Zero measurement: identify, assess and mitigate indirect tax risks

When high risk indirect tax areas and lowest performing VAT processes - that have a direct impact on the company's VAT objectives - have been identified, the next step is to measure the performance in term of effectiveness and efficiency of each of these processes:

"Measure the magnitude of that problem, determine why the problem exists, and generate a set of solutions to ensure that the problem goes away."

The first phase is however a zero measurement that identifies key indirect tax risks and worst performing processes that in the end should be improved. Verify indirect tax performance could be done via:

• VAT throughput
• Statistical sampling
• Data analysis
• ERP review

After the zero measurement, a toolkit should enable to assess and evaluate the effectiveness and efficiency of a company's current control framework. A normative VAT Control Framework is used as a yardstick for comparison purposes and will indicate how the steps should be taken in an ideal world (gap analysis).

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