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

Governance - challenges and improvements

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

The tax function will face challenges when no formal documented strategy, objectives or planning exists to direct the tax function or tax department or when senior management does not have written and agreed-upon objectives and risk tolerance levels in formulating tax planning and strategies.

Without a proper tax policy it depends on your personal influence within your organization to kick-start a change. Often that results in a fragmented approach, as not all stakeholders will be convinced. The outcome is that this will negatively impact defining standardized and global controls.

This will improve if the tax department’s strategy, objectives and risk tolerance is understood by everybody in the tax department and throughout the organization and signed off by senior management.

The indirect tax department objectives and strategies should also be aligned with the company's business objectives and overall tax strategy as a whole. When the tax department does not have direct relationships with key stakeholders, including CFO, audit committee, internal audit and tax authorities, efforts should be made on creating and maintaining productive and proactive tax stakeholder relationships.

When a tax risk policy, including definition of risk tolerance levels associated with tax planning does not exist, this should be set up as this will support effective management of tax risk when allocating resources.

Important is as well that the organizational structure meets the tax department requirements. That means that it should be mutually aligned and periodically updated between the indirect tax department and the corporate finance function, procurement, legal, IT, business and other stakeholders and is designed to support stakeholder needs.

A split should exist of roles, functions and responsibilities between tax department and the business are well documented in manuals, procedures and working instructions. This documentation should be available on-line for all stakeholders in order to optimize that the tax department professionals are involved in time to support multidisciplinary teams in projects and programs and that the added value of the tax department is also clear for the business.

The tax department should be up to date with the latest developments in the organization to be able to perform its advisory role to the business. This means there should be a well-equipped learning & development environment to keep tax staff up to date with latest developments.

External representation and lobbying to influence policies on various levels of government (local, national and European scale) has to be considered as it builds and maintains relations with government and other industry stakeholders and will support indirect tax planning.

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