Implementation of tax compliance processes

If you think compliance is expensive, try non-compliance

Paul McNulty

In recent years, the tone between the tax administration and taxpayers has become much stricter. On the one hand, this shows that the tax authorities (mostly hastily) assume that tax evasion has occurred and that a mere correction within the scope of the tax audit is therefore impossible. On the other hand, it is becoming increasingly difficult for taxpayers to correct errors retrospectively. This is why the topic of “Tax Compliance” is becoming increasingly important.

What is actually meant by “compliance”?

A tax compliance management system is a set of instructions for employees and legal representatives of a company in dealing with tax issues. The aim is to ensure that conduct that conforms to the rules, in this case the complete and timely fulfilment of tax obligations, is established and maintained in a way that is binding for everyone.

For what do you need a Tax Compliance Management System or Internal Control System?

Due to the fact of the increased acceptance of evasion, many subsequent declarations (§ 153 AO) have now been treated as self-denunciation (§ 371 AO) by the tax authorities. However, a self-denunciation has to be measured against stricter requirements in order to achieve the exemption from punishment that this entails. In this context, the Federal Ministry of Finance has stated the following:

“[…] the establishment of an internal control system (ICS), which serves the fulfilment of tax obligations, may constitute an indication of the existence of intent or recklessness with regard to tax evasion.”

In this respect, a Tax Compliance Management System or ICS helps to distinguish between self-disclosure and simple correction. If an entrepreneur can prove that he has monitored the tasks assigned to him to fulfil his tax obligations and has taken measures to prevent errors, this is a fundamental argument against an intended tax reduction.

How do I introduce a Tax Compliance Management System?

The introduction of a Tax Compliance Management System or ICS is divided into three project stages:

  • Analysis of the current status
  • Assessment of the current situation and risk forecast
  • Development of a tax compliance guideline

In the analysis of the current situation, the company is considered both in terms of the past and the present. The knowledge gained in this way provides information about tax problems that have already arisen. With the identified problem areas and experiences from other cases, a corresponding catalogue of measures can then be developed to ensure tax law-compliant behaviour.

And what if not?

If a company does not have an internal control system and an error is discovered, for example, during a tax audit, the accusation of deliberate tax evasion is quickly raised. If this accusation is substantiated at all, it is only possible with a great deal of time and money. As the initiation of criminal tax proceedings can mean the economic end for small and medium-sized companies, it is better to be cautious than lenient.

Your ACCONSIS contact person

Kerstin Weidenbach-Koschnike
Auditing, Tax consultant
Managing Director of ACCONSIS

+49 89 547143
or by E-Mail

My recommendation

Tax Compliance is establishing itself as another major compliance area alongside corruption, data protection and antitrust law. In this respect, every company should deal with it to a certain extent. This can avoid lengthy and cost-intensive discussions in border areas with the tax authorities and mitigate the negative effects of tax misconduct.

We are happy to advise you on all steps of the introduction of a tax compliance system. With our experience in this area, we always have your personal requirements and needs in mind so that tax compliance can be lived and not be perceived as a “bureaucratic monster”.