Written by Richard Cornelisse


phenixtax


Strategies, approaches and models


What should a tax strategy contain 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

 

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.

  • To ensure that company complies with indirect tax laws
  • Filing of all required indirect tax reporting, including preparation of proper support files:
    • Reduce unanticipated risks
    • Avoiding penalties for late filing
    • Review indirect tax assessments:
    • Ascertaining that appropriate action is taken before the deadline passes
    • Apply proper cash management
  • Tax audits:
    • Optimize the tax audit process 
    • Limit the duration of tax audits
  • Assist and support local operating companies:
    • Ensure that local operating companies benefit from the skills and expertise of the Indirect Tax function
  • To set clear, accessible and workable policies, standards, manuals and guidelines endorsing company's culture
  • To ensure that group companies act consistently globally and benefit from best practices applied by other group companies.
  • To create and raise awareness on indirect tax policies, indirect tax risks and changes in laws & regulations

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.

  • To ensure that Company’s indirect tax position is properly reflected in its indirect tax provision
  • Perform consolidation of indirect tax position in the financial statements and quarterly reporting of the group:
    • Centralize the activity with indirect tax department at corporate level from a governance perspective
    • Maintain an adequate and reliable view on indirect tax provisioning
    • Assist and support local operating companies on indirect tax accounting:
    • Ensure that local operating companies benefit from the skills and expertise of indirect tax function
  • To ensure that the tax position is properly reflected indirect tax provision
  • Ascertaining proper IT support for ensuring efficient, timely and reliable reporting
  • The degree of automation of the end-to-end indirect tax process 
  • The percentage of VAT/GST posting errors (AR and AP) 
  • VAT/GST invoicing errors (e.g., percentage of invoices returned by suppliers) 
  • The cost of producing an invoice 

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.

  • Tax controversy considerations and requirements are built into the preparation of the indirect tax return and those responsible for indirect tax controversy review indirect tax returns to verify indirect tax positions are properly disclosed, presented and documented.
  • There is a process for managing indirect tax positions and documentation
  • Documentation is updated throughout the life cycle of an indirect tax position
  • Workflow/document management tool supports the process
  • The indirect tax function seeks proactively to engage with tax authorities and tax policy makers on a global basis to establish strong relationships in all jurisdictions in which the business operates
  • Developing a winning strategy to support an indirect tax position requires having clear insight about your tax policies and execution, how the tax authorities conducts their examination, anticipate next moves, etc.
  • Standard global processes exist for indirect tax enquiries and litigation with supporting documentation stored in a central repository
  • The number and amount of penalties paid on VAT/GST assessments 
  • The number of unanticipated audit challenges/assessments from the tax authorities 
  • Limit number of tax questions and duration of tax audits 
  • The cost of audit defense (internal and external) 

Identify, recommend and successfully implement indirect tax projects that assist in achieving the objectives of the indirect tax department part of the business objectives.

  • To optimize company’s indirect tax position
  • Initiate and develop group indirect tax planning:
    • Build a competitive and healthy (international) indirect tax group structure
    • Be pro-active and responsive to turn business developments into tax opportunities
  • Assist and support Business on indirect tax planning:
    • Ensure that Business benefits from the skills and expertise of the Indirect Tax function
    • Ensure that Business do not limit the flexibility of others
  • To ascertain proper implementation and impact of changes in business, laws and regulations on implemented tax planning
  • To ensure minimizing cash tax effects and maximizing tax opportunities taking into account the group operations and structure in case of mergers & acquisitions and divestures
  • The amount of VAT/GST under management in key jurisdictions 
  • Monthly/quarterly VAT/GST working capital requirements 
  • Number of days between docking and learning customs 

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.

  • Appoint a strategic business resource for the maintenance of a comprehensive Tax Control Framework and mitigating areas of Indirect tax exposures
  • To ongoing maintain its master a tax control framework:
    • Ensuring that unacceptable indirect tax risks will be prevented
    • Ensuring that unacceptable indirect tax risks will be identified
    • Ensuring that identified indirect tax risks will be managed and mitigated
    • Representation of company towards authorities and regulators, and lobby groups
    • Appoint a strategic resource for representation and lobbying to protect and serve the interests and culture of company
  • Initiate and participate in:
    • Domestic and international industry groups and conferences
    • Domestic and international  tax groups and conferences
  • How do you communicate risks?
  • How do you want indirect tax to be viewed by management?
  • How do you think it is viewed?

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

 

Is the indirect tax strategy defined and aligned with companies’ business objectives?

 

Are material indirect tax risk areas defined? (e.g. indirect tax risk matrix)

 

Are roles and responsibilities for managing these risks explicitly assigned?

 

Are assessed risks documented in a risk register, monitored and communicated to senior management?

 

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?

 

Are the internal controls that mitigate these risks explicitly documented?

 

Are the responsibilities for executing and monitoring the internal controls assigned? 

 

Are there regular meetings to discuss status of risks and internal controls and define actions?

 

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

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:

  • Reduce unanticipated risks
  • Avoiding penalties for late filing

Review indirect tax assessments:

  • Ascertaining that appropriate action is taken before the deadline passes
  • Apply proper cash management

Tax audits:

  • Optimize the tax audit process 
  • Limit the duration of tax audits

Assist and support local operating companies:

  • Ensure that local operating companies benefit from the skills and expertise of the Indirect Tax function

Strategic objectives per role

Tactics Resources Time Measure

Tax Accounting

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:

  • Centralize the activity with indirect tax department at corporate level from a governance perspective
  • Maintain an adequate and reliable view on indirect tax provisioning

Assist and support local operating companies on indirect tax accounting:

  • Ensure that local operating companies benefit from the skills and expertise of Indirect Tax function

Strategic objectives per role

Tactics Resources Time Measure

Indirect Tax Planning

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:

  • Build a competitive and healthy (international) indirect tax group structure
  • Be pro-active and responsive to turn business developments into tax opportunities

Assist and support business on indirect tax planning:

  • Ensure that business benefits from the skills and expertise of the Indirect Tax function
  • Ensure that business do not limit the flexibility of others

Strategic objectives per role

Tactics

Resources

Time

Measure

Indirect Tax risk management

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:

  • Ensuring that unacceptable indirect tax risks will be prevented
  • Ensuring that unacceptable indirect tax risks will be identified
  • Ensuring that identified indirect tax risks will be managed and mitigated

Representation of company towards authorities and regulators, and lobby groups

Appoint a strategic resource for representation and lobbying to protect and serve the interests and culture of Company

Initiate and participate in:

  • Domestic and international industry groups and conferences
  • Domestic and international  tax groups and conferences

Policies, standards, manuals and guidelines

To set clear, accessible and workable policies, standards, manuals and guidelines endorsing company’s culture

Initiate and develop and maintain group indirect tax policies, standards, manuals and guidelines:

  • Ensure that group companies act consistently on comparable matters globally
  • Ensure that group companies benefit from best practices developed in the group

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

Benchmark examples 1


Benchmarking yourself against your peers



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 LinkedIn

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 Key Group.

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.