Dutch Tax Authorities publishes ‘Good Practices TCF’

21/12/21

This article is based on the information as it was known on 17 December 2021

On 17 December 2021, the Dutch Tax Authorities complemented the previously published and now updated Guidelines on the Supervision over Large Businesses (2021) (in Dutch) with the Good Practices in Tax Control (December 2021) (in Dutch). These two publications should be read in conjunction with each other. The Tax Authorities has formulated four objectives with the introduction of the further development of Horizontal Monitoring:

More uniformity in implementation
Clarify the position of horizontal monitoring in the Tax Authorities' implementation and supervision strategy
Differentiation in supervision
Inclusion of current and international developments.

The publications give substance to the first objective. The ‘Good Practices’ are a long-awaited answer to the questions that exist in practice regarding the design of tax control through a Tax Control Framework (TCF). The information is useful for organisations that participate in horizontal monitoring, but also for organisations that want more information about the design of a TCF.

The ‘Good Practices’ have been drafted with the support of the Tax Assurance Department of the Dutch Association of Tax Advisers (NOB), in which also two PwC staff members participate.

To whom are the ‘Guidelines’ and ‘Good Practices’ addressed?

These publications are primarily meant for staff members of the Tax Authorities' large enterprises division. The Tax Authorities also considers it, however, logical and effective to also provide transparency to taxpayers and their advisers regarding the way in which the Tax Authorities reviews the allocation of tasks between the Tax Authorities as supervisor, the organisation as taxpayer and its advisers.

The ‘Good Practices’ provide guidance for setting up the TCF for a broad range of organisations: the so-called Top 100 and Large (Type A) and Medium-sized (Type B) organisations, both profit and non-profit. The publication contains no minimum requirement, limitative description or legal obligation to set up a TCF. The document is relevant to organisations that participate in, or wish to participate in, horizontal monitoring, because it paints a picture of what the Tax Authorities expects from setting up tax control. The document is also relevant for organisations that do not (or do not wish to) participate in horizontal monitoring but want to better understand what a TCF is. The Tax Authorities are (and remain) a stakeholder and it is therefore recommended to set up a TCF. It is important for organisations to realise that a TCF is always tailor-made, and the ‘Good Practices’ may provide important guidance in setting it up.

Six basic principles

The Tax Authorities have six basic principles on which the TCF is based.

These six basic principles according to the Tax Authorities are:

Strategy
Tax function
Risk analysis
Control
Monitoring
Reporting

These basic principles can be recognised because they largely resemble the methodology put into practice by PwC, and are in line with the OECD guidelines on TCF. PwC can therefore provide excellent support in setting up your organisation's tax control.

In the document, the Tax Authorities also provides insight into how supervision is organised per the described category of taxpayer by means of a reflection on the practical examples.

Some points we would like to highlight here

The tax strategy is a core element in tax control. Partly on the basis of the organisation's strategy, the team within the Tax Authorities determines their approach.
The establishment of a tax committee is a good body to bring tax information together within the organisation.
An important part of tax control is the allocation of tax responsibilities. During a dialogue with the tax authorities the way in which the tax management cooperates with the financial function and other parts of the organisation can be further specified. Also the policy with regard to the hiring of external experts (third parties) can be worked out more concretely.
The tax risk analysis is an important basis for tax control. The Tax Authorities starts from an analysis in which the organisation examines the inherent tax risks (without taking account of the mitigating control measures) from the broadest possible perspective. This is in any event the case for the so-called key risks. The Tax Authorities also prepares a risk analysis as part of the individual audit process, in any event for organisations with an individual horizontal monitoring covenant and organisations in the Top 100 category. Where the organisation's risk analysis differs from the Tax Authorities' risk analysis, this becomes a subject for further discussion.

Monitoring the tax processes and testing the control measures are also important components of the TCF. The Tax Authorities notes in this regard that, in many organisations, there exists a natural tension between the expertise of the staff members carrying out the monitoring activities and their objectivity. In many (relatively smaller) organisations, expertise in areas such as payroll taxes is concentrated among a limited number of staff members.

Do you want to know more about the implications for your organisation?

On 11 January 2022 the Tax Authorities will hold an internal webinar for their employees and on 13 January 2022 an external webinar for taxpayers and their advisors. PwC’s Frans Cremers has been invited as one of the speakers (on behalf of NOB and PwC) to explain some 'good practices' during the internal webinar. On behalf of NOB, several speakers will also provide an explanation on 13 January. You can register for the external webinar (in Dutch) via the link: https://www.onlineseminar.nl/belastingdienst/webinar/16583c73-30e8-4bc0-bbd4-5bf67cb42c45/good-practices-fiscale-beheersing/#watch-player