A Tax Strategy should cover all taxes and all key business locations and should be aligned to the overall business strategy. A tax strategy document should also include guidelines as to acceptable planning, which is then further detailed in a Tax Planning Policy.
Features to be considered may include likelihood of tax authority challenge and litigation, likelihood of adverse press coverage and likely impact on tax authority risk rating.
A tax strategy document is complemented by a Tax Function Framework document describing the Roles and Responsibilities of the tax function and a Tax Policies document describing the policies developed and used by the tax function.
Formulating the tax strategy
When determining the tax strategy, I advise at least the following elements to be considered:
- Tax function objectives
- Organizational model of the business versus the tax function (e.g. centrals / decentralized
- Risk profile of the company and its tax risk profile
- Scope of taxes covered
- Entities in scope
- Roles and responsibilities
- Tax resources (internal / external)
- The tax strategy detailed per role and / or applicable tax. Formulating the specific strategy detailing the tactics on how to make it happen (short, mid and long term)
Activities |
Strategic objectives per role |
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All corporate departments are well informed and/or have the availability of a VAT work instruction so it is clear when to consult the indirect tax department. |
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Proactively anticipate on changes in the business and outside the business and successfully communicate these changes to the concerning departments. Furthermore look after a correct implementation of these changes. |
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Roles and responsibilities have been determined who deals with the tax authorities during an audit (announcement) and tax authorities questions and procedures “how to act” (e.g. never provide documents without first making copies) have been documented and rolled out. |
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Identify, recommend and successfully implement indirect tax projects that assist in achieving the objectives of the indirect tax department part of the business objectives. |
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Ensure identification, select and manage tax risks as a basis for indirect tax management and reporting, ascertain that unacceptable but existing tax risks are identified and that clear, timely communication on tax status, tax activities and tax risks takes place. |
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The indirect tax department consists of the right number of tax personnel and the right level of skills and capabilities to be successful.
Performance requirements for indirect tax function
To define the performance requirements for indirect tax function the following non-exhaustive overview could be used as a guideline. It relates to indirect tax planning and more regulatory matters with the aim to contribute value to the company’s business priorities.
Gain 'Internal Audit' support to establish change
One of the objectives of Internal Audit is via a risk based methodology to provide comprehensive assurance to the Board and senior management that companies’ material risks areas are managed efficiently and effectively.
Couple of questions for internal audit to get started |
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Is the indirect tax strategy defined and aligned with companies’ business objectives? |
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Are material indirect tax risk areas defined? (e.g. indirect tax risk matrix) |
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Are roles and responsibilities for managing these risks explicitly assigned? |
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Are assessed risks documented in a risk register, monitored and communicated to senior management? |
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Does the risk register contain the following labels: number, name of the risk, risk definition, cause for the risk to occur, risk category and the risk owner? |
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Are the internal controls that mitigate these risks explicitly documented? |
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Are the responsibilities for executing and monitoring the internal controls assigned? |
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Are there regular meetings to discuss status of risks and internal controls and define actions? |
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Has a strategy been defined for managing the relationship with tax authorities? Have the responsibilities been assigned for the different geographic regions? |
5 years strategy plan template
Strategic objectives per role |
Tactics |
Resources |
Time |
Measure |
Indirect Tax Compliance |
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To ensure that company complies with indirect tax laws |
Global Indirect Tax management |
Global Indirect Tax management |
Global Indirect Tax management |
Global Indirect Tax management |
Filing of all required indirect tax reporting, including preparation of proper support files:
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Review indirect tax assessments:
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Tax audits:
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Assist and support local operating companies:
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Strategic objectives per role |
Tactics | Resources | Time | Measure |
Tax Accounting |
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To ensure that company’s indirect tax position is properly reflected in its indirect tax provision |
Global Indirect Tax management |
Global Indirect Tax management |
Global Indirect Tax management |
Global Indirect Tax management |
Perform consolidation of indirect tax position in the financial statements and quarterly reporting of the group:
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Assist and support local operating companies on indirect tax accounting:
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Strategic objectives per role |
Tactics | Resources | Time | Measure |
Indirect Tax Planning |
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To optimize company’s indirect tax position |
Global Indirect Tax management |
Global Indirect Tax management |
Global Indirect Tax management |
Global Indirect Tax management |
Initiate and develop group indirect tax planning:
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Assist and support business on indirect tax planning:
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Strategic objectives per role |
Tactics |
Resources |
Time |
Measure |
Indirect Tax risk management |
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Appoint a strategic business resource for the maintenance of a comprehensive Tax Control Framework and mitigating areas of Indirect tax exposures |
Global Indirect Tax management |
Global Indirect Tax management |
Global Indirect Tax management |
Global Indirect Tax management |
To ongoing maintain its master a tax control framework:
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Representation of company towards authorities and regulators, and lobby groups |
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Appoint a strategic resource for representation and lobbying to protect and serve the interests and culture of Company |
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Initiate and participate in:
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Policies, standards, manuals and guidelines |
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To set clear, accessible and workable policies, standards, manuals and guidelines endorsing company’s culture |
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Initiate and develop and maintain group indirect tax policies, standards, manuals and guidelines:
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Root cause questions
Examples of root causes
- Wrong prioritization / workload
- Underresourced
- Unanticipated projects (non-routine, significant)
- Tax Audits (visits, announcements, questions)
In order to get buy-in from senior management it is often about setting the right priorities, understanding the root cause of underperforming and select a method for measurement that best fits.
The deck explains what a tax function could do to get indirect tax higher on the priority list of senior management.
See chapter: Awareness and acceptance by senior management
Benchmarking
Click to enlarge
Ownership is often lacking around indirect taxes as no one is actually responsible for the entire end-to-end process causing operational gaps most visible when (cross border) changes occur.
Written by Richard Cornelisse
Richard advises multinational businesses in improving the efficiency and effectiveness of their Indirect Tax Function and Tax Control Framework.
He started his career as a manager at Arthur Andersen and then became an EY partner where he led the indirect tax performance team for Netherlands and Belgium. Currently, he is a managing director of SAP Tax Consultancy Firm.
Richard has over 20 years of experience advising clients on international VAT issues. He is specialized in the tax aspects of financial transformations, shared service center migration, and post-merger integration work.