Setting up a tax compliance management system – how does it work?

Compliance is becoming an increasingly important issue during tax audits. But how do you draw up a Tax Compliance Management System? Where should companies and law firms start? Is the data from the ERP system relevant here – and if so, how do I analyse this data? Why do processes need to be documented? Paul Liese discusses these issues with Juri Loch, owner of Tailored Tax Technology and a technology consultant for tax departments.

For many companies, negligence in compliance is coming back to haunt them. Yet a well-established tax compliance management system not only ensures a smoother audit process, but also provides certainty under tax law and offers other extremely significant benefits. Juri Loch is very knowledgeable in this area. „I’ve been working on the IT side of taxation for 12 years,“ notes the expert. He holds a degree in business administration and business informatics, and advises clients on the monitoring of VAT data within their ERP systems. With his background, he has successfully positioned himself at the intersection of tax consultancy and IT.

The first question is: What does Juri need in order to even begin the analysis? Before he even gets to the data or the system, Juri needs basic information about the company. For example, what it does and how it operates. Only then can he set about finding out which systems the company uses and how they are linked. Experience shows that Juri needs a certain amount of time to get up to speed. The aim is to understand the entire processes and to find out whether the ERP systems in use are even capable of fully mapping the business processes.

Every beginning is difficult

And how often has Juri actually come across data and documentation that fully explain how the company is organised and operates? Never, Juri has to admit. In large companies that have grown through acquisitions and mergers, the problem lies in the use of different systems. He has even come across companies that did not know exactly which ERP systems they were using. It also happens that the tax department does not know where the VAT-relevant data is stored. A common reason: the staff responsible are overworked and do not really bother to bring order to the chaos.

Now Juri plans to begin analysing the data. How does he go about it? With standard data systems, he asks for specific tables to be provided, which give him more detailed information than any personal statement from a member of staff. Whilst there may be individual adjustments depending on the company, Juri can usually work well with the standard dataset.

Step by step to the result

Juri summarises his approach as a cycle: identify, describe, set up, adjust, ensure. Juri explains the first four steps in more detail:

• Findings: The first step is to look at what is actually happening. How do the processes work, and where does everything take place?
• Display: The next step involves documenting the information that has been identified.
• Set up: The infrastructure is then set up. Which ERP systems are used, and which are suitable for the tasks at hand?
• Set: The next step is to configure the systems to meet the company’s specific requirements.

When setting up the analysis, Juri ensures that the analytical processes are reproducible.

Paul would like to know how long it usually takes to analyse and optimise the systems of a medium-sized company. Juri’s answer: A company should expect it to take at least three months. However, this is not a continuous process, but rather involves phases set aside for workshops and discussions, for example with the IT department. Naturally, the time required increases the more systems are in use. For instance, simply identifying the points of contact for each individual system can take some time in itself.