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There is no ‘one-size-fits-all’ approach to the design and implementation of an operational indirect tax strategy. However, the objective should be to create an indirect tax function that is fit for purpose and fully aligned with the operational priorities and risk appetite of the business.
Failures in VAT-critical systems and processes can result in overpayments of VAT that represent a real cost to the business, or in under declarations that entail the threat of penalties and reputational risk.
Through the design and implementation of effective controls, the objective of the internal indirect tax function should be to assume overall strategic responsibility for the operational integrity of VAT-critical systems and processes.
Unless there are measures in place to capture and control the end-to-end VAT accounting process, the result will be an incomplete risk management strategy that is essentially unreliable. By contrast, an improved tax risk management model should involve periodic testing of controls to guarantee the effectiveness of VAT-critical processes.
From a big 4 survey, it follows that only 25 percent of companies say their company has specifics indirect tax metrics. Most of these measures relate to basic compliance, rather than activities that could improve the bottom line and drive cash flow improvement. From that outcome, I conclude that a strategic indirect tax plan with SMART individual objectives set has not been developed or properly rolled out.
How to realize objectives via best practice approaches, tools and methodology
Setting realistic objectives is the starting point for any successful change effort. To increase indirect tax function effectiveness, it is important to set S.M.A.R.T. objectives and define tasks: add to objective the word by ... as shown in the below example. Break down larger tasks into smaller ones.
For example, the objective is to create, protect and optimize value in the range of company's business objectives (see for other indirect tax objectives picture below). Simply add to this objective the word by .................. And fill in to define concrete and measurable actions].
Create, protect and prove value and write a business case for investment to realize business objectives such as improve cash flow, reduce costs, improve tax processes and manage tax related risks.