It starts with the people in the organization becoming aware of the amounts that are at stake and the risks of something going wrong. Big4 surveys show unanimously that we’re easily talking about amounts of 5 billion euros concerning indirect tax. Benchmark studies repeatedly create the same picture: too little control, too few KPIs and when a mistake is made in the control, it usually concerns large amounts of money.
A mistake of one percent can make the difference between profit and loss for a multinational company. Explain that to your shareholders.’
Tax audits and data analytics Tax Authorities, due to technological innovations, have become increasingly better in executing their tax audit. The probability that the Tax Authorities will issue additional assessments and penalties in the near future because errors in indirect tax are detected, increases by the day.
Best practice approach for optimum buy-in
VAT under management What are the monthly respectively quarterly VAT/GST working capital requirements and if possible the amount of input tax leakage. Minimization of cash savings, interest and penalties, tax expense and audit assessments and maximization of attainable recoveries fit the KPIs of senior management.
Indirect tax has often a low priority and that the focus of senior management is primary on direct tax effectiveness. To change this mindset as starting point the VAT throughput - amount of VAT under management - could be calculated via the company’s annual report and subsequently internally communicated as follows:
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VAT potential impact Earnings per share serves as an indicator of a company’s profitability: (net income – dividend on preferred stock) / average outstanding shares.
Managing this indicator is the responsibility of senior management
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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.
