Objective of Tax Control Framework
A Tax Control Framework (TCF) is an internal control instrument specifically aimed at the tax function within a company. A TCF is not limited to the Tax Department, but an integral component of a company’s Business- or Internal Control Framework (hereinafter also ICF).
The ultimate objective of a TCF is to be in compliance with tax laws and reporting requirements and manage the risks that matter (risks that exceed the companies’ risk appetite).
Among other things, this requires a clear understanding of the companies’ material risk areas and includes policy and roles and responsibilities of the tax department and the shadow tax function (anyone who is not formally in the tax function, but has a role managing tax; e.g finance function re indirect tax compliance), internal procedures/processes and control measures (hard and soft controls).
This framework ensures that an organization has adequate control over its tax processes. A TCF can prevent tax errors, identify opportunities in a timely manner and perform correct filings at the right moment.
A company’s VAT control framework system is adequate if it provides insight into where material VAT risks may arise in the company (awareness), while the degree of risk tolerance is established internally and where appropriate control measures are taken with respect to these risks.
Control activity examples in four risk areas:
Focus areas – Risk description
- Strategic – VAT strategy cannot be tested as to whether this is in line with the entire tax and corporate strategy
- Operational – The indirect tax function is not consulted when changes occur
- Financial – VAT payments are not made on time
- Compliance – The VAT filing is not done on time
Below is an example that relates to changes in the business (strategic) and shows the controls that can be implemented to manage the risks that come up with business changes.
The KEY Group’s normative indirect tax control framework
The KEY Group has extensive expertise in the area of Business Controls / Internal Controls and has developed a normative framework for indirect taxes, the so-called VAT Control Framework.
The actual situation (IST position) within the organization is then measured against this yardstick, generally resulting in a summary of the differences. Analysis of these gaps and the associated risks may lead to acceptance or to proposals for improvement.
It is an efficient and effective approach that challenges the relevant process owners.
The design of the normative framework was realized by the practical experience of the former Indirect Tax Technology Leader of Shell International, a former Ernst & Young partner and a former Executive Director of Deloitte who specialize in the area of Indirect Tax Performance respectively Business/Internal Control and who have supported many multinationals with structure, design and implementation.
The KEY Group uses the experience gained to continuously test and improve the normative framework based on examples and practical solutions.
The collaboration of experts Robbert Hoogeveen, Richard Cornelisse and Ferry Geertman has resulted in an integrated client solution from the various areas of expertise.
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