Richard's Approach And View

The ultimate objective of a TCF is to be in compliance with tax laws and reporting requirements and manage the risks that matter (risks that exceed the companies' risk appetite). This requires a clear understanding of the companies' material risk areas and includes documentation of indirect tax policy and roles and responsibilities of the indirect tax department and the shadow tax function, including internal processes and control measures (hard and soft controls).

That means that responsibilities between tax, finance, IT, logistics and the business units need to be defined and also documented and reported.

Based on benchmark studies - see section Why is management necessary and what needs to be done?

How do I normally start

I normally start with the top 5 indirect risk areas of a company and use my Golden VAT Standard to make a GAP and root cause analysis. I can identify via that approach the lowest performing indirect tax processes with the highest direct impact on business objectives.

Start small and expand later. If you scope to large you might loose focus and at the end of the day your message (read: the message of the indirect tax function) has to be crystal clear if you want to gain sponsorship from senior management for any change. The additional advantage is that any negative outcome is still beter manageable, important in case the indirect tax function is the client - 'often underresourced with competing priorities' - and therefore taking the right steps at the right time is simply essential. It is all about timing and a clear understanding what you want to achieve at certain key milestones. I refer to the section: Setting the Objectives on the Indirect Tax Function and remember 'Rome is not built in one day'. That means the aim should be about making the right amount of progress.

It would be different if senior management would decide to implement "The Golden Standard" and that all work streams are instructed to simply make it happen. Based on benchmark findings senior management considers often indirect tax low on the priority list and the reason for such initiative will be - as always - on a higher priority level. Often I see the opposite that the business objective is cost reduction and that a company decides to centralize functions (procurement) and that in design phase not all relevant work streams were involved causing at go live (often a fixed date) hidden operation (rework) and therefore unanticipated costs. Change is about people and that should not be forgotten and therefore active involvement from senior management is needed to make it happen without resistance.

Do you agree?

Projects are assigned, tools implemented and results tracked. However, optimum process improvement or business transformations will not likely be realized by the sum of individual independent efforts.The risk is that individually everybody knows what needs to be done within his or her own area of expertise, but what is lacking is overall direction and thus progress.

Important is to get every stakeholder aligned to the same direction and way of thinking: speaking the same language of performance improvement. When improvement is made in one area, improvements in other areas should also be made. What sense does it make if cost reduction is the business strategy, but from an indirect tax perspective the implemented changes result in substantial commercial risk, tax risks and a hidden costs (significant amount of rework due to corrections) if not properly managed in time? From Why Is Management Necessary And What Needs To Be Done?

Examples

1. How much re-work is required before numbers received from finance systems can be used?
2. The business model has changed as a result of the implementation of a centralized procurement model. This can create not only VAT risks, but commercial risks as well. These include logistics problems with importing goods into a country and subsequent delays and hold offs of shipments resulting in disruption of daily business. Some root causes are: the company forgot to register for VAT and/or procurement staff forgot to communicate with suppliers which party is responsible for importing the goods.