- The Role of the Head of Tax: Mastering Compliance, Strategy, and Value Creation
- Embracing Corporate Fiscal Responsibility: A Pledge to Sustainable Business Practices
- A VAT/GST strategic plan: approach and scope
- Company's 'governance', 'operation' and 'infrastructure'
- Strategies, approaches and models
- Structure the tax function
- Gain awareness and acceptance of senior management
- Setting the objectives of the tax function
- Audit defense strategy
Setting the objectives of the tax function - Demands on the tax function
Page 2 of 3: Demands on the tax function
Demands on the tax function
The tax function should be able to understand business activities/objectives including R&D and get aligned with other functions like legal, HR and IT. Higher quality with fewer people could be a business objective to realize process improvements and is often represented by the following keywords: 'easier, faster, better, cheaper'.
The indirect tax department is staffed with the appropriate number of professionals, equipped with the necessary skills and capabilities to ensure success.
Is fully VAT compliant realistic to achieve?
Effectiveness is the degree to which an organization achieves the objectives. When is effectiveness achieved? For the tax function, this is if all risks are managed and opportunities spotted and implemented. Efficiency refers to the extent to which time, effort or cost is well-used for achieving the objectives. As indirect tax resources are normally scarce, it is important that the available time is used in the most efficient and effective way.
Beside the fact that managing all risks is cost inefficient, it will have a negative impact on efficiency beyond indirect tax (e.g. time spent by the finance department on VAT matters).
It is about making the right choices. To allocate resources to risk and cost-saving areas that matter, the level of risk appetite of the company has to be determined. This facilitates prioritization in the deployment of resources. Having defined acceptable levels of risk leads to resources not having to spend time on further reducing risks that are already at an acceptable level.
The resources and budget are aligned with the outcome of a risk assessment. Most of our time in high-risk areas. The efficiency and effectiveness of the indirect tax function is periodically measured and compared with financial and operational KPI’s. This is discussed in review meetings and corrective actions are identified.
Sometimes percentages are used to prove the apparent level of control. The most famous is the 80-20 rule. Another example is statements like 95% of our transactions are compliant. These numbers can cause misperception of senior management when the overall feeling within the business is that the company is in control. For the potential impact of such error rates, we refer to VAT throughput calculation.
What does the following statement say about risk management?
Tackling master data can contribute to getting over 80% of your invoices VAT compliant.
If 80% of these invoices are considered low risk and 20% exceed the company's risk appetite, then while the solution allows for efficient employee deployment, it does not adequately support the achievement of risk management objectives. For the sake of this discussion, I've categorized the 20% as high risk; however, in practice, this classification should be thoroughly investigated and measured to be effective from a management perspective.