- How is a Business Control Framework related to a Tax Control Framework
- VAT Control Framework
- VAT Control Framework: Transitioning from Concept to Implementation
- 'Governance', 'operation' and 'infrastructure'
- A straightforward breakdown of Sarbanes-Oxley Act
- The Transforming Role of the CFO in Tax Management
- The Vital Role of CPA in Ensuring VAT Compliance and Assurance
- Investors' Expectations Regarding Taxes: Navigating Uncertainty and Strategic Planning
- Challenges of Using Spreadsheets for VAT Compliance
- VAT Under Management: An Overview
- Statistical sampling: quantification of tax risks
- Data analysis
- SAP review
VAT Control Framework: Transitioning from Concept to Implementation - KGT's Guidelines for VAT Planning
Page 7 of 8: KGT's Guidelines for VAT Planning
KGT's Guidelines for VAT Planning
The tax policy must include detailed guidelines regarding VAT planning and clarify whether such planning aligns with the company’s tax strategy. These guidelines should receive approval from senior management and address considerations such as the likelihood of challenges from tax authorities and potential reputational risks. The policy should also outline documented evaluation and acceptance criteria for planning, implementation review processes, and ongoing monitoring mechanisms.
Mandatory Early Involvement of Tax Departments
From a Tax Control Framework perspective, risk-based controls become increasingly vital with the complexity of transactions. The tax policy should specify circumstances that necessitate the early involvement of indirect tax departments, including stakeholders such as Legal, IT, HR, Internal Audit, Procurement, Business, and Finance.
Certain transactions consistently exceed a company's VAT risk appetite and thus require immediate attention:
- Significant business transactions
- Non-routine transactions:
- Share issuances or sales
- Reorganizations
- Acquisition or disposal of any business or part of a business
- Acquisition or disposal of real estate
- Financial transformations
- Outsourcing of business functions (e.g., Shared Service Centers or third-party accounts payable/receivable)
- Other significant financial transactions
To ensure compliance and mitigate risk, it is advisable to provide clear guidance for process owners and stakeholders regarding the necessity of seeking VAT input early in significant transaction processes. Approval from the indirect tax department should be mandatory before executing any non-routine or significant transactions. Additionally, the indirect tax department should be an integral part of workstreams for technology and finance projects.
Considering Tax Implications in Operational Changes
Operational changes can have significant tax implications due to shifts in transactional flows and a company’s assets, functions, and risk profile. It is essential to ensure that any new operating model is not only compliant with direct tax regulations but also aligns overall business processes with tax requirements. This alignment should involve collaboration across various functions such as compliance, finance, accounting, legal, IT systems, VAT, and regulatory affairs.
To transition the tax policy from theory to practice, the implementation phase may also involve organizational changes and enhancements to existing processes and systems.
Optimizing the Use of VAT Resources
Given the typically limited availability of VAT resources within a company, it is crucial to utilize these resources efficiently and effectively. This entails making informed choices and ensuring that the necessary resources and budgets align with the outcomes of the tax risk assessment. Due to the constraints on VAT resources, prioritizing high-risk areas should take precedence to maximize impact and minimize potential exposure.
To effectively allocate resources to areas that optimize risk management and cost savings, it is essential to first establish the company’s risk appetite.
Defining acceptable levels of risk allows for prioritization in resource deployment, ensuring that efforts are focused on areas that truly require attention. This approach prevents unnecessary expenditure of resources on mitigating risks that are already deemed satisfactory. Furthermore, the efficiency and effectiveness of the indirect tax department should be regularly assessed and compared against financial and operational KPIs. Review meetings should be held to discuss these evaluations, and any necessary corrective actions must be identified and implemented.