Tax CMS
challenges & opportunities.
Seven years have now passed since the German Federal Ministry of Finance officially manifested the tax control system in administrative instructions in a letter on Section 153 of the German Fiscal Code (Abgabenordnung) as a way of exonerating corporate bodies and other executives from liability. As of January 1, 2023, a regulation going beyond this was made within the framework of the Introductory Act to the Fiscal Code in Section 38 "Testing of Alternative Auditing Methods", according to which, under certain conditions, a company that maintains a tax control system audited by the tax authority is promised relief for the next external audit.
Complex national / international tax law
The company is confronted with an unmanageable variety of tax regulations, which are also subject to constant change. This requires a large number of measures to ensure that tax filing and reporting obligations in Germany and abroad are fulfilled correctly and on time. The task of the tax function is to ensure the regular review of tax risks and to implement any necessary adjustments in the Tax CMS on an ongoing basis.
High demands on data quality
For a correct tax return or tax filing, there are high demands on the resilience and the level of detail of the tax-relevant data. The required type and structure of the data are tax-specific and only to a small extent internationally harmonized. For tax declaration purposes, a variety of analog and digital information and data sources must subsequently be accessed that are not within the direct reach of the tax department.
Integration of a large number of business areas
In order to obtain the data required for tax declaration obligations, all business areas in which tax-relevant business transactions arise and are processed must be integrated. Practice shows that, as a rule, almost all operational and administrative business areas are affected by this. The tax department and its tax declaration tasks are therefore highly dependent on the cooperation of all business areas.
Effectiveness & Operationalization
A risk management system, and thus also a tax CMS as a component, must be effective and not just adequately set up to ensure protection against criminal risks and to meet the requirements of proper business organization (e.g. cf. § 25a KWG). Tax legislation also emphasizes the importance of an effective system with Art. 97 § 38 EGAO ("The tax control system must map the tax risks on an ongoing basis". This requires, among other things, that the tax CMS is actually lived in the company and regularly adapted to changing legal and factual circumstances. A corresponding operationalization is required for this purpose.
Tax CMS as an instrument for risk minimization
A Tax CMS as the totality of all operational measures to ensure tax compliance will only achieve its goal if it is appropriately designed and fully implemented in the company, i.e. if it has been permanently transferred to so-called regular operation. This is precisely where the great challenge lies, starting with a comprehensive tax risk inventory and ending with the final establishment and implementation of controls in almost all business areas and with regard to a large number of process steps. Once the Tax CMS is in regular operation, additional transparency for optimization is gained over and above the liability function.
Risk inventory and assessment
The risk inventory and assessment across all tax types is the basic prerequisite for a targeted and resource-saving use of risk mitigating measures and controls. A complete risk inventory not only requires a great deal of tax law expertise, which the tax department usually has. Rather, it requires a good knowledge of the operational processes throughout the company in order to assess the specific points at which risks of error exist and how their impact in terms of amount and probability of occurrence are to be assessed.
Establishing the right principles, measures and controls
It is neither necessary nor sufficient to cover the company with principles, measures and controls in the manner of a watering can. Rather, the knowledge gained on the basis of the risk inventory about potential sources of error and their possible impact must be followed by an appropriate set-up of measures tailored to the specific individual risk.
Requirement of an appropriate organizational and operational structure
Tax CMS also includes maintaining appropriate cross-company processes and responsibility arrangements to meet tax requirements cannot guarantee correct tax declarations. This extends far beyond the finance and tax departments. This requires both personnel and technical capacities, for which sufficient financial resources must be made available. The resource commitment results in the necessity to keep processes as efficient as possible and to use possibilities of automation.
In recent years, many companies have reviewed their organization with regard to tax requirements and have established or at least started to establish a tax control system.
However, there are major challenges that companies face when setting up and maintaining a tax control system (in practice referred to as Tax Compliance Management Systems or Tax CMS for short). These are not only the technical and conceptual complexity that is inherent in such a system. Above all, it is the Herculean task of establishing and operationalizing the entire system as an organizational entity within the company's business units. Current developments such as BEPS or in the area of the EU Green Deal (e.g. plastic tax) and not least the requirements for sustainability strategy and non-financial reporting (e.g. GRI standard 207 1-3) increase the demands on a Tax CMS.
our consulting.
DO WHAT YOU LOVE.
Our consulting services include the complete support from the development of an individual Tax CMS target image to the conception and operationalization.
We place particular emphasis on:
A holistic approach across all tax types with uniform methodological standards instead of a multitude of individual solutions.
Professionally sound and manageable formats, especially with regard to risk-control matrix and guidelines.
End-to-end support with a focus on solutions for operationalizing the Tax CMS.
Guidance in the selection and deployment of appropriate software solutions with a focus on maximizing the utilization of the company's existing IT infrastructure.
Whether you want to transfer an existing Tax CMS concept into operational practice, consolidate various individual solutions or plan to set up a Tax CMS for the first time, our multidisciplinary team of tax, process and IT experts will be happy to assist you.
We have extensive practical and project experience in the design and operationalization of Tax CMS in companies of all sizes and in many industries.
Please feel free to contact us at any time to give us the opportunity to explain our consulting and project approach for your specific problem.
Anything that can go wrong will go wrong
Murphy´s first law
Nothing is as easy as it looks
Murphy´s second law
Everything takes longer than you think it will
Murphy´s third law
fields of play.
Categorization of companies (clustering)On the basis of selected key figures, the Group companies are clustered according to their tax risk profiles in order to enable project implementation that is as efficient and targeted as possible.
Risk InventoryUsing existing templates, we work with you to develop the individual risk-control matrix for your company so that all relevant What Can Go Wrongs are captured. Our structuring approach is strictly oriented to the company processes, so that a direct link to the relevant process steps in the company is made possible in the further course and a too high level of tax-related detail is avoided in the context of the risk inventory.
Risk assessmentThe risk assessment results from the maximum expression (level) of a potential violation and from its probability of occurrence. For the two components, we recommend using defined determination methods/algorithms. On the one hand, this ensures transparency and audit readiness, and on the other hand, in the case of quantitative or digitally available criteria, the possibility of (partial) automation of the assessment.
Determination of measuresThe determination of principles, measures, and controls follows a uniform procedure so that risks of the same type and cause are each assigned a similar measure. This also serves audit readiness and higher efficiency.
Process documentationWe support you in process documentation using prepared standard process representations, in which we limit ourselves to the tax-relevant process steps or process sections.
Guidelines and work instructionsWhere necessary, we support you in the development of guidelines, work instructions and other forms of operational specifications. Here we attach importance to using the formats and templates already available in your company.
Supervision conceptWe support you in developing a supervision concept as an integral part of the Tax CMS. This includes job descriptions, reporting lines, implementation controls, etc.
RACI MatrixResponsibilities must be defined for all tasks. In practice, the RACI concept is common and proven. We support you in setting up a RACI matrix for all tax processing and control activities.
Implementation of the concept in the tool (All in one)We support you in the selection and implementation of a Tax CMS tool. The objective is to store all elements of the TaxCMS in an integrated software solution and to perform the operational control of the Tax CMS using this software. In addition to the pure efficiency goal, this also ensures that all control and monitoring activities are documented and archived in an audit-proof manner, so that this is still available years later for defense against any accusations by the tax or prosecution authorities.
