“A properly functioning Tax CMS provides protection – legally, financially and in terms of reputation.”
Tax Compliance Management System (Tax CMS)
Because complexity requires structure
Against a backdrop of increasing regulatory requirements and complex tax frameworks, the structured organisation of tax processes is becoming increasingly important. Companies face the challenge of managing rising demands in the implementation and monitoring of tax matters — for example, due to the increasing internationalisation of business activities, complex VAT supply and service relationships, organisational changes or strong growth, recurring findings in tax audits and overall rising regulatory requirements in tax law.
Tax Compliance Management System: Why act now?
As part of the DAC7 Implementation Act, the legislature has decided to trial alternative audit methods with effect from 1 January 2023. Section 38 of the EGAO provides that, in consultation with the Federal Central Tax Office and upon application by the taxpayer, the tax authority may, subject to revocation, give a binding undertaking regarding restrictions on the nature and scope of investigations for the next external audit. A prerequisite is that the effectiveness of a tax control system implemented by the taxpayer has been verified with regard to the types of tax or matters covered and that there is no tax risk, or only an insignificant one. Changes to the tax compliance management system (Tax CMS) must be documented and reported to the tax authorities without delay. This provision is initially limited in time until 30 June 2029.
In a letter dated 23 May 2016 regarding Section 153 of the German Fiscal Code (AO), the Federal Ministry of Finance clarified: “If the taxpayer has established an internal control system designed to ensure compliance with tax obligations, this may, where applicable, constitute an indication that there was no intent or recklessness; however, this does not exempt the tax authority from examining the specific case.”
Benefits of a Tax CMS
A tax compliance management system is a structured system that helps companies to systematically comply with tax regulations. As tax-related processes often originate or are shaped outside finance-related departments, the complete and timely fulfilment of tax obligations requires a company-wide approach. A structured tax compliance management system offers various benefits for companies:
- Minimise liability risks, financial risks (e.g. fines for administrative offences) and (tax) criminal law risks (e.g. tax evasion) for management and governing bodies
- Protect the company’s image from reputational damage
- Ensuring transparency in tax processes and audit frequencies
- Establishing structured decision-making processes for dealing with tax matters
- Defining clear responsibilities for handling tax-related matters
- Providing support during tax audits through comprehensible documentation
- Strengthening corporate governance through the systematic management of tax risks
The seven fundamental elements of a Tax Compliance Management System
The design of an effective Tax CMS is based on the seven fundamental elements of a compliance management system as set out in IDW PS 980.
Tailored tax compliance advice from BDO for businesses of all sizes
Our aim is to provide you with the best possible support in optimising and implementing an effective tax compliance management system (Tax CMS). Our services include:
- Tax compliance status assessment: Analysis of the current state of your tax compliance structures (comparison of the key provisions of IDW PS 980 and IDW PH 1/2016 with existing or planned tax compliance elements)
- Identification of areas for improvement and necessary additions for efficient optimisation
- Analysis and prioritisation of potential areas/tax types as part of a sub-area/relevance analysis
- Conducting risk analyses to identify and assess tax compliance risks
- Drafting and adapting tax compliance-related regulations (e.g. manual)
- Development and delivery of training programmes
- Implementation of monitoring processes
- Audit in accordance with PS 980/IDW PH 1/2016
Tax compliance as an integral part of corporate governance and digitalisation
A tax compliance management system is not merely a tool for fulfilling tax obligations, but is increasingly also an integral part of responsible corporate governance. The management is responsible for implementing organisational measures that ensure compliance with legal requirements. A Tax CMS makes tax risks transparent, defines responsibilities and can be integrated into governance structures such as internal control or risk management systems. For company management, the structured management of tax risks is becoming increasingly important due to potential liability consequences. A Tax CMS makes a significant contribution to this through clear responsibilities and documented controls. At the same time, supervisory bodies are being granted greater insight into tax matters and these are increasingly linked to ESG and compliance requirements.
In many companies, the implementation of tax control mechanisms is increasingly IT-supported within existing ERP systems. As part of our Tax CMS consultancy, we can provide you with tailored support in this area and draw on partnerships with relevant software providers.
Our 360° approach:
Our interdisciplinary team of experienced experts supports you in tailoring your tax compliance management system to your specific needs. Thanks to a modular structure and cross-functional collaboration between Forensics, Risk & Compliance and Tax, we work with you to develop bespoke solutions. We combine best-practice approaches with a high degree of standardisation, ensuring that solutions can be implemented efficiently whilst remaining precisely tailored to your needs. For smaller companies, we extend our offering to include targeted procedural documentation to cover the fundamental requirements in a practical manner.
We support you in creating a Tax CMS tailored to your company.
