Written by Richard Cornelisse
The surveys of the Big4 are clear: we are talking about extremely large amounts of money that lack appropriate control, but because KPIs have never been developed for this particular purpose, the risks remain outside the CFO’s field of view. 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.
The current trend is a shift from direct tax to indirect tax by decreasing direct tax rates and increasing VAT/GST rates. Corporate income tax rates are continuing to fall in many countries. At multinational companies we’re easily talking about amounts of over 5 billion euros of indirect tax flowing through the books. Yet according to big4 surveys, the related control mechanisms are still inadequate.
It is essential that financial auditors also read the surveys, acknowledge the risks and discuss them with the CFO.
The best outcome would be if the indirect tax would be controlled by default in audit or if a stand point would be taken not to do that.
Tax mandatory in scope of auditors: a direct tax issue
The 'enhanced relationship' model in UK and new proposals will most likely be copied and implemented by other tax authorities. Penalties when the 'tax rulings' are considered State Aid might exceed the external auditor's materiality.
Tax assessments are material from a financial reporting perspective
due to reputational and financial risks
- Italian tax police believe Google evaded 227 million euros in taxes.
- Apple has agreed to pay €318m (£235m, $348m) to Italian tax authorities following a two-year fraud investigation, according to reports.
- Google agreed to pay the UK treasurer £130 million ($185 million) in back taxes, covering the period since 2005, and to also pay higher taxes in the future.
- France is seeking 1.6 billion euros ($1.76 billion) in back taxes from U.S. Internet giant Google. Although the tax topic is related to the existence of a permanent establishment in France or not, it is at the end of the day a TP question in the sense what would have been the proper transfer pricing between a French and a foreign subsidiary. Investigators raid Google Paris HQ in tax evasion inquiry (May 24, 2016 - Reuters).
Facebook (FB, Tech30) disclosed on Thursday that it could owe billions due to an IRS investigation into the way it moved assets to an Irish subsidiary to avoid higher taxes.
The IRS tax penalty could total $3 billion to $5 billion, plus interest, according to a Facebook filing with the Securities and Exchange Commission. If so, Facebook says the penalty could have a "material adverse impact" on its financial position. CNN Money
Will ‘tax assurance’ mandatory be reviewed by External and Internal Auditors?
Tax assurance will become more and more important and included mandatory in the scope of work of an auditor. The company's reputation is at stake and substantial amounts are involved.
Triggers for substantial change and tone at the top
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Benchmarking yourself against your peers
Related GITM articles
- Examples of public Fiscal Transparency statements
- The Tax Transparency Benchmark 2015
- BEPS 2015 Final Reports
- EU - Public consultation on further corporate tax transparency
- CbC reporting / tax transparency: Accounting Directive
- Improving large business compliance
- Tax administration: large businesses transparency strategy
- Spreadsheets and Compliance
- Tax Strategic Plan
- Tax Control Framework
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 a partner in EY where I led the indirect tax performance team for Netherlands and Belgium. Currently he is a senior managing director of Phenix Consulting.
Richard has over 20 years’ experience advising clients on international VAT issues. He is specialized in the tax aspects of financial transformations, shared service centre migration, and post merger integration work. Richard is also somewhat of a mentor, giving back to the profession. If you are interested in conversation and discussion, please feel free to contact him.
Embrace new technologies and catch up: automate workflow, document management, calendaring and internal controls
Compliant tax software solutions for the global management of tax processes
In essence, HRMC’s increases its expectations towards large businesses with regard to a more and more transparent tax management strategy. However, the publication of a tax strategy will clearly not be sufficient. It is just the starting point for the provision of a clear picture about the risk management and controls in place of tax relevant processes. The daily management turns on the radar.
State-of-the-art tax compliance management software is required.
In difference hereto, the view into the current daily practice provides a different and non-compliant picture:
Widespread use of Excel spreadsheets, decentralized storage of tax relevant documents, lack of documented controls, lack of automation, global lack of tax compliance software tracking individual changes and filings, lack of standardized reports immediately available upon request, lack of in-built double-checks for the calculation of current and deferred taxes on reporting entity level, lots of tax relevant data stored at external outsourcers (e.g. external tax advisors and accounting firms), several tax software tools in place at various locations which are neither interfaced among each other and with the ERP systems in place, etc.
It is obvious that tax departments which are not adapting its process management to the requirements addressed by HMRC and other tax authorities may struggle with regard to compliance, efficiency and transparency.
Therefore, compliant tax software solutions for integrated tax management like the U² software from Universal Units become more and more important