Where you are and where you want to go

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

The global tax environment is changing rapidly. How do you anticipate, prepare for and manage these changes? The thought leadership publications on the GITM website could support but also challenge you. You will get access to new views, templates and methods to translate your indirect tax knowledge into workable business processes. In addition, senior management has often competing priorities and indirect tax not always rank high on their priority list. How do you achieve a turnaround and realize their buy-in?

We share our views and best practices.

'Why', 'What', and 'How' of Managing an Effective Indirect Tax function:

• A roadmap to indirect tax function effectiveness:
  • Why is management necessary and what needs to be done?
  • How to realize objectives via best practice approaches, tools and methodology
  • How to increase indirect tax function effectiveness
  • Realizing senior management buy-in
  • Writing a business case, problem statement and calculate Return on Investment
• Where you are and where you want to go
• Planning of non-routine transactions
• Indirect tax strategic plan
• Tax control framework
• Risk management
• Data and technology including VAT and SAP
• Reporting
• Fraud
• Training
• EU developments

Our forum and blogspot contain the latest tax news.

Elements of GST Control Framework - Singapore

The Enhanced Taxpayer Relationship (ETR) Programme was introduced in 2008 as a service initiative and aims to build an open and collaborative taxpayer relationship through regular engagement with large companies, mutually benefitting IRAS and these companies.

The ETR Programme is designed to address the needs of large companies and help these companies manage their tax compliance. It offers large companies the benefits of finalising their tax assessments in a timely manner through a collaborative review process with IRAS, as well as tax certainty on significant current events through consultation with IRAS.

At the same time, IRAS gains a better understanding of the company's business operations and with the knowledge, IRAS is better able to identify and address revenue risk early.

Scope of the ETR Programme

Through the ETR Programme, IRAS and the company's senior management (Chief Financial Officer or equivalent) will meet regularly to address the company's current and emerging tax issues. The involvement of both IRAS' and the company's senior management, as well as the commitment of resources from both parties, will facilitate timely resolution of the company's tax matters.
Large companies with complex business models will benefit most from the ETR Programme as these companies are likely to have more complex tax issues. Currently, IRAS expects to have up to 200 companies on the ETR Programme.

Key Areas of Engagement

Under the ETR Programme, IRAS will engage the large company in one or more of the following key areas:

• Specific issue resolution - IRAS and the company will work on a mutually agreed plan to achieve timely resolution of specific tax issues.
• Generic issue resolution - Issues that are common to companies within a group are identified so that clear and consistent tax treatment can be applied on the same issue across the group.
• Significant current events - IRAS or the company may request early discussion and resolution of an upcoming significant event before filing of the income tax return so that downstream difficulties in assessments and objections can be reduced.
• Review of tax control system - IRAS and the company may work together to assess the adequacy of the company's tax accounting and reporting controls, identify existing and potential gaps and discuss the remedial actions.

How to Participate in the ETR Programme

Companies that contribute a significant amount of tax revenue may be invited to participate in the ETR Programme. These companies are strongly encouraged to participate in the programme, especially if their corporate tax assessments are not up-to-date.
Companies that have not been selected by IRAS to participate in the ETR Programme but wish to do so may apply to IRAS in writing. IRAS will review the application on a case-by-case basis, based on the following criteria:

• Tax contribution from the company;
• Complexity of the company's structure and operations;
• Current state of tax affairs of the company; and
• Company's willingness to commit resources to engage IRAS in the key areas, with the aim of bringing its tax affairs up-to-date.

Assisted Compliance Assurance Programme (ACAP)

GST ACAP is a compliance initiative for businesses that set up robust GST Control Framework as part of good corporate governance. Businesses may, on a voluntary basis, conduct a holistic risk-based review to endorse the effectiveness of their GST controls.
In the long run, a structure and a visible function properly set up to evaluate the impact of GST on the business transactions ensures the completeness and accuracy of GST reporting. In turn, a reduced risk of non-compliance with GST law ("GST risks") ultimately allows businesses to reap productivity gains - savings in both time and money.

Businesses Suited for ACAP

This programme is suited for businesses that:

• Have complex structures and business models;
• Engage in voluminous transactions;
• Place emphasis on tax risk management as part of their corporate governance; and
• Rely on extensive in-built controls in their systems and processes to generate timely and accurate data for financial and tax reporting.

Businesses that have established GST Control Framework at three critical levels (Entity Level, Transaction Level and GST Reporting Level) can undertake ACAP voluntarily.

Elements of GST Control Framework

Entity level

Senior Management - Incorporates GST risk management approach as part of the corporate governance. Senior Management and/or Boards of Directors- Maintains oversight of important GST matters. Control features pertaining to GST are established in:

• Control Environment
• Control Activities
• System Controls
• Change Management
• Information and Communication
• Monitoring and Review

Transactional level

Ensure the transactions are:

• properly tax classified
• accurately captured

Essential preventive and detective controls are established for Sales and Purchases Cycles to manage GST risks.
Two main GST risks are:

• Compliance risk: risk that a transaction may not be correctly tax classified or comply with requirements under the GST law.
• Processing risk: risk that the processes in capturing the transaction may not be effective in generating accurate data

GST Reporting level

Ensure data extracted and compiled for reporting in GST returns are accurate and complete. Control features are established at:

• extraction of data
• compilation of data (including making adjustments to comply with GST reporting rules)
• filing of GST returns

Qualifying for ACAP

You are eligible for ACAP if you meet the following conditions:

1. You have established acceptable GST Control Framework with key controls (listed in the 'Self-Review of GST Controls below') established at Entity, Transaction and GST Reporting levels.
2. The auditor's opinion on your latest financial statements is unqualified.
3. You are registered for GST for at least three years.
4. You are currently not under any GST audit conducted by IRAS.
5. You have good compliance records (including no tax outstanding with IRAS) for GST, Income Tax, Property Tax and with the Singapore Customs.
6. You commit to engage a qualified ACAP Reviewer to conduct ACAP Review.

See for chapters 'Trends' and 'Audit Defense' for other intiatives.

Determine the exact amount of risk or saving

In this newsletter we will highlight one of the methods for zero measurement of tax risks: 'statistical sampling' to exactly determine the amount of risk or saving. Why is the exact amount important? We will illustrate this using a due diligence investigation as an example. Such investigation not only serves the purpose of identifying the material risks, but also the quantification of these risks is essential. A traditional due diligence investigation normally involves completion of standard questionnaires and retrieval of standard information, which is provided by the vendor via a specially designed data room. When for example possible incorrect VAT determination is detected, a rough estimate of the magnitude of the VAT risks (or savings!) is made on the basis of turnover and sales figures. This is not ideal for both vendor and purchaser, as it involves a lot of guesswork and thus usually provides an insufficient framework in price negotiations. The question is whether there is a more accurate method  for determining the potential additional tax assessment (or saving!) in an efficient and effective way. In order to quickly gain insight into the level of tax risks (i.e. calculation of the potential assessment), statistical sampling can be used. By selecting a few elements (euros), the reliability of the composition of tax items can be determined with a high degree of certainty, and on the basis of identified errors in the sample, the exact amount of additional tax assessment can be calculated. Supportive to the strength of this method is the fact that statistical sampling is the preferred tax audit method used by the Dutch tax authorities in their tax audits. This method is explicitly approved by the highest Dutch court. Defining the scope, designing, drawing the sample and evaluating the results requires a multidisciplinary approach. In addition to indirect tax knowledge, expertise in statistical sampling is required. In case of a due diligence such a sample is not solely relevant for the purchaser. Also the selling party can benefit from sampling with regard to preparatory work for a prospective takeover. When a statistical sample is drawn and the results are acceptable, the conclusions can be proactively taken into the data room. This can serve as additional evidence of implementation and maintenance of an effective (tax) control framework. Moreover, in the Netherlands the possibility exists to align and discuss the results of the observed findings with the tax authorities, which provides more certainty regarding the adopted tax position. All this can positively contribute to the sales negotiations, including the amount of guarantees and/or discounts that are to be provided. Via the 'single audit' method, it is possible to extend the scope from VAT and/or GST to other tax areas such as 'corporate income tax' and 'wage tax'. Click on 'Go to Flyer' below if you want to learn more about 'zero measurement of risks and savings' or select 'single audit' method for debrief. Materiality of tax risks Go To Flyer Go to 'Single Audit method' +1 Tweet Forward Copyright 2015 Global Indirect Tax Management, All rights reserved. This e-mail contains benchmark information useful for self assessments Our mailing address is: Global Indirect Tax Management Attn of: Phenix Consulting Beech Avenue 54-80 Schiphol-Rijk, 1119 PW Netherlands unsubscribe from this list    update subscription preferences Phenix Consulting · Beech Avenue 54-80 · Schiphol-Rijk ·  1119 PW · Netherlands

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VAT Control Framework

Global Indirect Tax Management shows the area where risk based controls are to be expected and in addition shares templates and methods for self assessments purposes. In this edition we like to highlight a company's "VAT Control Framework" A Tax Control Framework (TCF) is an internal control instrument specifically aimed at the tax function within a company and an integral component of a company’s business control framework, which is different for every organization. It is a system (process) to identify, mitigate, control and report tax risks. The ultimate objective of a TCF is to be in compliance with tax laws and reporting requirements and manage the risks that exceed the companies' risk appetite. A TCF should prevent tax errors, identify opportunities in a timely manner and perform correct filings at the right moment. A company's VAT control framework system is adequate if it provides insight into where material VAT risks may arise in the company (awareness), while the degree of risk tolerance is established internally and where appropriate control measures are taken with respect to these risks. Below video will provide further details about an effective setup of such a controls framework and the importance of aligned to the company's business framework. The pictorial overview shown first, provide the key definitions. 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. Kind regards, Richard Cornelisse Editorial Board Mobile: +31 6 5399 4874 E-mail:  richard.cornelisse@globalindirecttaxmanagement.com Normative VAT Control Framework GoTo GITM website +1 Tweet Forward Copyright 2015 Global Indirect Tax Management, All rights reserved. This e-mail contains benchmark information useful for self assessments Our mailing address is: Global Indirect Tax Management Attn of: Phenix Consulting Beech Avenue 54-80 Schiphol-Rijk, 1119 PW Netherlands unsubscribe from this list    update subscription preferences Phenix Consulting · Beech Avenue 54-80 · Schiphol-Rijk ·  1119 PW · Netherlands

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Data analysis for VAT and GST

Business challenge

Data analyses of various market players are generally standard analyses that are generated by a data dump from SAP. Extracting data from a SAP environment is often not possible due to lack of the proper authorization. Moreover, the extraction of data is limited to a specific number of document numbers per extraction. This requires the same extraction to be executed over 30 times when an extensive amount of data is to be retrieved.

Retrieving data in multiple steps brings the risk of the format of the data not always being identical. As a result, there are no unequivocal results available and many manual adjustments are necessary.

In the case of extensive data, SAP often breaks off the analysis, because runtime limits are exceeded. In addition, due to restriction of the size of reports in SAP, created data files cannot always be copied to a pc.

Solely standard analyses are possible, which does not sufficiently take into account the complexity of business models and specific risk domains.

Best practice data analytics

The risk domains should be salient. Knowledge for enabling fully automated VAT determination and building an integrated Tax Control Framework is crucial in data selection. Besides that it is important that only VAT relevant data is retrieved that is necessary for this analysis. Providers of data analysis use for example third party software tools, so the data can be extracted from SAP in a uniform manner.

With this, problems regarding performance, format of reports and interpretation of data could belong to the past and guarantees the quality and integrity of data by means of:

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

SAP review for VAT and GST

A SAP review should highlight where the VAT configuration could be improved or if additional control measures should be added to the business’s Tax Control Framework.

The SAP review can also identify where errors occurs and there are increased risks allowing a more focused data analysis to take place. After the quantification and evaluation of the risks and errors, these are assigned a risk profile for further testing of risk tolerance.

During a SAP review for VAT and GST the proper working of the implemented VAT configuration has to be vericated. This will provide understanding of how changes in the business model, master data or legislation will have an impact on the implemented VAT configuration.

Examples of possible VAT errors encountered in SAP include:

• Ineffective use of the proper partner functions in SAP for a supplier who provides services in multiple countries and invoices VAT locally. This can result in the standard VAT calculation generating incorrect results.
• Incorrect derivation of VAT registration numbers for cross-border transactions caused by incorrect SAP configuration.
• Missing/improper VAT registration numbers in customer master data, such that invoicing requirements are not satisfied for cross-border transactions.
• Master data is adjusted and tested in the test environment, but the changes are not reflected in the production system.
• The logic of the tax code structure is disrupted by VAT rate changes. This can be mitigated using the correct SAP configuration.
• When performing reverse charge bookings, VAT rate changes do not get changed.
• For cross-border A-B-C transactions, a VAT mismatch between the VAT on procurement and the VAT on sales arises for party B.
• Blocked iDocs (electronic interface documents) because of errors in the OBCD design.
• Suppliers with invoices in other currencies and the VAT amount shown in Euro. This results in an incorrect VAT amount due to an incorrect FX conversion

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