Tax control framework (TCF) – A tax control framework is a system (process) to identify, mitigate, control and report tax risks. A TCF forms part of a business control framework, which is different for every organization.
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). This requires a clear understanding of the companies’ material risk areas and includes documentation of indirect tax policy and roles and responsibilities of the indirect tax department and the shadow tax function, including internal processes and control measures (hard and soft controls). That means that responsibilities between tax, finance, IT, logistics and the business units need to be defined and also documented and reported.
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.
Internal control is a process. It’s a means to an end, not an end in itself. Internal control is effected by people. It’s not merely policy manuals and forms, but people at every level of an organization. Internal control can be expected to provide only reasonable assurance, not absolute assurance, to an entity’s management and board. Internal control is geared to the achievement of objectives in one or more separate but overlapping categories. From: The Institute of Internal Auditors, Does Your Control System Pass the COSO Test, March 1998, Issue 2
From: VAT Control Framework