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Saturday, May 9, 2015

VAT control framework

Effectiveness and efficiency of operations, the reliability of tax reporting, and compliance with applicable laws and regulation
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.

  • Review the categories of VAT risk the company is facing as well as the likelihood of occurrence, its potential impact and mitigation measures
  • Review the company's risk appetite and risk tolerance and the way in which risks is measured

A TCF requires a clear understanding of: the companies' material risk areas, the company's tax policy derived from business objectives, the VAT processes and risk based control measures (hard and soft controls) and roles and responsibilities of the indirect tax department and its shadow tax function.


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

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