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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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 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.