Operational - challenges and improvements

In practice we often see that no (or few) performance targets are set or monitored resulting issues remaining unresolved as no one feels responsible.

From a best practice perspective, we expect that targets are set and technology enabled KPIs are in place to enable frequent monitoring (formal and informal) and that these targets also relate to the interaction between tax and the business and other stakeholders.

Often we see that clear procedures for critical VAT processes do not exist and consistent evaluation criteria for VAT planning is lacking. Critical VAT information utilized for compliance, financial reporting, and other tax activities cannot be generated easily during the year. Such critical information should be available and generated frequently throughout the year to provide objective evidence and supportive arguments for business and tax decisions.

There should be a systematic approach to tax planning and evaluation criteria should exist for example how external advisers should be used. For example when corporate entities obtain advice and assistance from external advisors.

The policy could be that for example the written advice and assistance has to be in the English language and in case of material tax items the tax department is informed prior to consulting such advisors.

Tax risk management should continually influence operating decisions and strategic direction. An uniform tax risk process for a structured and consistent evaluation has to be implemented to make that happen.

Tax risk management relates to potential events, which might have an adverse effect on the goals of a company. This therefore also includes missed opportunities (i.e. savings).

The resources and budget is aligned with the outcome of the tax risk assessment. Due to limited resources time should be spent on high-risk areas.

• Indirect tax department identifies opportunities to optimize tax planning across all jurisdictions, business units and taxes
• Upon non routine significant business transactions such as M&A transactions, all indirect tax liabilities are identified prior to the transaction or implementation
• All regulatory, legal and enterprise record retention requirements are considered and all relevant indirect tax risks are taken into consideration (in consultation with indirect tax)
• The indirect tax department risk management strategy differentiates between strategic, operational, and financial and compliance risks and contains detailed action plans for managing these risks.

That means as well that the tax department has to adopt an efficient internal control framework that is fully implemented for all tax functions across the globe and reporting on internal controls is part of its performance indicators.

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