax division will receive the tools required for adequate execution of its function – mandate, resources, budget etc. – much faster. This will be amplified when signals from external sources – the auditor and the tax authorities – that promote prioritizing of taxes, also reach the Board of Directors.

The assignment of accountability, the composition and publication of the tax strategy would be an improvement of the current ‘Horizontal Monitoring’ policy in the Netherlands, as it brings the fiscal responsibility to the Board of Directors.

In practice, the Horizontal Monitoring relies too much on the relation between the Taxpayer coordinator (account manager) of the Dutch tax authorities and the Head of tax of the company.

Earlier chapters:

  1. Introduction: Relevant tax data from Transfer Pricing and VAT: explaining the ‘Why’, ‘What’ and ‘How’
  2. The auditor is not (yet) a risk analyst
  3. New tax legislation in the UK: ‘Tone at the top’
  4. More attention on Transfer Pricing

Above is a translation of article published in Vakblad Tax Assurance. Dutch version can be downloaded for free: Download click the link

Partnership between Key Group, SNI and ConVista

In Indirect Tax Strategic Plan on 04/04/2017 at 11:22 pm

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A partnership is closed between the Key Group, SNI and the international operating SAP consultancy firm ‘ConVista Consulting’ with offices amongst others in Madrid and Barcelona. Key Group and SNI operate from Netherlands, Poland and Turkey.


Who we are

In order to establish synergies to support business SAP challenges of our clients we have setup a joint venture initiative in the past. Tax SAP experts – KEY Group and Phenix Consulting – developing together with SNI a global development partner of SAP and leading software company in the area of e-invoice, e-bookkeeping, e-archive, e-ticket.

SNI’s core business is to provide SAP certified add-ons for legal compliance to a large number of global well-known companies. We have therefore access in-house to senior Tax SAP experts working together with SAP experts (functional and technical). That means our turnaround time is fast and our quality is very high.

A partnership is closed with the international operating SAP consultancy firm ‘ConVista Consulting‘ with offices amongst others in Madrid and Barcelona. Our partnership relates to distribution, implementation and maintenance support (Spanish language) for our SAP SII add-on solution for Spain.

ConVista is an experienced consulting firm with a large track record in the design and installation of financials & treasury applications with SAP. We offer comprehensive IT consulting services complemented by custom software development. ConVista provides a complete service offering from a single source. Streamlined processes, a higher degree of automation and shorter project durations serve as indicators for improved efficiency. Expertise in process, technology and methodology form the fundamental components of our work. We combine long-lasting experience in the implementation and delivery of large programs with in-depth knowledge of treasury applications from SAP.

Quienes somos

Hemos desarrollado una iniciativa conjunta con el fin de establecer sinergias para ayudar a nuestros clientes en los desafíos de negocio de SAP. Los expertos en impuestos SAP – KEY Group y Phenix Consulting – forman junto con SNI un partner global de SAP y una compañía de software líder en el área de factura electrónica, e-book, e-archive, e-ticket. Además nuestro partnership con ConVista nos permite dar cobertura a nuestros clientes en numerosos países, facilitando la implantación y mantenimiento de nuestras soluciones.

La principal actividad de SNI consiste en proporcionar add-ons certificados por SAP para cubrir los requisitos legales en un gran número de empresas ampliamente conocidas. Por este motivo disponemos de expertos senior en el área de impuestos que trabajan conjuntamente con expertos de SAP (funcionales y técnicos), lo que nos permite un tiempo de respuesta rápido y una alta calidad.

The auditor is not (yet) a risk analyst

In Indirect Tax Strategic Plan on 04/04/2017 at 10:01 am

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The term materiality has many meanings and definitions. Boundaries of materiality are primarily determined based on personal estimations. This can be estimations by auditors, risk management departments, company directors, etc.

The term materiality, used as a quantitative norm, then serves as an approval boundary. Evidently, the materiality used to determine the tax risk appetite of businesses is significantly lower than the materiality used by the external auditor in the annual audit.

The external auditor’s task is only to provide an opinion whether the annual accounts provide a true and fair representation of the company’s affairs. He or she is not asked to provide a statement regarding the accuracy or the acceptability of the submitted return for corporate tax, income tax, VAT etc.

The examples of tax situations listed below should, however, also receive full attention from auditors. These stock market listed companies have after all, been obliged based on the SEC rules to report their risks to their investors:

  • Google avoided €227 million in taxes in Italy. Google paid £130 million to the British tax authorities and agreed to pay higher taxes in the future. In France, the tax authorities demanded €1.6 billion from Google.
  • Apple paid €318 million as a settlement to the Italian tax authorities after a two-year fraud investigation. Apple missed a deadline to pay €13 million in taxes to Irish authorities in the context of state aid. Due to the special treatment given by the Irish government, the effective tax rate was just 0,05%.
  • Facebook (FB, Tech30) disclosed that the IRS conducted an investigation into the way it moved assets to an Irish subsidiary to avoid higher taxes. According to Facebook’s SEC filing, the amount totals $3 – $5 billion, plus interest.
  • Coca-Cola was found to to owe the US tax authorities $3.3 billion, plus interest, based on an audit by the IRS. Profits were incorrectly recognized in foreign countries, rather than the US.

In case these tax-related issues are considered individually per county and per company, it could be put into question whether these matters are also material for the auditor. Notably, the media also discuss the reputation of these companies. Any potential reputational damage and/or fiscal uncertainty might impact not only the share price but also external relations including that with the tax authorities.

The loss of tax income due to the movement of assets to low tax rate jurisdictions is conservatively estimated to total between $100 and $240 billion.

The amount of media attention, public indignation and political reactions these cases have received – including for instance that of US senator and (former) presidential candidate Bernie Saunders – emphasize the differences in tax morality. Why should ordinary citizens comply with tax obligations, while multinationals or soccer players are attempting to avoid paying a ‘fair share’ of taxes by means of tax-saving structures? Both media and politics have given a great deal of attention to cases such as the ‘Panama Papers’, ‘Lux Leaks’, ‘The Netherlands Tax Haven’ and ‘Football Leaks’.

In the context of an investigation regarding state aid, the European Commission states that providing tax rulings (advance pricing agreements; APA’s) should not result in situations in which some taxpayers pay less than other taxpayers under the same circumstances.

As a result of the Panama Papers, many Corporate Service Providers, shell corporations and advisors are interrogated by the Dutch parliament with regard to tax avoidance and tax evasion. These are companies without any significant assets or activities in the Netherlands that solely serve as a vehicle for shifting interest and royalties within international companies. Due to the application of tax treaties, this construction results in a significantly lower corporate taxes.

During his presidential campaign in 2008 Barack Obama illustrated the issue:

“There’s a building in the Cayman Islands that houses supposedly 12,000 U.S.-based corporations. That’s either the biggest building in the world or the biggest tax scam in the world, and we know which one it is.”

Evidently, we’ve entered a broader discussion, reaching beyond the question of what is tenable based on fiscal laws and regulations. Beside financial risks – that can be material – it concerns reputational damage, which can, as previously mentioned, negatively affect share prices.

Business operations can thus be fiscally appropriate, complying with tax laws and regulations, yet deemed unacceptable according to societal norms. This is a relatively new phenomenon in terms of reputational risks that affects the risk management from the overarching ‘business control framework’.

Questions that need to be asked include for instance: does the current business model still fit the ‘reconsidered’ business strategy?

In terms of tax revenues, a global trend is emerging shifting from direct to indirect taxes. The rates for VAT are increasing, whereas the rates for corporate tax are decreasing. An average multinational has over €5 billion in indirect tax flowing through the business. A mistake of one percent can make the difference between profit or loss. This is material, also for an auditor.

  1. Introduction: Relevant tax data from Transfer Pricing and VAT: explaining the ‘Why’, ‘What’ and ‘How’
  2. Next week: New tax legislation in the UK: ‘Tone at the top’

Above is a translation of article published in Vakblad Tax Assurance. Dutch version can be downloaded for free: Download click the link

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Tax relevant data for TP and VAT, the ‘Why’, ‘What’ and ‘How’

In Indirect Tax Strategic Plan on 26/03/2017 at 10:03 pm

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Tax moral is shifting. More often what is (still) legally allowed may not automatically be accepted by the public opinion. Reputational damage is imminent.

Both on direct and indirect taxation the tax authorities have set their priorities. The tax authorities not only want to receive more tax data, but also faster and more often. In addition, there is a tendency to allocate the ultimate tax responsibility at the highest level in a company. Since last year in the United Kingdom the Board of Directors has to sign off the company’s tax strategy and also publish the strategy externally.

Tax departments and the external auditors face due to these 2 tendencies new obligations. These tendencies could however also support change.

The new data requirements of the tax authorities have to be properly assessed and interpreted from a tax risk management perspective to see whether the data requested contain any uneforeseen and major tax risks. The outcome of such an exercise could also make clear that the company has to reorganize its business and tax processes.

When all tax disciplines (e.g. TP, indirect tax; etc.) work together a joint responsibility for the overall tax affairs of a company could be established. That might facilitate the buy-in for tax investments.

When successful tax can take the place it deserves: an important part of a company’s business strategy.

The above will be further explained in detail the coming weeks:

  1. The external accountant not yet a tax risk analist
  2. New tax legislation in the UK: ‘Tone at the top’
  3. More attention on Transfer Pricing
  4. … And on VAT
  5. Tax authorities request more, faster and more often tax data
  6. SAF-T rolled out in more countries
  7. The impact on in-house tax function
  8. Preaudit before submit
  9. Realise a joint tax responsibility

Above is a translation of article published in Vakblad Tax Assurance. Dutch version can be downloaded for free: Download click the link

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Relevante belastingdata vanuit TP en BTW: de ‘Waarom’, ‘Wat’ en ‘Hoe’

In Indirect Tax Strategic Plan on 16/03/2017 at 2:26 pm

Door Richard H. Cornelisse en Edwin van Loon
Gepubliceerd in Vakblad Tax Assurance

Samenvatting

De belastingmoraal verschuift. Steeds meer wordt iets wat wettelijk gezien mag, niet automatisch ook geaccepteerd door de publieke opinie. Reputatieschade dreigt. Belastingdiensten worden ook scherper, op zowel directe en indirecte belastingen. Ze willen vaker, sneller en meer gegevens zien. Daarnaast is er een tendens om de eindverantwoordelijkheid voor fiscale zaken hoger in de onderneming te leggen; in het Verenigd Koninkrijk ligt die sinds vorig jaar zelfs al bij de Raad van Bestuur.

Die twee tendensen stellen eisen aan de interne fiscale afdelingen en de externe accountants, maar bieden ook kansen. De gegevens die de belastingdiensten eisen, zouden door het bedrijf zelf goed gemonitord en geïnterpreteerd moeten worden, om te kijken in hoeverre die gegevens misschien wijzen op ongewenste situaties en te grote belastingrisico’s. Het kan ook zo zijn dat die gegevens duidelijk maken dat het bedrijf er misschien goed aan doet de bedrijfsprocessen anders te organiseren.

Door samenwerking van fiscale specialisten kan een gezamenlijke verantwoordelijkheid voor het totale fiscale reilen en zeilen van de multinational ontstaan. Van daaruit is een beter zicht op mogelijk gewenste investeringen voor het bedrijf mogelijk. Zo kan fiscaliteit de plaats innemen die het misschien altijd al verdient: als belangrijk onderdeel van het totale overkoepelende ondernemingsbeleid.

Gratis artikel lezen en downloaden

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Geschreven door Richard H. Cornelisse en Edwin van Loon

  • mr. Richard H. Cornelisse, Tax Assurance Expert, managing director van de Key Group en Phenix Consulting
  • Edwin van Loon RTAP, Tax Control Framework Coordinator ING Bank NV

SAP add on for ‘VAT Smartform PDF’ in Poland

In Indirect Tax Strategic Plan on 26/02/2017 at 8:43 pm

We offer a new SAP add-on solution that creates automatically the VAT Smartform from SAP. When our SAF-T SAP add-on solution has been purchased this additional functionality will be managed under SAF-T cockpit as a different report.

Companies selling across European Union borders have to submit EC Sales List (ESL). This should contain the details of sales or transfers of goods and services to other VAT registered companies in other EU countries summarized per VAT registration number. The tax authorities in the EU use the listings to check whether VAT is declared by the parties involved in cross-border transactions (e.g. no mismatches).

In Poland a specific extra local requirement applies. As of 1 January 2017 taxpayers making transactions with EU members will be required to submit mandatory the declaration in electronic format.

The Polish tax authorities provides a VAT Smartform PDF that a company has to fill in with the requested information. That Smartform is mandatory and must be used to meet the requirement. Without automation support the data has to be entered manually by the company.

Entering data is a time consuming process. Besides the impact on internal resources, such manual activity increases the risk of data errors, i.e. with entering the VAT registration numbers in the Smartform.

Stricter penalties apply for individuals involved in tax fraud and penalties are introduced for taxpayers who do meet the legal requirement of submitting declarations in electronic format.

Source: SAP – submitting close to real time data to tax authorities

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