Tax Compliance Management Systems – Implementation of Tax Compliance
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Tax Compliance Management Systems – Implementation of Tax Compliance

Compliance is an obligation for companies as a whole. The observance of law and regulations by the company, its employees and its bodies must be ensured. However, the laws and regulations that must be observed and complied with are extensive and complex. As a rule, the same person or corporate department cannot guarantee the multitude of regulations. For this reason, it makes sense to subdivide the legal areas within the framework of compliance management.

In the following article, we deal with the area of taxes.

Tax Compliance Management Systems: What is that?

„Tax Compliance“ is the active fulfilment and observance of tax regulations and obligations by a company, its bodies and employees. Therefore, tax compliance is an essential component of the overall compliance of a company.

Why is a special Tax Compliance Management System useful?

Despite all attempts to reduce bureaucracy, the complexity of tax laws, ordinances and jurisdiction is constantly increasing. This applies at national level as well as within the EU and in other regions of the world.

On the one hand, companies and their corporate bodies are faced with the challenge of having to explain complex tax law issues properly. On the other hand, they are confronted with a more restrictive jurisdiction in criminal tax cases. In addition, they are exposed to an increasingly critical examination by the tax authorities. The possibilities to correct wrongly declared taxes are becoming more and more limited.

Tax Compliance Management Systems: The view of the Federal Ministry of Finance

Since the publication of the BMF letter of 23 May 2016 on the Application Decree for § 153 of the Tax Code, the topic of tax compliance has become increasingly important for many companies. With this letter, for the first time the tax authorities have emphasized the relevance of Tax Compliance Management Systems. This has significantly increased the pressure on companies to address the issue.

When does the company management make itself liable to prosecution?

  • 153 of the Tax Code provides for an obligation for taxpayers to make corrections if it is subsequently determined that a tax return submitted to the tax office is incorrect or incomplete. In this case, the legal representatives are obliged to correct the tax return to the tax office immediately.

If such an error fulfils beyond that the facts of the tax evasion according to § 370 of the Tax Code or the careless shortening after § 378 of the Tax Code, criminal consequences for the enterprise and its organs can threaten from this.

In the Application Decree to the Tax Code the tax authorities have stated that in the case of correction reports an established Tax Compliance Management System is regarded as an indication against conditional intent and can work in favour of the taxpayer by evaluating the report as a correction according to § 153 of the Tax Code and not as a self-declaration according to § 371 of the Tax Code.

An established Tax Compliance Management System can therefore have an exonerating effect.

What is a Tax Compliance Management System (short „Tax CMS“)?

A Tax Compliance Management System refers to all principles and measures of a company that are aimed at fulfilling tax obligations or preventing violations of tax laws.

It is thus an internal, documented control system for processes and measures within a company. A Tax Compliance Management System serves to ensure that tax obligations are fulfilled.

Goals of the Tax CMS

The implementation of a functional Tax Compliance Management System is intended to ensure that all relevant tax laws are observed and all tax obligations, such as the timely and correct submission of advance notifications and declarations are fulfilled.

The goal of tax compliance is, on the one hand, the preventive avoidance of violations of the law, but – on the other hand – also the protection of managing directors, board members and employees from the consequences of a corresponding violation such as, for example, liability of board and management for incorrect and/or incomplete tax returns.

Advantages of a Tax CMS

A Tax CMS increases the legal certainty in fulfilling tax obligations and at the same time minimizes the risk of unexpected, high back taxes. In addition, it reduces the risks of criminal and fine law, to which the company management is exposed in case of doubt.

As a rule, it also can also be assumed that a properly documented and continuously maintained Tax CMS is helpful in communication with the tax authorities. After all, it documents a living corporate culture that is geared towards compliance with laws and regulations.

Last but not least, a Tax CMS also supports business management. Internationally active corporations often have a multitude of international interdependencies regarding the trade of goods and services. As a rule, numerous tax issues are realized here. If they lack defined processes, they have to be laboriously checked in each individual case. There is a high risk of error here.

Tax Compliance Management Systems: our recommendation for action

In order to minimize the risks from possibly wrongly declared taxes, it is necessary to build a coherent, well-documented and effective Tax CMS in the company. On the one hand, this helps companies to arm themselves against the risk of additional payments and, at the same time, serves to personally release from liability of directors, management and other responsible persons in the company.

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Steuerberater, Wirtschaftsprüfer in Düsseldorf and Düsseldorf, Thilo Marenbach
Thilo Marenbach
Tel.: +49 211-90 86 70
Steuerberater, Wirtschaftsprüfer

Steuerberaterin in Düsseldorf und Köln, Ann-Christin Büscher
Ann-Christin Büscher
Tel.: +49 211-90 86 70