By Richard Cornelisse, CEO KEY Group
(Dutch version) There is a global trend toward increasing VAT rates and broadening the grounds for charging VAT. Governments increase their tax revenues in this way as a measure of combating increasing budget shortages due to the financial crisis and/or for financing the reduction of direct taxes (corporate tax, income tax, etc.).
Since indirect tax revenues rise in comparison with total tax revenues, the tax authorities pay more attention to indirect taxes than they did previously. After all, there’s more to be gotten here – resulting in a higher priority.
There is also large-scale VAT fraud within the European Community. Actively combating VAT fraud is a priority for the European commission and local governments. New measures are being taken such as the introduction of individual liability for not remitting VAT if the buyer knew or should have known that he was buying from a fraud. To prevent such a condition of liability, the ability to demonstrate that sufficient control measures have been taken is essential.
In the Netherlands, the tax authority often uses statistical sampling as a control method during a VAT audit. The severity of the additional tax bill is determined based on the number of errors found.
Foreign tax authorities cooperate intensively in the Fiscalis program. The Fiscalis program will be continued under the name of Fiscus and has a budget of 770 million for the period between 2014 2020! Knowledge in the area of risk management is shared actively.
Data analysis is known to be used for rapid insight into exactly where the risks lie and what the quantitative impact is of these risks. In this way, the tax authority can perform its audit of the books in a more directed manner. Compared with sampling, data analysis has the benefit of no longer missing a significant treatment error.
Data analysis is already used in a number of countries. It is expected to become a standard audit method in the near future.
Both data analysis and sampling can be used by multinationals as a pre-audit to test the functioning of the tax control framework.
There is, namely, an expectation that tax authorities will start testing the tax control framework for its adequate functioning in the future. In the Netherlands (horizontal supervision aka horizontal monitoring) and England (Senior Accounting Officer sign-off), there are examples of such initiatives.
The OECD also promotes such ’enhanced relationship’ between tax authorities, taxpayer and advisers, where ex post facto audits may be limited by instituting both a proactive and a cooperative relationship with the tax service.
The aforementioned developments are extra reasons to give the right priority to indirect tax management and to formulating annual indirect tax objectives as part of the company’s tax strategy.
It is essential here that the tax function also be empowered to actually achieve these objectives.
The KEY Group has developed normative frameworks and applications that not only provide rapid insights into the risks and savings opportunities but that also quantify them. By writing a problem statement, the reporting method optimizes senior management’s sponsorship.
Filed under: Audit Defense, Benchmark, Business Strategy, EU development, Indirect Tax Strategic Plan, Processes and Controls, Technology Tagged: Audit, Budget, control measures, control method, Corporate tax, data analysis, enhanced relationship, financial crisis, Fiscalis, Fiscus, global, GST, horizontal monitoring, horizontal supervision, income tax, Indirect tax, indirect tax management, Indirect Tax objectives, indirect tax revenue, KEY group, liability, Netherlands, normative framework, OECD, priority, problem statement, richard cornelisse, risk management, risks, sampling, savings, Senior Accounting Officer, sign off, sponsorship, statistical sampling, Tax, tax bill, Tax Control Framework, tax strategy, trends, Value-added tax, VAT, VAT audit, VAT RATES
