Tax Control Framework

From police officer to co-assistant

Traditionally the “relationship” with authority, whether it is customs, tax or the statistics authority has been loaded with negative energy and resistance. It is inherent to the positioning of authorities as a controlling body, searching for mistakes in order to penalize and fine. It is not suprising that such an attitude hinders transparency and trust in the relationship. Yet this attitude is traditionally and naturally used by any authorative body: managers, parents and anyone else taking a leading and guiding position.

The Tax Control Framework though, does fit into modern society and mingles well with modern-day management styles and pedagogic insights. TCF levels with ‘Management by Objective’ and using positive impulses to stimulate desired behaviour.

The basis of Tax Control Framework
The thesis is that both businesses and the tax authority strive for compliance. The basis of TCF matches with this thesis. Based on mutual trust, understanding and transparency between the business community and the tax authority, each party’s responsibility will be determined. Included is an individual agreement on how to ensure compliance with existing obligations. In this so-called “Handhavingsconvenant” (enforcement covenant) the shape of mutual cooperation will be formed. Specifically the intention and manner of TCF will be debated and will therefore consist of only procedural agreements, no fiscal agreements will be made.

The role of tax inspector shifts from police officer to co-assistant, who’s goal is to introduce control points within your company process that will allow connection to the systems of the tax authority. In this framework the tax authority has developed the “Tax Control Framework” or TCF, it serves as a guideline to a structural implementation of control points. TCF allows for the taxable entity to prove the organisation’s control over its fiscal processes and risks. However the implementation of TCF is a matter of customization by definition as it should seamlessly fit to your business processes as risk control is partly dependent on the size and complexity of your organization.

TCF is fully aimed at the future. With trust at it’s base and as a part of the enforcement covenant TCF brings closure to the fiscal past. In this framework old financial years will be closed, practically without any control, allowing the cooperation to begin with a clean slate.

Threats and benefits
Many accountants and consultants see a threat in the tax authority’s initiative. This seems logical as the assistance given by the tax inspector in your processes will directly result in a lesser need for consultancy hours. Consultants put emphasis on the investment of extra time in order to join systems with TCF. This is correct, as the tax office will initially invest lots of time and resources into the definition of control points and in assisting you with the customization of TCF within your organization, it expects in return that your organisation will also invest time in the start-up phase. How demanding this investment will be depends on the point of departure; do you already have a proper grip on fiscal processes and risks, the investment will only be limited. However if this is not the case, it stands to reason that the demand on your time will be somewhat larger.

This is a fact, however, that is inherent to a change in management style / control structure. If a manager, or indeed a parent only points out: “this is wrong” or “that is not allowed” the message is quickly transferred. An explanation into why this is not correct and what would be desired output or behaviour will initially take more time. Withall this does result in understanding as to what is desired and will create a lasting change in attitude and behaviour. In other words, the return on investment will take the shape of the tax authority needing less time for control and you being in control of your fiscal process and its risks. Being in control of this process means that you will no longer be confronted with unpleasant surprises. Therefore criticism and objections from consultants should be considered in this light.

Tax Control Framework: a welcome initiative
Within Pincvision’s Outsource Compliance service all imaginable control points have been put in place, our processes are transparent and for many of our customers we have been a part of their SOX processes since the beginning. Clearly for Pincvision TCF is a welcome initiative. It reveals to senior management that there often is insufficient control on fiscal processes and its risks, thereby creating the realisation that it should and could be done better. Especially this realization together with the commitment to change processes to conform with TCF as was agreed upon in the enforcement covenant, have caused businesses to decide to outsource their compliance process to Pincvision. These companies have concluded that because their current process lacks focus and has resulted in unacceptable risks, drastic changes are required. On the long term this need for focus and change can best be guaranteed by an external organization that has lifted compliance to a core business level. That’s Pincvision!

For obvious reasons our slogan is: Pincvision, Compliance in control!

Author: Gert-Jan van Telgen, Business Unit Manager Intrastat & VAT