Tax Evasion and Tax Compliance Theory and Policy

Transcription

1 Tax Evasion and Tax Compliance Theory and Policy Co-operative compliance in The Netherlands May 2015 Milan

2 Introduction into the Netherlands Key facts: people km2 GDP: EUR 798,2bn (2014) small businesses medium sized businesses very large businesses Vision of the NTCA: Maintain and improve voluntary compliance through influencing behavior

3 Compliance Risk Management Strategy Objective Maintaining and improving compliance Toolbox A mix of preventive and repressive instruments Compliance Risk Management Strategy Clients Large Businesses Capacity Limited capacity PwC

4 Responsive Regulation The form and intensity of the supervision is determined by (1) willingness and (2) ability to comply. Starting point Next step : Client Profile : Choice of Enforcement Instruments Balanced mix of repressive and preventive action Preventive instruments: Assess rules & legislation, communication, services, visits to companies, right from the start, APA/ATR Repressive tools and corrective action: Assessment of tax returns, field audits, fraud investigations, (administrative) fines New / innovative tools: Horizontal monitoring, enforcement communication, collaboration with other enforcement agencies Result : Strategic Supervision Plan

5 Supervision Strategy Large Businesses - NTCA Supervision activities Improvement compliance Client Profile Compliance Responsive Regulation Supervision Strategy / Strategic Supervision Plan Behavior / Attitude / Motives Analysis of client profile ATK+

6 Twofold behavior cooperative but also Increased scrutiny to explain tax affairstougher multiple stance in their audits. Moving towards automatic - Financial exchange crisis / budget of information Global - Morealignment information vs. available national OECD Standard for Automatic Exchange of - Public accountability on sweet Financial Information in Tax Matters, Multilateral heart Need for deals global consensus on level EU extending CBCR agreement for banks, implementing investment firms, the Standard playing field for competition From among vertical monitoring to Unilateral actions to tighten tax Increased public interest credit ininstitutions, extractives US - FATCA and potential countriesfuture co-operative compliance, to regulations, close loopholes the fairness and efficiency extension of CBCR toeu the public the EU forsavings all industry Taxsectors, Directive, theregulated self- assessment EPTaxation scrutinyof digital economy of tax systems. AIFMD - Extensive disclosure Administrative by investment Cooperation fundsdirective to (AEOI with external on tax assurance Financial aid investigations Starbucks, Microsoft, investors, regulators, in other annual income report. types) Big challenges capacity and building, tax compliance by Google, Apple, Amazon Lux performance Leaks: measurement design and effective EITI - Voluntary regime for extractives to disclose and and other MNEs being use Public of IT. outcry reconcile paymentsfor to governments. organizations it is crucial to have real Great time access importance to tax IT accused for dodging taxes. US - Dodd Frank Act tofor data extractives. and information Political flows discomfort Data analytics stakeholders: Setting the OECD/G20 scene - BEPS (AEOI): / Country Compliance by Country Reporting (CBCR) to governments, for companies interests all industry megatrends sectors Increased public scrutiny, active NGOs Transparency initiatives Multilateralism automatic exchange of information Political debates Technological advances Aggressive Tax Authorities

7 Co-operative compliance Horizontal Monitoring The fundaments of co-operative compliance are transparency, justified trust and better understanding of the taxpayers business and risk profile. PwC Build trust, improve transparency, increase sharing information, speed up process of decision making and reduce backlog Enhanced relationship Actual (real-time): from repressive to preventive Efficient and effective: use work of others and solve tax issues real-time in advance Tax Control Framework Design and implementation Monitoring and testing / Assurance Communication

8 Onion (Layer) Model SOX-audit SAS70 (TPM) Audit annual accounts External audit Internal audit Tax Assurance Other techniques Business process Internal control in control statement (SOX) Tax audit COSO

9 Horizontal monitoring process Degree of adjusted supervision Improvement of tax management and monitoring Analysis of tax management and monitoring Compliance scan Horizontal monitoring meeting Compliance agreement Client profile Time

10 Horizontal monitoring - step by step approach Step Actors/ responsibilities 0 Up-to-date client Up-to-date clientprofile profile Account team NTCA 1 Introduction totohm Introduction HM Management NTCA and management LB 2 Compliance scan Compliance scan Account team NTCA in cooperation with the LB 3 Resolutionofofpending pending tax issues Resolution tax issues (if applicable) (if applicable) Compliance agreement Compliance agreement Account team NTCA in cooperation with the LB 5 Analysis and and improvement of taxtax Analysis improvement management and monitoring controls LB 6 Form and intensity of supervision adjusted Strategic Supervision Plan Account team NTCA 4 Management NTCA and management LB

11 Compliance agreement

12 Building a house

13 Basically: communicating vessels Tax Management Adjusted supervision

14 Evaluation of Horizontal Monitoring Committee Stevens Points for improvement: First: more efficient and effective use of the third layer of the onion (layer) model (external audits / assurance) Second: more explicit specification of the TCF (guidance/normative criteria on design, implementation & monitoring) Third: qualitative and quantitative staffing available to the NTCA But also: Transparency NTCA in substance (clear criteria) and procedure (responsibilities, processes and working methods).

15 Horizontal Monitoring lessons learned Involvement and commitment management Commitment staff (internal communication) Identify the right participants External resistance (external communication) Change of culture (behaviour) and building justified trust Reciprocity: Certainty in exchange for transparency Legal framework and guidance Manage expectations and resources Client relationship manager Use work of others Keep strategy under review and modify if necessary Fight tax crime: resources for those not compliant

16 Tax Management Maturity Model PwC

17 T3M for tax authorities Actual Information Up to date clients profile PwC Leads to Review of work done by or on behalf of the organization Completeness information in tax return Correctness information in tax return And in conclusion to Less (frequent) audits More efficient and less time consuming audits Possibility to compare tax payers by having an objectified clients profile and to make (better) choices with regard to the execution of supervision activities More effectiveness on the execution of the Compliance Risk Management Strategy (Responsive Regulation)

18 Tax Management Maturity Model for Tax Authorities INPUT T3M Building Blocks OUTPUTS Comfort Information on: Business & Tax environment Business Operations Tax Operations - Tax Organisation - Tax Planning - Tax Risk Management - Communication - IT - Monitoring - Tax Compliance - Tax Accounting Tax Risk Management Monitoring & Testing Comfort related to the risk category of a taxpayer determines the form and intensity of supervision Tax Assurance PwC

19 Annex PwC

20 OECD / FTA LBN on TCF The OECD / FTA task team agreed on the six principles or essential building blocks of a Tax Control Framework, which are consistent with existing enterprise-wide models of internal control such as COSO: Tax strategy: This should be clearly documented and owned by the senior management of the enterprise, i.e. at Board level; Comprehensive: All transactions entered into by an enterprise are capable of affecting its tax in one way or another, which means that the TCF needs to able to govern the full range of the enterprises activities and ideally should be embedded in day to day management of business operations; Responsibility: The role of the tax department and its responsibility for the development and implementation of the TCF should be clearly recognised and properly resourced; Governance: There needs to be a system of rules and reporting that ensures transactions and events are compared with the expected norms and potential risks of non-compliance identified and managed. This governance process should be explicitly documented. Testing: Compliance with the policies and processes embodied in the tax control framework should be the subject of regular monitoring, testing and maintenance. Assurance: The tax control framework should be capable of providing assurance to stakeholders, including external stakeholders such as a tax administration, that tax risks are subject to proper control and that outputs such as tax returns can be relied upon. The six building blocks are consistent with the Tax Management Maturity Model (T3M). PwC

21 Ways to gain more insight in the tax function and it s comfort level: Strategy workshop T3M online tool T3M scan Sampling / controls testing In control over tax Control self assessment Risk management workshop Level of comfort Low Monday, May 4, 2015 High

22 Strategy Workshop Objectives Strategy workshop Develop a clearly defined tax vision and strategy that s fully aligned to overall business strategy. Engage with, and challenge stakeholders to ensure they understand and agree how tax works within the organization. Provide practical challenge and share best practices to ensure your strategy is fit for purpose. Undertake benchmarking against your peers. Describe tax strategy Activities We assess the current state, looking at the existing culture, governance, policies, resources and capabilities. Drawing on our experience of other organizations and best practice, we also benchmark the current state (if required). Prepare workshop together with tax department Identify relevant stakeholders to participate in the workshop. We hold a workshop with relevant stakeholders. Once agreement has been reached, we can assist you in documenting the strategy, obtaining Board approval. Perform a gap analysis between the current state and what is needed to deliver the new strategy. Topics to discuss during the strategy workshop Deliverables A strategy workshop. A written Tax Strategy A gap analysis including benchmarking with peers. Results Communicate transparently and with confidence, internally and externally on tax, thereby reducing the risk of tax reputational damage and unwanted tax exposures. Increase the level of knowledge of tax risk and how risks are managed in within the organization. Enhance the quality of tax risk management i.e. your tax control framework.

23 T3M online tool / workshop Objectives T3M online tool Understand the effectiveness of its tax function and tax control framework. This will enable the organization to develop a plan to ensure it can meet its strategic objectives and address the requirements of its stakeholders. Use online model which enable s the organization to assess the current state of its tax function and tax control framework and identify areas for improvement. Activities An introduction workshop on the Tax Management Maturity Model methodology and the IT-tool. Assisting with the preparation of the internal scan / questionnaire. High level review of the outcome of the self assessment. Act as a sparring partner during the project. Prepare bench mark report. Deliverables An easy to understand, collaborative online tool. T3M Self assessment (performed by relevant stakeholders of the organization). Benchmark report based on the T3M, which enables the organization to benchmark the tax function with (international) peers. Results T3M tool will enable the organization to facilitate internal discussions on the ambitions of the tax function and the tax control framework. The tool can be used to illustrate, and help senior stakeholders define, the strategic direction of the tax function and communicate this to Tax Authorities and other stakeholders.

24 T3M scan Objectives Overview maturity level tax function To get an objective insight in the current maturity level of the tax function of the organization and be able to share this information with the tax authorities as well as any other stakeholder. Determining the desired maturity level and preparing a project plan. Activities Gain insight in the current (tax) risk processes and management system and gain insight in and use the existing the organization Tax Control Framework. Assess current level of control (maturity level) by means of interviews with key players in tax function e.g. CFO, (VP)Tax Director, Finance Director, Group Controller, Risk Manager and Manager Accounting. Analyse quick wins and tax opportunities. By means of PwC s Tax Management Maturity Model (T3M), the current maturity of the organization TCF will be determined. Assess desired level of control (maturity level). Present best practices and benchmarks and assist the organization in preparing a project plan how to reach the desired maturity level, taking into account the budget (no blank check!). Project plan step 1 Project plan step 2 Project plan step 3 Project plan step 4 Project plan step 5 Project plan step 6 Deliverables An objective report of findings based on T3M which gives a clear view on the maturity level of the tax function of the organization (performed by PwC experts). Insight in key risk for CIT (transfer pricing),vat and wage taxes. The desired maturity level of the tax function and clear manageable steps on how to get there. Results Insight in maturity levels of the tax function. Platform for internal and external communication on tax and In Control. Insight in desired maturity level. Firm basis for determining next steps and prioritization. Communication tool for internal stakeholders.

25 Risk Management Workshop Objectives Risk Management workshop Detailed risk list Implement a structured risk management approach. Make sure that all major risks are identified, assessed and responded to. Determine whether appropriate risk mitigation actions have been designed and implemented within tax and/or other departments (e.g. internal audit). Risk assessment Activities Facilitate an inter-active risk management workshop with participants involved in the tax function to identify major risks. Participant perform a homework exercise to identify risks that could prevent the organization from achieving its objectives. Define risks and scope. Perform risk assessment. Participants evaluate risks scenario s on two criteria: impact and likelihood. Determine which actions are in place to manage the risk scenarios and define whether these are effective and efficient. Formulate additional actions (SMART) with action owners were current actions are not effective and/or efficient (risk response). Risk response chart, Top10 risks Deliverables Full detailed risk list (rank on risk level, risk description, impact, likelihood, risk. Identification of major risks evaluated on impact and likelihood. Risk-control priorities, risk response chart. Results Insight in detailed tax risks. Firm basis for determining next steps and prioritization. Increase the level of knowledge of tax risk and how risks are managed in within the organization. Be confident the mitigation of key tax risks is effective and efficient using appropriate tax controls throughout the organization.

26 Control Self Assessment Objectives Insight in the tax position and processes in various countries. Increase awareness for key players involved in tax related processes within the organization. Provide the support to local finance teams that matches their needs. Increase reliability of internal reporting with regard to tax in line with the current tax risk appetite. Ensure that the organization act in accordance with applicable tax laws and regulations and is able to show this to its stakeholders. Activities Design and distribute a web-based questionnaire with focus on the internal tax processes and design of tax function, and sometimes on technical tax related questions (in the field of VAT, Wage tax, CIT). Taking into account the needs and experience of the local finance function; Questionnaire is based on the comply or explain principle to leverage on the local expertise and processes. Review responses to the questionnaire, select the most important findings and remarks and describe these in a report. Prepare risk control matrix and custom made action plan. Build on a standardized process that ensures continuous monitoring of tax risks. Findings tax process and wage tax risk matrix per country Deliverables Report of findings and recommendations, including: Sharing best practices' within the organization. Global compliance overview of status tax return, local tax audits etc. Tax risk matrix of top 3-5 tax risks for each country or BU. Blueprint for standardized methodology for continuous improvement for the tax processes. Results Increase tax awareness of tax department / local finance teams due to participation in the survey. Continuous improvement of tax control framework. Flexible scan to be used for all remaining type of taxes.

27 Sampling / Control testing Objectives Improve the organization s tax controls to manage tax risks. Enables the organization for early identification of any tax issues, and protect the organization reputation, and pay the right amount of tax. Ensure that tax controls and system design is appropriate. Key tax controls Example: Overview ramdom sample Activities Use our proven methodology to provide an overview of tax controls (risk assessment workshop). Define transactions. Prepare sample based on proven methodology and materiality (also used by Dutch tax authorities) Analyze justifies transactions for tax purposes (e.g. CIT, wage tax, VAT) and determine whether these have been processed correctly (quality of internal control of business process) Identification of any gaps or potential weaknesses in the control framework. Example; detailed documentation per transaction Results Deliverables Report of factual findings to be shared with (internal) audit teams and/or tax authorities. Support you in managing discussions in relation to controls. Provide technology solutions to manage visibility and control.

28 Our Team We like to share expertise with you! Fieke van der Vlist MSc RA Tax Function Effectiveness Tax Authority Consulting +31 (0) / +31 (0) PricewaterhouseCoopers Belastingadviseurs N.V. All rights reserved. PwC refers to the Dutch member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see for further details. PwC