The tax service of a company

Category: Corporate management,

Autor: Rustam Tairov 

           Business Life Magazine № 1-2 (79-80)  February 2014

What should be the tax service of a company?

 Understanding of the issues related to taxation, assessment of tax risks and approaches to minimize them, of course, differ from company to company and, accordingly, dependent on the management opinion.

This may be the active position expressed in developing effective tax divisions and interaction with independent consultants. But, unfortunately, sometimes it is necessary to observe another picture when executives of a Company deliberately pessimistic about the ability to manage tax risk. In this case, as a rule, such an approach is the basis for reducing the budget for the organization and development of the tax department or tax advice. But I must say that we still cannot save on this, since the tax risks for large business entities may comprise tens or hundreds of millions and sometimes billions of tenge, not to mention the risks of wearing reputational nature.

It is not a secret that a chief accountant of the Company is often entrusted with matters of taxation, who, due to excessive load and the need to solve a variety of issues, is unable to defend the tax position of the company.

         Our brief recommendations are designed for companies that have decided to create a full-fledged tax department because, in practice, they do not always have a significant effect on increasing the tax position of the company.

         As practice shows, often the activities of tax services of company is focused on mechanical collection of data and their transfer to tax reporting in order to submit it in the due date. Very often this process is presented by the all-hands work.

         To achieve maximum benefit from the activities of tax service, its staffing structure must be properly balanced by the number and skill level of employees. It is not a secret that the tax service of large companies, more than half of their time spent at work with notifications of tax authorities, for example, on the counter inspection or on the results of in-house control. This is due to routine work on the preparation of the information (working in archives, copying of documents, preparation of registers, and so on).

         Realizing the importance of such activities, and the need for control over their implementation, tax departments often get bogged down in such functions, losing the global problems. In addition, in many cases, this arrangement is a serious demotivating factor for the staff. Accordingly, the staff structure of tax service of the company should exempt the most qualified personnel from routine work, or it should be delegated to someone who is outside the subdivision. Activities of leading experts of the tax service should be directed primarily to the analytical work related to tax risk management of the company.

        Of course, the staff is a key element in building a high tax service of the company (with a serious shortage of highly qualified personnel in the field of taxation in the country). Accordingly, the implementation of tax strategy of the company depends on how successful the company addresses issues related to the attraction, development, motivation and retention of qualified personnel.

         Another important aspect is determination of the place of the tax service in the organizational structure of the company. In our practice we could observe situations where the tax service of the company was a so-called ‘whipping boy’. This means that the tax service of the company is responsible for all the tax consequences. At that on does not provides for conditions to perform these activities in full. Tax service operates in an information vacuum. In order to secure the full tax liability for the tax service, one introduces doubled functions of other subdivisions such as accounting services of the company.

Accordingly, the objective of the head of the tax service supported by the company’s management is to build relationships with other structural subdivisions of the company through a communications and management reporting. The role of the tax service should be clear to all business – subdivisions. An effective tool is properly established system of business - processes, covering the entire cycle, from the initiation of the business – operations to inclusion of its results in the tax reporting of the company, and internal reporting system. Their non-availability is the ‘hot spots’ for many tax services of companies.

In practice we could observe that the tax service work, which was built based on the principle of ‘who remembers that’ entailed failures in work at the first rotation of personnel in the service. Also, the tax service of the company is responsible for the formation of outside tax reporting, but the indicators on which the tax calculations are based, can be formed in various subdivisions. At the same time, integration of accounting and maintenance of tax records is particularly important. Essentially, the company’s accounting forms the basis for tax accounting.

Accordingly, such divisions are responsible for providing complete, timely and qualitative information to the tax service of the company in the forms and within the terms taking into account the requirements of the tax service. The results of developing and implementing such business - processes and internal reporting in direct and active participation of the tax service as  a subdivisions  concerned, in particular, are:

• ensuring transparency, completeness and accuracy of information for management decision-making, tax planning and forecasting;
• reducing risks misrepresenting tax reporting;
• timeliness of collection of complete information to meet tax deadlines;
• reducing the risks of different interpretations of the information used for tax purposes;
• reducing labor costs for the preparation and verification of information, more efficient use of labor resources;
• reducing the risks associated with human factors (including, when changing officers)
• provision with a reliable evidence base when conducting tax audits by regulatory bodies;
• reducing risks of administrative and criminal liability of the company and its management.