What is a tax CMS?
A compliance management system (CMS) refers to the principles and measures introduced by a company on the basis of the objectives defined by the legal representatives, which are aimed at ensuring that the legal representatives and employees of the company and, if applicable, third parties, act in accordance with the rules. In other words, the aim is to ensure compliance with certain rules and thus to prevent significant violations.
A Tax Compliance Management System (Tax CMS) is a separate sub-area of a CMS whose purpose is the complete and timely fulfillment of tax obligations.
Who needs a tax CMS?
- Large companies, especially listed companies and those in the form of a stock corporation, are required to do so by law or by the Corporate Governance Code:
- “The Board of Directors must set up and maintain an early risk detection system.”
- “The supervisory board or its audit or compliance committee must check whether the managing directors/board members are fulfilling their duties.”
- Companies with a history of tax fraud, corruption, VAT carousels or money laundering
- Medium-sized companies in certain sectors, e.g.
- Banks need money laundering regulations
- Machine manufacturers must manage product liability
- Foreign subcontractors must comply with the minimum wage regulations in Germany
- Medium-sized companies with activities abroad. If something goes wrong, it is not enough to say that you didn’t know. You have to know foreign rules and check compliance with them. If you can’t do this yourself, you need to hire a consultant.
- Companies that are frequently in the media and must enjoy a high public profile
Basic elements of a tax CMS
How do you proceed with a tax CMS?
- Identification of the risk areas in the company and the various laws that may affect the company.
- Implement measures to identify and prevent breaches of regulations for all material risks.
- If necessary, have the system checked by an external expert who will draw up an expert opinion.
- Check again regularly.
The following elements should apply to the parent company and all subsidiaries:
- Compliance culture
- Compliance goals
- Compliance risks
- Compliance program (see below for details)
- Compliance organization
- Compliance communication
- Compliance monitoring and improvement
Compliance program: Preventive measures:
- Creation of guidelines and technical instructions
- Provision of checklists
- Training of the employees involved
- Communication of legislative changes
- Responsibility regulations and separation of functions
- Substitution rules
- Signature regulations
- Authorization concepts (access to data, files, etc.)
- Documentation instructions
- Description of the tasks that are transferred to external service providers and the interfaces to these service providers
- Ensuring that responsible employees always have access to guidelines and organizational instructions.
Compliance program: Detective measures:
- Process-integrated measures
- Systematic evaluation of data for special features
- Organizational and/or technical controls
- Occasion-related or random checks to determine whether the employees concerned are aware of the tax compliance program.
Audit of a tax CMS
The purpose of the audit is to make a statement on the tax CMS principles defined by the company.
- Are the principles and measures of the Tax CMS sufficiently documented in all important areas?
- Are the principles and measures of the Tax CMS suitable for recognizing and avoiding material breaches of the rules?
- Have the principles and measures of the Tax CMS been implemented at a certain point in time?
- Were the principles and measures of the Tax CMS effective at a certain point in time?
Advantages of a tax CMS
- Make sure that you comply with the law.
- Prevention, in particular early detection and avoidance of risks that could lead to damage or fraud, such as loss of money, reputation, reduction of liability and likelihood of penalties.
- If implemented, the authorities can be more easily persuaded to assume negligence or a one-off mistake by the person responsible; penalties can be avoided or reduced.
- Building and maintaining your brand, sales support: Some customers expect their suppliers to comply with the law and to be able to prove this, e.g. through an expert opinion from their tax CMS.
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