Why should anyone have a Tax CMS?

Tax evasion is a crime in Germany and may be sentenced with up to 10 years of imprisonment. This also applies to private individuals acting on behalf of a company, e.g. as managing director or board member. Besides a D&O insurance a tax CMS may help to protect them in case something went wrong and they can prove they did not act deliberately and have implemented procedures to make sure the company complies with rules.

The German Federal Ministry of Finance says: “If the taxpayer has implemented an internal control system that includes the fulfilment of tax duties, it may indicate that there is neither deliberation nor reckless understatement of tax. For example in case the client has made a mistake the chances for getting away with negligence (which usually only result in a fine or even nothing) are much higher if he had implemented a tax compliance management system before.

What is a Tax CMS?

CMS means Compliance Management System. Compliance is an adherence with regulations and corporate guidelines, so a Tax CMS should make sure a company complies with tax rules.

Tax Compliance Management Systems

So you don’t go to jail: Tax Compliance Management Systems

Who needs a Tax CMS?

  • Large companies, esp. listed companies and those in the form of an “AG” (joint stock company) as for them it is mandatory by law or from the corporate government codex:
    • Board of directors must set-up and maintain an early risk detection system
    • Supervisory board or its audit or compliance committee must check, if the managing directors fulfil its duties
  • Companies with tax fraud, corruption, sales tax carousel or money-laundering cases in the past
  • Medium sized companies in certain business sectors, e.g.
    • Banks needs AML rules
    • Machine manufacturers need to manage product liability
    • Foreign sub-contractors must follow-minimum wage rules in Germany
  • Medium sized companies with activities abroad. Not checking out foreign rules does not help in case something goes wrong. In case the company is not able to find out the rules in other jurisdictions and check if they comply with them they must ask consultants for help.
  • Companies that are frequently in the media and must maintain a high reputation in the public

Basic elements of a Tax CMS

How to proceed with a tax CMS

  1. Identify the risk areas in the company and the different laws that may affect the company
  2. Implement measures that will identify and avoid rule violation for all material risks
  3. If needed, have the system audited by an external expert, who issues an opinion
  4. Re-check regularly

The following elements should apply for the mother company and all affiliates

  • Compliance culture
  • Compliance targets
  • Compliance risks
  • Compliance program (for details please see below)
  • Compliance organisation
  • Compliance communication
  • Compliance surveillance and improvement

Compliance program: preventive measures:

  • Creating guidelines and instructions
  • Providing checklists
  • Training of involved staff
  • Communication of changes in the law
  • Defining responsibilities and separation of functions
  • Representation regulations
  • Signature regulations
  • Authorization concepts (access to data, files etc.)
  • Documentation regulations
  • Defining inhouse tasks and external advisors tasks and the interface
  • Ensuring that staff members always have access to guidelines and instructions

Compliance program: detective measures:

  • Process-integrated measures
  • Systematic analysis of data for particularities
  • Organisational and/or technical checks
  • Event-driven checks or sample checks if the tax CMS is known to the staff who shall apply it

Audit of a Tax CMS

The audits purpose is to come to a conclusion on the tax CMS principles as defined by the company

  • Have the principles and measures of the tax CMS been documented adequately in all major areas?
  • Are the principles and measures of the tax CMS suitable to identify and avoid material rule violations?
  • Have the principles and measures of the tax CMS been implemented at a certain time?
  • Have the principles and measures of the tax CMS been effective at a certain period of time?

Benefits of a Tax CMS

  • Make sure to comply with the law
  • Prevention, esp. early recognition and avoidance of risks that may cause damages or fraud, such as losing money, reputation, reduce liability and probability of penalties
  • If implemented, authorities may easier be convinced to assume negligence or a one time-error of the responsible person; penalties may be avoided or reduced
  • Branding, Sales-support: Some customers expect that their suppliers comply with the law and can prove that (e.g. by an audit opinion of their Tax CMS).

How can we help?

Benefitax can support you to set up your individual Tax CMS. We can either guide the responsible person in your company how to do it or, provided sufficient information and documents are provided, set it up for you.

In case we were not involved in the preparation we can act as auditors and issue an opinion, which you can use for branding. The audit scope may range from just appropriateness test as absolute minimum to a performance test, which is more intense and to be preferred.