Netherlands: Guidance on the Good Practices Tax Control Framework

Designed to provide a rough understanding of ways in which an organization can address the different elements of the TCF

Further guidance includes case studies

The Dutch Tax and Customs Administration (DTCA) in a 13 January 2022 webinar provided further guidance on the Good Practices Tax Control Framework (TCF), which includes case studies of the TCF and is designed to provide a rough understanding of ways in which an organization can address the different elements of the TCF.

Basic principles of the TCF concern:

  • Tax strategy and organization
  • Tax control and risk assessment
  • Monitoring and reporting

Tax strategy and organization

An organization’s tax strategy is determined, in part, by its business strategy and forms the basis for effective tax control. The DTCA expects taxpayers to have adopted a clear policy on the formulated objective, the allocation of duties and responsibilities, tax risk management, the risk appetite, the method of communication, transparency toward stakeholders and monitoring with accountability toward internal and external stakeholders.

Tax control and risk assessment

When tax control and risk assessment are concerned, the DTCA distinguishes between inherent risks (in everyday processes) and residual risk. Depending on its risk appetite and risk response, an organization is expected to implement explicit controls for managing risks.

Risks can be documented in a risk control matrix; this matrix also includes the controls that are used to manage the risks. The DTCA further distinguishes between key and non-key risks, which are classified based on the probability times effect.

Special attention is paid to “black swans” (i.e., non-routine transactions or events that have the potential to disrupt everyday processes and controls) and can influence an effective TCF. 

Monitoring and reporting

Monitoring is essential. For many organizations, monitoring consists of a combination of data analysis and statistical sampling. In this process, statistical sampling basically serves as a safety net. A broad fallback procedure and high-quality tax controls allow organizations to use statistical sampling as a basis for the full monitoring calendar. Statistical sampling continues to be the DTCA’s preferred method because it identifies unknown risks and it is relatively easy to do, including by organizations themselves.

Organizations are expected to periodically evaluate the effectiveness of their basic principles and to share their reports of findings with their key stakeholders.

Next steps

The DTCA will increasingly engage with organizations to ask them about the extent to which they have implemented the basic principles of tax control. This means that their TCF is required to meet these basic principles. It is important that a TCF should be geared to a taxpayer’s organization; customization is key.

Read a January 2022 report prepared by the KPMG member firm in the Netherlands

 

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