tax control framework (tcf) for energy and mining - ey€¦ · ivan rodionov ey, russia ... houses...

aHead of Tax

Tax control framework (TCF)

for energy and mining

Barcelona, Spain

6-8 June 2017

Tax control framework (TCF) for energy and mining

Alexey Kondrashov

EY, Russia

Rocio Reyero Folgado

EY, Spain

Brigitte Auberton

EY, France

Martin Rabenort

EY, Netherlands

Ivan Rodionov

EY, Russia

Patrick Trapp

EY, UK and EMEIA

Panel


Agenda► New energy and mining sector developments

► Global change

► Increased transparency and accountability

► Digital tax administration

► Common challenges

1 ► Approach to respond

► Addressing new challenges

► Value gained for tax

► Case studies

► Q&A

2

3

4

5


New energy and mining sector developments



► Organizational specificities of the sector:

► Jurisdictions with poor financial and accounting requirements

► Numerous permanent establishments (PEs) with limited administrative staff

► Jurisdictions with changing regulation environment

► Tax aspects included in production contracts

► Tax haven localizations

► Data reliability risks:

► Significant staff turnover

► Process constraints linked to short-lived implementations

► Top-down process implementation challenges

► Taxable basis split between PEs and head offices

► Data reliability to evidence good faith

ServicesRaw material

Products

Extraction

Hedging and trading

Processing,

refining and

conversion

Marketing

and selling

Trading

Third-party

suppliers

Third-party

customers

Third-party

trading

houses

Raw material

Products

Products

Raw material

Head office

Products



Extractive Industry Transparency Initiative

(2002) – stand-alone reporting

US: Dodd-Frank Wall Street Reform and

Consumer Protection Act (2010) − suspended

EU: Accounting and Transparency Directives

(2013)

Canada: Extractive Sector

Transparency Measures Act (2015)

US: Updated Dodd-Frank Act (2016) —

reintroduced in 2016 but abolished by the new

administration

All overseas operationsRussia

US

(reintroduced

but abolished)

Canada

EU

Jurisdictions that require disclosure of payments made by extractive

groups overseas

There is increasing pressure to capture commodity trading activities.

Switzerland and the US may be the first to implement.


Global change


Increased transparency and accountabilityOn an organizational and individual level

Internal and external

constraints of a tax

department

1

► Evolving role of tax

departments with

increasing transparency

and accountability

requirements.

Increasing regulatory

requirements

2

► Greater information

exchange, e.g., common

reporting standard and

automatic exchange of

information becoming

more global

► Public tax reporting

proposal of the European

Commission advanced to

the European Parliament

and the Council of the

European Union

Increasing disclosure

requirements

3

► More government scrutiny,

e.g., companies called

upon to defend their

reputation publicly in tax

matters

► Upward trend in tax-related

material weaknesses and

financial statement

restatements

Increasing

accountability

4

► Increased focus on

prosecution, e.g., criminal

charges threatened in tax

adjustment matters

► Supervisory Board to file

civil proceedings against

former officers for breach

of duties related to the

failure of the financial and

control system

Increasing

transparency

5

► Increasing reputational

risk, e.g., leaked

documents disclose

taxpayer transactions and

rulings

► Multinational companies

and advisors questioned in

governmental tax hearings


1

2

Increased transparency and accountabilityIncrease in relevance of tax control frameworks by regulators

Increased focus on transparency and good governance

Organisation for Economic Co-operation and Development (OECD) guidance on building better TCFs and several countries introducing rules and programs

enforcing TCF implementation (examples shown below)

EU:

Netherlands:

Cooperative compliance program (horizontal monitoring)

Germany:

► Personal responsibility for tax fraud cases if no TCF is

implemented

Spain:

► Request to observe a code of best tax practice

United Kingdom:

► Requirement for large businesses to publish their tax

strategy

► More scrutiny of tax governance and Senior Accounting

Officer (SAO) certification

► Corporate criminal offense of failure to prevent the

facilitation of tax evasion

France:

► Increase in mandatory compliance returns and related

penalties (accounting entry file and transfer pricing return)

► Increasing audits of internal controls by the French tax

authorities

Russia:

► New tax administration regime for large taxpayers

introduced (tax monitoring)

China:

► Risk rating based on proven risk management

approach and cooperative compliance program (tax

compliance agreement)

Italy:

► Introduction of a new cooperative compliance

program to prevent tax disputes (regime

diadempimento collaborativo)

United States:

► Participation in a cooperative compliance program

(compliance assurance program)

South Africa:

► Continual risk-based improvement of cooperation

between companies and tax authorities (taxpayers

engagement strategy) CbCR Briefing


Increased transparency and accountabilityTax control framework — definition and principles according to EU formulation

A tax control framework is part of an organization’s control function, aimed to allow the taxpayer to be fully aware and in control of all tax

positions and issues to be disclosed, and achieve the company’s goals and objectives around tax.

Sample goals and objectives of a tax control

framework

► Validate full and timely compliance with tax legislation in all

jurisdictions

► Get control over tax position of the company in all jurisdictions

► Enable timely identification and mitigation of tax risks

► Utilize available tax incentives in all jurisdictions

► Promote effective and efficient operations

Six principles or building blocks for an effective TCF

1. Tax strategy — documented and owned by senior

management or board of directors

2. Comprehensiveness — covers all transactions

3. Responsibility — board in charge of the design,

implementation and testing of the TCF; tax department role

should be clearly recognized and resourced in maintaining

effective TCF

4. Governance — system of rules and reporting so that tax risks

are identified and managed; process should be explicitly

documented

5. Testing — should test TCF regularly for effectiveness

6. Assurance — TCF should provide assurance to internal and

external stakeholders that it works


Increased transparency and accountabilityCooperative compliance regimes — reducing tax audits through transparent tax control levels

► Common objectives

► Increase voluntary compliance with tax laws, reduce aggressive tax planning (tax planning is accepted)

► Reduce tax authorities’ resources for review of tax returns, performing tax audits and tax litigation

► Increase certainty about the business’ tax position and reduce the backlog of open years

► Comes in various forms and is available in a multitude of countries, for example:

Country Regulation Status Details Mandatory or optional

Australia Annual compliance arrangement Since 2004 The central condition of participation is the existence of a TCF. Optional

Risk differentiation framework Since 2012 The Australian Tax Authority (ATO) differentiates companies on the basis of their risk profiles. Mandatory

China Tax compliance agreement Since 2011 Program is similar to the Dutch horizontal monitoring program. Participation requires a tax risk control system. Optional

Croatia Cooperative compliance program

Cooperative compliance framework

Since 2016 Participation in the cooperative compliance framework is applicable to large corporations. Participation on the requirements are still

being formalized.Optional

Ireland Cooperative compliance program Since 2014 Large businesses can participate. A mandatory directors’ compliance statement has been required since July 2015. Optional

Italy Regime diadempimento collaborativo Since 2016 This is based on Dutch horizontal monitoring (see OECD); option to participate; central condition is a TCF. Optional

Netherlands Cooperative compliance program

Horizontal monitoring

Since 2012 This is for intensive collaboration between companies and tax authorities that was basis for the preparation of the OECD Co-

operative Compliance: Building Better Tax Control Frameworks report. TCF is required for participation. Optional

Russia Cooperative compliance program

Tax monitoring

Since 2015 Participants need to fulfill requirements in transparency and cooperation, e.g., allowing the tax authority to have access to accounting

data. In return, the tax authority provides a significant simplification of tax audits.Optional

Singapore Enhanced taxpayers relationship

program (income tax)

Since 2008 This involves cooperative understanding between management and the tax authority periodic assessment of tax interests of the

company, clarification of unclear points, handling of risks and reviews of existing tax control system. Optional

Assisted compliance assurance

program (GAT)

Since 2011 This is a risk-oriented review of effectiveness of an implemented TCF for VAT purposes by means of predefined criteria. Optional

South Korea Horizontal compliance program Since 2010 This is based on Dutch horizontal monitoring (see OECD); companies of a certain size can apply to participate; three-year audit for

Memorandum of Understanding as obligation for mutual cooperation and periodic exchange. Optional

Spain Code of good tax practices (Código

de Buenas Prácticas Tributarias)

Since 2010 Companies can commit to compliance with a code of good tax practice that is supported by management including the clear

assignment of the responsibility of management for the tax strategy.Optional

Spanish group tax law expanded with

regard to good governance

Since 2016 This provides a clear definition of management responsibilities for tax strategy including implementation of an adequate tax risk

management system and when making strategic decisions with a high tax risk. Mandatory

United States Compliance assurance program for

federal taxes

Since 2015 This involves cooperative collaboration and assurance of correct federal tax declarations. The program is designed to clarify and

correct mistakes, as well as foster continuous improvement of the company’s compliance mechanisms. Optional


Increased transparency and accountabilitySelected country developments — Germany and The Netherlands

Germany

Tax compliance monitoring system (CMS)

► § 153 AO, 23 May 2016, which distinguishes between three correction

methods: mere correction, grossly negligent tax evasion and tax fraud

► It states that the implementation of an internal control system with the

purpose of fulfilling tax duties might be an indication of absence of negligent

tax evasion or tax fraud.

► Does not exempt the taxpayer of examinations

► Benefits for taxpayers:

► Protection from prosecution for executives,

the management and employees (release)

► Increased efficiency and cost benefits

through utilization of synergies and

IT solutions

► Standardized and documented tax

processes

► Establishes tax as part of corporate

compliance, internal controls, internal

auditing

► Improvement of the working

relationship with the financial

authorities

► TCF components: see diagram

The Netherlands

Cooperative compliance program: horizontal monitoring

Tabaksblat Reporting on internal controls: “The Monitoring

Committee considers best practice provision II.1.4 if:

► Financial reporting risks:

► It is declared that the risk management and control systems provide reasonable

assurance that the financial reporting does not contain any material inaccuracies;

► It is declared that the risk management and control systems have worked properly in

the year under review;

► It is declared that there are no indications that the risk management and control

systems will not work properly in the current year;

► Any material weaknesses which are discovered in the year under review or the current

year are specified, together with any changes made or improvements planned.

► Other risks (operational/strategic and legislative/regulatory risks):

► A description of the risk management and control systems is given on the basis of the

identified important risks;

► If applicable, important failings which are discovered in the year under review are

specified, together with any changes made or improvements planned.”

TAX-CMS

IDW AS 980

Compliance

culture

Compliance

monitoring &

improvement

Compliance

organization

Compliance

program

Compliance

risks

Compliance

objectivesCompliance

communication

0107

0206

05 03

04


Increased transparency and accountabilitySample country developments — United Kingdom and Spain

United Kingdom

Publication of tax strategy

► The published tax strategy must cover:

► Approach of UK group to risk management and governance relating to UK taxation

► Attitude of the group to tax planning

► Level of risk in relation to UK taxation that the group is prepared to accept

► Approach toward dealings with HMRC

Increased scrutiny of governance of tax and senior accounting

officer certification

► This involves more government checks by HMRC and companies seeking

assurance on how TCF works.

Corporate criminal offense of failure to prevent the facilitation

of tax evasion

► This will be effective from September 2017 for all companies and

partnerships, wherever located.

► Failure to implement reasonable procedures to prevent facilitation of tax

evasion by persons acting on behalf of a company could be subject to

criminal prosecution, carrying unlimited fine and public conviction.

Spain

Suministro Inmediato de Información — immediate information

sharing

► Introduced on 1 July 2017 as mandatory for large companies, VAT groups,

taxpayers under the monthly refund regime and requiring XML format (non-

SAF-T based)

► New regime to result in full disclosure of VAT data in real time based on

invoice detail validation

► Obliged to send invoice register details within four working days of issuing

and receiving invoices

► Retroactive filing of Value Added Tax (VAT) book information by 31

December 2017, for the period January to June 2017

► Form 340 (monthly VAT refund books), Form 347 (operations with third

parties) and Form 390 (annual summary return) no longer required for

taxpayers’ filing

► Invoice register details to be sent to the tax authority electronically through

web services based on the exchange of XML messages


Increased transparency and accountabilitySample country developments — Russia

Cooperative compliance regime in Russia — key affected areas

Tax monitoring regime establishes higher requirements for the companies in four areas:

► Requirement to develop

electronic document flow with

tax authorities

► Possibility of granting access

for tax authorities to enterprise

resource planning (ERP)

systems

IT systems1

► Disclosure of information

on TCF

► Information on TCF to be

prepared in required format

established by the Federal Tax

Service of Russia (numerous

forms – tax registers, matrix,

internal regulations, etc.)

TCF2

► Advanced level of information

exchange with tax authorities

– tax data transmitted more

often and in a larger volume

► Strong requirements for

quality of tax data and for

speed of preparation in

comparison with classic

tax audit

Tax data3

► Obligation to disclose

information about uncertain

tax positions

► Increased probability of

realization of tax risks

► Increased requirement for tax

transparency

Tax risks4


The company is required to disclose its

assessment of 31 risk types2 Risks and controls shall be disclosed in the established structure — linked to 31 risk types and tax returns

elements

FTS risk areas:

► Risk of absence of primary documents

► Risk of incorrect data in primary

documents

► Risk of incorrect calculation of tax

indicators, etc.

Company's risk register

IT controls (ITGC,

application controls)

Manual controls and

IT-based controls

Eight forms shall be submitted to the tax authorities:

► TCF policy (document describing operation of internal control system under Federal Tax Service (FTS))

► TCF maturity assessment

► Risks and controls matrix

► Evidence of tax controls

► Request for rulings, etc.

1

3

Tax r

etu

rn ite

ms’ risks a

nd c

ontr

ols

Increased transparency and accountabilitySample country developments — Russia

Disclosure requirements

Risks FTS risk types

Risk 1

Risk profile 1 Risk 2

Risk 3

Risk profile 2Risk 4

Risk 5

Risk profile 3 Risk 6

Tax Return


Increased transparency and accountabilityTax department environment — external and internal constraints

Tax

department

Top

management

Business

External constraints

► Changeable local tax frameworks and

growing importance of European tax law

► IT modernization of tax authorities and

increasing international cooperation

► Difficulties in identifying foreign tax risks

in the context of international activities

► Increased disclosure obligations

► Compliance with international

accounting standards

► Increased group liability

► Image and reputational risks

Internal constraints

► Executive committee level or

top management

► Clear communication channels

► Transparency on risks

► Alignment of group objectives

► Effective use of existing tax tools and

technologies

► Quality and reliability of answers given

by the tax department to other

departments

► Constraints linked to human resources:

numbers and adequate tax expertise


Increased transparency and accountabilityIncreasing importance of the reputation risk — judicious approach

Transgression

Intention

Error or

mistake

Fraud or

tax evasion

Abuse of right

Optimization

Tax avoidance

Taxpositioning

Taxmanagement


Increased transparency and accountabilityIncreasing importance of the reputation risk — new civic-minded attitudes

Tax risk

B2B:

reputational risk Objective rules Objective rules Qualification divergence between national legislations

Taxation divergence between national legislations

PE recognition (e.g., oil exploration in Brazil)

► Exoneration in Brazil

► PE recognized in Brazil under the OECD convention

Repurchase agreement

Interposition of a company situated in

a third state

B2C:

reputational risk

National lawInternational law


Digital tax administration life cycle

► Governments are leveraging digital platforms to assess taxpayer data, including cross-referencing information at the source, running it

through increasingly sophisticated analytics and sharing it among other agencies.

► Traditional tax function operating models are struggling to maintain pace and be in a position to support the rapid response required to

answer these inquiries and audits.

► Lack of preparation, visibility and analytic capabilities across data sources can leave companies open to the risk of real-time audits,

increased tax penalties, refund delays and reputational risk.

Level 1 Level 2 Level 3 Level 4 Level 5

E-file E-accounting

Pa

rad

igm

sh

ift

E-match E-audit

Dis

rup

tive

E-assess

Use of standardized

electronic form for filing tax

returns or optional;

other income data (e.g.,

payroll, financial) filed

electronically and matched

annually

Accounting or other source

data to support filings

(e.g., invoices, trial

balances) submitted in a

defined electronic format to

a defined timetable;

frequent additions and

changes at this level

Additional accounting and

source data submitted;

government accesses

additional data (bank

statements), begins to

match data across tax types

and potentially across

taxpayers and jurisdictions

in real time

L2 data analyzed by

government entities and

cross-checked to filings in

real time to map the

geographic economic

ecosystem; taxpayers

receive electronic audit

assessments with limited

time to respond

Submitted data used by

government entities to

assess tax without the need

for tax forms; taxpayers

allowed a limited time to

audit government-

calculated tax

Note: not all governments collect the same information or treat it the same under this model. Further, the move to digitization is not necessarily linear.


Digital tax administrationThe evolution of e-tax audits in the world

Brazil

China

Mexico

United States

UK

Australia

Mexican tax authorities have advanced

digital requirements enabling them to

carryout E-audits.

US tax authorities have targeted tax

requirements around certain filing types.

UK is undergoing a major initiative to make tax

digital by 2020 whereby a need for tax returns

might be eliminated.

Brazil has detailed digital

tax requirements, including

a public digital bookkeeping

system directly through the

tax authority.

China initiated a “1,000 accounts plan”

to accelerate its digital tax journey by

focusing on large enterprises.

The Australian tax authority

is undergoing an initiative to

develop advanced analytics

capability to analyze

submissions.

Poland is in the process of implementing a

broad-based e-taxes program that will impact

clients’ digital filing and reporting

requirements.

Poland

Portugal

Portugal is following global

and regional organization,

including EU and OECD,

in their approach to digital

tax administration.

Argentina

Peru

Colombia

RussiaLuxembourg

Luxembourg requires submission of digital accounting/financial records

under SAF-T (Fichier Audit Informatisé de l’Administration de

l’Enregistrement et des Domaines) upon request.

France

Chile

France requires

financial data under

SAF-T (Fichier

d'Ecritures

Comptables) for audit

purposes and also

has mandatory BTG

e-invoicing.

Austria

Austria requires accounting records under

SAF-T and mandatory e-invoicing.

Norway

Norway is following EU’s path to

digitization – requiring accounting records

under SAF-T and mandatory e-invoicing.

Lithuania

Lithuania requires digital VAT and transport

records in addition to accounting under SAF-

T upon request.

Germany

Germany requires electronic

accounting data as well as tax

balance sheets.

Colombia is making a move to require

e-invoicing from taxpayers.

Peru requires accounting records and

e-invoicing to be submitted to the tax

authority.

Chile requires accounting data to be

maintained and access to taxpayer ERP

systems for audits.

Argentina requires e-invoicing from

taxpayers and does analytics on

invoices submitted.

Russia has been in the process of

modernizing and digitizing its tax

administration since 2010,

requiring detailed data on VAT and

transfer pricing. It is also an active

member of OECD.

South Korea

South Korea has an e-tax initiative and

implemented a tax integrated system (TIS)

that requires submission of transactional

data, including electronic invoices, which is

matched against taxes paid.

Digitization level Level 1 – e-file Level 2 – e-accounting Level 3 – e-match Level 4 – e-audit Level 5 – e-assess


Digital tax administrationGrowing data submission requirements

General data

SAF-T standard of the file

Entity’s name and full address details

Country

Fiscal year

Currency

Detailed data

Customer data (name, address and tax

registration number)

Supplier data (name, address and tax

registration number)

Material data

Tax rate and taxable amount

Assets and stock data

GL detail: chart ofaccounts and journal

Source data

Structured data, such as:

► Sales and purchases invoices, including lines

► Accounting documents

► Bank statements

Unstructured data, such as:

► Number of employees

SAF-T contentTax administrations are getting access to growing volumes and types of data:

Full disclosure of accounting trial

balance data

Disclosure of customers’ and

vendors’ information

Every buy-sell transaction will be

reported (e.g., in Spain)

Submission of data on every

inventory and fixed asset item


Common challengesTypical issues encountered if no tax control framework is in place

What challenges would you anticipate in meeting the demands of TCF requirements?

► Absence of a documented tax strategy, tax policies and procedures, as well as tax processes

► Incoherence of tax data quality across all jurisdictions

► Disjointed approach to dealing with the different tax authorities across all operating countries

► Limited visibility of pending compliance tasks and tax audits

► Lack of a common internal tax controls approach across all entities and jurisdictions

► Limited alignment between tax and the business with respect to defined objectives and risk appetite

► Lack of integration between tax’s approach to risk management and the approach of the overall business

► Other challenges


Approach to respond


Approach to respond — addressing new challengesTCF project framework — flexible, globally adoptable approach

What are the key challenges?

There is no one-size-fits-all

approach to updating tax risk

management.

Updating the TCF requires a collaborative approach that is aligned to the organization’s

current needs.

A TCF must be addressed from a

variety of dimensions so that it

meets practical requirements.

Applying a structured phased approach considers all required dimensions (e.g., data and

processes). In the first phase, the objective is to analyze and articulate the current gaps and

formulate solution initiatives to address them. In the next phase, those initiatives need to be

prioritized and formed into a road map. Each initiative can be executed by designing, implementing

and sustaining the solution.

A new TCF may need to be

implemented across numerous

different jurisdictions, entities and

platforms, and their respective local

requirements.

The rollout of a new control framework as well as each underlying solution initiative requires

consistency across the global organization of the tax function, adding localization, where necessary,

to take into account particular country requirements and methodology.

Approach consideration


Approach to respond — addressing new challengesTCF project framework — identify

Identify Initiatives to help move the tax function to the next level of performance

► This includes getting

the necessary input

from your

organization about

the current

performance of the

tax function and

where you want it to

be in the future

► The EY Tax

Function Analyzer

can help to ascertain

both current and

desired future

position across seven

relevant components

of your tax function

1


Approach to respond — addressing new challengesTCF project framework — identify — Tax Function Analyzer

► The EY Tax Function Analyzer approach produces a rapid assessment with quantifiable ratings along with direct input from an EY tax

performance advisory professional.

► EY facilitates interviews with key stakeholders using an online questionnaire to identify their views of the current state and the future

vision for your tax function.

► Based on the gaps identified, EY can provide quantified assessment results and recommended approaches to address prioritized

improvement opportunities.

Current state Future state

Gap analysis

Identification of key factors for change

Road map

Basic Developing Identified Advanced Leading


Approach to respond — addressing new challengesTCF project framework — identify — Tax Function Analyzer (continued)

Interview questionnaire with a set of predefined questions and a range of answers



► The assessment answers are codified, and scores are calculated and visualized.

► A knowledge database can provide benchmarks to allow comparison against peers in similar industries.



► The interview and consequent visualization enable

identification of improvement opportunities, addressing

them with prioritized tax initiatives to move strategically

toward leading practices.

► The implementation of the proposed initiatives is

considered the key element on your path toward an

improved future tax operating model.

► The outcome report of the Tax Function Analyzer is

your basis for building a business case and preparing

a road map for the improvement initiatives you

prioritize to deliver change.

Prioritization matrix


Approach to respond — addressing new challengesTCF project framework — diagnose

Diagnose Analyzing the current tax risk management strategy and processes using diagnostic approaches such as:

2

Digital tax health check

► Assess your responses to tax authority

requirements

► Benchmark your data, process and

operating models against leading practices

► Remediate identified gaps

Digital tax example

Undertaking a risk assessment and process

analyses, leveraging tax risk databases and

possibly including a full-fledged root cause

analysis

Tax risk assessment and strategyAMeasuring the existing TCF by reviewing

process controls, identifying efficiencies and

benchmarking

TCF diagnosticsB

Reviewing the effectiveness

and quality of tax procedures

via an internal audit

engagement

Analysis of uncertain tax

positions and audit findings for

effectiveness of controls and

risk mitigation

Internal audit review

Uncertain tax positions

and tax audit

governance

Providing controls over

financial accounting for taxes

through in-depth risk and

control assessment

Financial accounting

controls reviewC D E


Approach to respond — addressing new challengesTCF project framework — diagnose

Tax risk assessment report, including improvement opportunities

Inherent and residual tax risk profilesReport components

Executive summary

► Summary of global tax risk assessment results

► Recommendations for Internal Audit and Tax

► Client’s global tax risk assessment participants

► Tax risk universe

Tax risk profiles

► Tax risk profile overview

► Inherent tax risks

► Residual tax risks

Appendices

► Risk definitions

► Risk assessment rating criteria

► Recommended timeline for Internal Audit procedures

► Risk and control findings (for each individual risk)


Approach to respond — addressing new challengesTCF project framework — design and provide

Design and provideA modular approach to a TCF with proven components to update the framework according to business needs

3

Geographic

profile

Tax

technology

Tax risk

management

Reporting

Organizational

design KPIs

Policies and

procedures

Tax strategy

Tax strategy Tax risk management

Organizationaldesign KPIs

Policies and procedures

Tax technology

Reporting Geographicprofile


Approach to respond — addressing new challengesTCF project framework — design and provide (continued)

Tax strategy considerations

► Review existing strategy, mission statement or policies to define

improvement opportunities

► Verify how tax fits within the organization’s overall governance framework

and challenge whether the current structure is adequate for today’s tax

transparency and accountability needs

► Create drafts of the tax strategy statement and socialize drafts for input from

internal stakeholders involved in governance, corporate social responsibility

and external communications on the path to a board-approved, new or

updated tax strategy statement

► Update other elements of the tax operating model to support the

implementation of the tax strategy and to demonstrate that the strategy is

being followed

Tax strategy or policy statement — typical contents

► Compliance and reporting principles

► Tax planning principles

► Value creation

► Relationships with tax authorities

► Relationships with business partners

► Approach to managing tax risk

► Governance principles

► People and organization principles

► Engaging with tax transparency initiatives

► Policy-making process



Policies and procedures — tax policies — work product considerations

► Review your existing policies and procedure documents, define

improvements and draft updated documentation

► Verify consistency from the tax strategy document down to the detailed

policies and procedures to improve control confidence throughout your

organization and with external stakeholders

► Assess and build a technology road map as well as designing and

configuring suitable technologies to support internal compliance with tax

strategy and policies

Tax policy — typical contents

► Introduction

► Objective of tax policy document

► Scope (see Appendix 1)

► Ownership, approval and

distribution

► Revision

► Tax mission statement and

tax code of conduct

► Governance

► Tax accountabilities and

responsibilities

(see Appendices 2-4)

► Delegations of Authority

► Tax risk management

► Tax risk management

(see Appendix 5)

► Tax risk evaluation process for

decision-making (see Appendix 6)

► Managing relationships with

tax authorities

(see Appendix 7)

► Business partnering

► Interactions between tax and the

business

► People and organization

► Tax structure

► Measuring tax performance

► Career development and

succession planning

► Training (see Appendix 8)

► Use of external advisors (see

Appendix 9)

► Processes and controls

► Compliance and reporting

obligations

► Compliance with specific

legislation

► Data management and

documentation retention (see

Appendix 10)

► Use of technology

Typical appendices in the tax policy

► Entities covered by tax policy

► Tax team structure

► Country categorization for tax purposes

► Tax accountabilities and responsibilities

► Management of tax risk

► Tax risk assessment procedures for decision-making

► Managing relationships with tax authorities

► Tax training requirements

► Use of external advisors

► Documentation retention policy

► 11 Glossary of terms



Policies and procedures — tax processes — assessment, mapping and operational redesign

► Review or record supporting process documentation

► Assess and build an action plan based on controls remediation and areas to drive optimal operations through resource, data,

technology, etc.

A. Building blocks

Managing process

Data capture

Technical preparation

Technical review

Sign-off and risk review

Filing, payments and hand-offs

B. Tax activities

1. Managing process

2. Obtaining data

3. Analyzing and validating data

4. Applying technical rules

5. Applying technical judgment

6. Calculating adjustments

7. Preparing tax filing including required support documents

8. Technical review

9. Sign-off and risk review

10. Filing, payments and hand-offs



Tax risk management

► Identify and rank the tax risks relevant to your organization using tax risk maps or registers

► Analyze the root causes of tax risks and the effectiveness of the design of controlling procedures

► Design tailored risk management and mitigation procedures

► Create visibility of key indicators and monitoring dashboards



Tax technology — tax systems

► Build a tax technology road map to focus improvement efforts and build an automation business case

► Build a tax technology strategy, architecture, design, options analysis, process redesign, configuration, testing and

post-implementation support

► Assess the foundations of digital readiness

► Identify and map recommended priorities



Tax technology — tax systems

► Strengthening your TCF can be undertaken by leveraging tax technology

solutions in some of the following areas:

► Workflow management — drives tax processes through automated management of

workflows; provides process visibility via dashboards and performance indicators

► Content management systems — supports the collection, management, publication and

storage of information

► Tax reporting (provision) — automates the income tax provision processes for improved

speed, quality and efficiency

► Controls automation — reduces controls performance documentation, testing effort

and cost

► Tax determination, declaration (return preparation and filing), statutory reporting and

accounts production tools — automates the taxability determination, declaration and

statutory financial statement processes, saving time and resources

► Transfer pricing — improves monitoring of margins and potential transfer pricing

adjustments and facilitates analysis of transfer pricing results and required documentation

► Analytics — improves quality of tax data and determinations, identifies anomalies for

investigation and enables predictive analysis

► Robotic process automation (RPA) — automates repetitive tasks, including accessing

systems, data extraction and formatting, data transfer into specialty tools, initiating other

automated processes and staging results for completion or analysis

High-level digital tax road map for the future



Tax technology — tax data

► Help create or update your tax data strategy and improvement road map

► Design sensitization into new or updated ERP system installations and new charts of accounts

► Configure, extract, transform and load tools for improved data availability

► Design transactional recording tools, online reference material and training to improve accuracy and consistency of transaction entry

► Configure analytics tools to assess data/determination accuracy and identify data anomalies

► Evaluate the business case for, and design, tax data marts or data lakes

► Utilize technology to gain greater data insight and support business decisions

Digital tax example

Digital tax audit readiness and

defense

► Identify digital audit risks

► Compile data in real time for audit defense and other potential controversy

► Create ready access for on-demand response

Digital tax management and

analytics

► Review the ongoing transmission

of digital data to tax authorities

► Cross-check and validate data

submitted to tax authorities

► Monitor compliance and identify

audit risks using data analyticsCompany’s

tax data



Geographic profile

► Prepare country and entity profiles

► Integrate jurisdiction specific procedures into the geographic profiles

► Monitor geographic profiles, including legislative updates and alerts on tax risks

► Support with risk assessments of jurisdictions and entities, and develop recommendations to limit risk factors

Entity data Compliance process data Tax authority data

Master data (predominantly static data) Annual data Depending on tax process, e.g., tax

return filing, statutory accounts filing or

tax payments

► Name

► Jurisdiction

► Tax reference

► Financial controller

► Tax manager

► Year end

► Type (e.g., holding, operating or dormant)

► Revenues

► PBT/(LBT)

► Taxable profits

► ETR

► Current tax charge

► Deferred tax charge

► Deferred tax asset/liability

► Accounting type (Zakat asset basis or income tax)

► Losses carryforward

► Name of tax process or workflow

► Time period

► Entity

► Workflow owner or current task owner

► Compliance status, e.g., not started, initiated, local entity sign-off complete, global filing and payment approval complete, submitted or paid

► Tax authority contact

► Status for individual controversy cases: query received, query assigned, draft response prepared, response approved, response sent

► Information update cycle, e.g., quarterly


Pooled resources


Organizational design and KPIs — work product considerations

► Evaluate changes in your business, finance organization, operations and tax environment in terms of the expectations and demands of

the tax function

► Define gaps and recommend changes to tailor your organization design to be fit for the future and to leverage leading practices

► Build business cases for change

► Design updated organization model, reporting lines, role definition, responsibilities and skills

► Evaluate and propose updated performance measures to focus and align resource efforts

Geographic hubs CentralizedDecentralized

Sample organizational chart

Controller

Assistant controller

Head of accounting

Financial reporting division head

Financial

reporting group

Subsidiary

accounting

group

Global tax compliance and reporting lead

VAT lead

Global TAX

compliance and

reporting team

Income TAX

center of

excellence

VAT Centre of

excellence

External co-sourcing resources



Reporting — work product considerations

► Develop a reporting model encompassing process, people and technology aspects of reporting

► Verify reporting needs, data points and sources for each stakeholder group

► Identify data collection, data analytics and dashboard technology solutions that fit into your IT landscape

► Design and configure data collection tools, workflow solutions and tax dashboards to provide visibility of your tax function

► Support design of reporting processes, procedures, roles and responsibilities with regard to reporting and data analysis

Digital tax administration

dashboard

► Design regional or global

dashboards of KPIs by

tax type

► Create drill-down

capabilities to the local

country level of detail

► Put in place regional or

global tax portal to track

audits and collections

Digital tax example


Approach to respond — addressing new challengesTCF project framework — sustain

Sustain A global, adaptable and reliable TCF with good design and regular maintenance

4

Global TCF

Strategy

Tax policies

Process

Performance management

Organization

Roles and capabilities

Governance

Culture and behavior

Estates and locations

Technology and infrastructure


Approach to respond — addressing new challengesTCF project framework — sustain — key considerations

► Anticipate and plan efforts to address the impact of the digital tax administration on your tax personnel

► For example, use RPA, which has the potential to automate more than 50% of tasks performed in shared service centers (SSC)

► Gain access to new capabilities and skills, e.g., consider attracting the personnel that can work with and alongside new technologies

► Effectively manage the requirements shift, e.g., consider partnering for transitional deployment of resources, such as a temporary

resource pool

► Drive technology enablement to manage increasing productivity demands

► Leverage new technologies (e.g., RPA) and enable processes that allow them to stay relevant to your tax function by cyclically

updating and testing them

► Own your tax data and use content management solutions to gain relevant visibility of your tax risks, controversy cases and

compliance demands


Value gained for taxTCF project framework — being in control at all levels

A TCF fully integrated into your business

allows you to:

Be ready for the demands of

digital tax authorities

Maintain control over your tax

function and potential risks in a

changing environment

Be able to communicate the

effectiveness of controls to

finance management and

the board

Shape the conversation with

your internal and external

stakeholders, leading with an

updated fit-for-purpose tax

strategy

Tools and enablers that can help you achieve this

Tax strategy document

Risk heat map

Process map Technology model

Organizational model


Case studies


Case study — TCF for large oil and gas companyTax strategy, tax risk management and organizational design

► Companies are characterized by large volumes

of complex transactions, assets and headcount

► Tax processes are centralized (performed in the

shared service center in Russia)

► Control of HQ is represented by regular audits of

subsidiaries and in the course of approval of the

board of Directors

► Companies are characterized by a medium

volume of transactions, assets and headcount

► Complex tax legislation and high fines

► Tax function does not cover all business units

► Tax processes are not well documented

► Informing headquarters (HQ) is limited to the cases

of tax claims

► Special purpose vehicle (SPV) in

offshore jurisdictions with insignificant

volume of operations, but regular

performance of high-risk transactions

► Material transactions are subject to review

by HQ tax department, but practical

implementation of advice is not audited

Low level of awareness of HQ of foreign subsidiaries operations

High dependence on the human factor (competence, subjectivity of

local CFO)

Difficulties in implementation of global initiatives (managing transfer

pricing processes, compliance with initiatives against tax evasion,

etc.,)

Operations not covered by

tax controls

Operations covered by

local controls


centralized controls

Headquarters (HQ)

Shared service center

Foreign company

Financial services tax function


Case study — TCF for large oil and gas companyTax strategy, tax risk management and organizational design (continued)

Global tax risk map

Lo

wH

igh

Mo

dera

te

Low Moderate High

Country-C

Country-D

Country-F

Country-A

Country-B

Imp

ac

t

Likelihood

Country-A tax risk map

Imp

act

Likelihood

Risk 1

Risk 2

Risk 3

Risk 4

Risk 6

Risk 5

Risk 7

Country-B tax risk map

Imp

act

Likelihood

Risk 1

Risk 2 Risk 3

Risk 4

Risk 5

# Risk name

Risk 1 Transfer pricing risks due to new legislation adopted

Risk 5 VAT leakage on cross-border services

Risk 7 Hybrid structure tax risks



► Root cause analysis performed for each significant tax risk for key jurisdictions and business units, each risk mapped to particular tax

function elements and business processes, requiring remediation

► TCF remediation plan developed:

► Red — elements require immediate remediation

► Yellow — requires improvement

► Green — to be monitored

Policy

OrganizationProcesses

and controls

Performance

managementPeople

Data Technology



HQ tax function

Shared service center

Business divisions

Local tax function

Operations not covered by

tax controls


local controls


centralized controls

► Tax risk management (policy, processes and reporting) are

implemented in the companies with moderate risk rating.

► Regional (Americas) tax manager position is introduced with

dual subordination to HQ tax function and local CFO.

► Tax functions supervised by regional (Americas) tax manager

are properly staffed

► Key tax processes and controls are documented.

► Criteria for mandatory central (HQ) controls are introduced.

► Regular reviews are performed.

Moderate

risk rating

Tax control

► Tax departments are organized in the high-risk companies.

Functions and areas of responsibility (tax risk management,

review of transactions before execution, tax positions

preparation, tax controls, tax legislation monitoring, etc.) as

well as division of responsibilities between local tax function

and HQ are properly documented.

► Each foreign subsidiary has a supervisor at HQ level. Tax

control function is organized.

► Tax KPIs are focused on tax risk management.

► Global control system for tax processes is implemented.

High risk rating

Tax control

► HQ tax function has a supervisor of

low-risk subsidiaries.

► Key tax risk owners are on HQ

level.

► Centralized control is established

over material and unusual

operations.

► All SPVs are included in centralized

plan of audits and monitoring.

Low risk rating

Tax control


Case study — TCF for large oil and gas companyCooperative compliance (Russia)

Entity level controls (ELC)

Tax r

etu

rn i

tem

s’ ri

sks

an

d

co

ntr

olsProcess controls (K)

Control procedures Tax return risks and controls mapping Tax return

TCLC-1

TCLC-NTCLC-2

Controls Risks

TCLC-1

Co

mp

lete

ne

ss

TCLC-2

…

…

TCLC-N

…

Accu

racy

K-13

…

K-26

…

Va

lua

tio

n

…

…

K-28

Russian Tax

Documentation


Case study — TCF for large oil and gas companyCooperative compliance (Russia) (continued)

TCF

HQ internal audit department

SSC

HQ IT department

Internal audits

Accounting and tax accounting

controls

IT controls

HQ tax department

HQ internal control department

Subsidiary

ELC controls

TCF policy

Business activities control


Case study — TCF for large oil and gas companyCooperative compliance (Russia) (continued)

TCF

Risk management

system

Tax risk

management system

Integrated system of

management

Quality control

system of SSC


Case study — new tax operating model for large utilities companyBackground and overall approach

Background

► The client sought to lay the foundations

for efficiencies and to align the business

to the changing market environment.

► Phase 1 of the program was to establish

a sustainable, widespread platform for

transactional shared services, leading the

way into a lean, transparent and

centralized shared services organization.

► Phase 2 was to centralize essential

service functions such as accounting,

finance and tax into centers of excellence

(CoEs) aiming for substantial additional

savings from economies of scale and

scope.

► Ultimate objective was to reach a

functioning operating model and a

positive business case while facilitating

quality, employee acceptance and speed.

Phase 1

► Evaluate compliance risk based on as-is analysis

► Facilitate organizational coverage of compliance-related activities

► Execute in-depth as-is analysis

► Formulate governance

handbook

► Design CoE strategy

framework and deduct target

operating model

► Assess synergies and dependencies (project services, SSC, etc.)

► Assess process redesign options and validate harmonization potentials

► Assess landscape and IT enablers

► Identify potential areas of IT process improvement

► Integrate organizational coverage of compliance-related activities

► Enable achievement of unflawed compliance

► Verify and confirm detailed design blueprint and compare target operating model to leading practice

► Validate steering model► Determine and implement people

migration strategy

► Define process owners and responsibility matrix

► Determine processes and clearly defined reporting lines

► Conduct process design verification workshops and validate to-be design

Functions

► Refine and evaluate relevant IT enablers for end-to-end processes

► Elaborate IT concept for IT rollout IT enabler

Processes

Compliance

Governance

Accounting

and

consolidation

Transition/migration

Project phase:Phase 2

De

sig

n d

ue

dilig

en

ce

Ad

va

nc

ed

so

luti

on

ce

nte

r (A

SC

)

Tax

Finance► Monitor organizational coverage of

compliance-related activities

► Conduct retrospective analysis and redundancy programs

► Identify further optimization and harmonization potential

► Apply “second-generation approach” for materializing full savings potential

► Evaluate newly designed processes, ownerships and reporting lines

► Conduct reconciliation analysis of activities and processes

► Reassess interfaces toward SSC for further harmonization

► Adjust IT enablers toward stakeholder requirements

► Evaluate and select IT vendors and support IT rollout

► Reassess interfaces toward other projects (SSC platform) and achieve further harmonization

Stabilization and optimizationStakeholder alignment

OptimizeTransfer and buildDesign blueprint

1 2 3 4 5

Overall approach, including tax work stream

1. Dedicated as-is process and full time equivalent (FTE) analysis reflected under leading-practice process framework

2. Verification of CoE strategy, principles and derivation of operating model

3. Using the Advanced solution center approach to align CoE and process design

4. Setting up target organization, enabling employees and keeping momentum of change

5. Stabilizing CoE organization and implementation of optimization measures


Case study — new tax operating model for large utilities companyApproach for tax work stream

Compile current state tasks and responsibilities and

determine how to centralize them in the tax CoE

► Initial setup of reporting framework

► Compile reporting content into initial reporting framework

► Identify required KPIs and their underlying dimensions

► Harmonize reporting contents for steering-level group

(e.g., group management reporting)

► Aggregate reporting content in a multidimensional KPI

hierarchy

► Identify and eliminate redundancies for KPIs and dimensions

► Prepare and conduct reconciliation workshops for alignment

and refinement of reporting framework

► Extend reporting harmonization for improved

management reporting

► Categorize reporting content

► Categorize reports into homogenous reporting purposes and

assign to reporting framework

► Evaluate categorized reports to identify redundancies

► Define roll-in scenarios for implementation

Note: RACI denotes RACI Index identifying individuals responsible,

accountable, consulted and informed for each action

Design approach to creating the tax operating model

Finalize design and processes (RACI)

Shape management structure and responsibilities

Specify business mandate

Validate detailed

process design

with CoE

operating model

Use CoE

operating model

as the anchor

for integration

management

Common design

blueprint for

CoEs in scope

T

T

T

T

T

CoE strategy

Functional

strategy

High-level

targets

Form organizational structure


Case study — new tax operating model for large utilities companyBenefit delivered

Benefit delivered

► Complete modeling and setup of three CoEs for core service

functions (accounting, tax and finance)

► A cost-effective tax function fulfilling all compliance and

stakeholder requirements

► A new operating model that is well integrated with the overall

strategy

► A new operating model that is well adopted throughout the

stakeholder groups as a result of proactive change management,

including extensive use of change management tools for training,

communication and stakeholder management to facilitate

operational stability during the change period

► CoE tax structure, which allowed for the required FTE reduction

while still providing exceptional quality in performing daily business

► Specialized subdepartments and a dedicated team per profit

center, which lead to high acceptance of the new structure

► Key to success, including a clear structure of responsibilities,

accountability and information flows among CoEs, SSC and

profit centers

► IT enablers to support the change process and help to optimize tax

processes to facilitate the accuracy and consistency of tax data

Change in performance level after implementation

Time

Perf

orm

an

ce lev

el

Robust

planning

Change the

mindset

A change in mindset is key for functional transformation projects

and is a fundamental condition to bring the CoE alive.


Questions

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