Dutch Tax Authorities updates ‘Good Practices TCF’

With the introduction of horizontal monitoring, the Tax Authorities have formulated four goals:

1) More uniformity in execution

2) Clarify the position of horizontal monitoring in the Tax Authorities’ implementation and supervision strategy

3) Differentiation in supervision

4) Inclusion of current and international developments

The publications give substance to the first objective. The 'Good Practices' are a long-awaited answer to the questions that exist in practice regarding the design of tax control through a Tax Control Framework (TCF). The information is useful for organisations that participate in horizontal monitoring, but also for organisations that want more information about the design of a TCF. 

The ‘Good Practices’ have been drafted with the support of the Tax Assurance Department of the Dutch Association of Tax Advisers (NOB), which also includes two PwC staff members. 

What does this mean for your organisation?

In the updated version of the Good Practices Tax Control, a number of cases have been added to clarify the expectations for the design of a Tax Control Framework (TCF) by the Tax Authorities. Like the 2021 publication, this publication contains no minimum requirement, limitative description or legal obligation to set up a TCF. The document is relevant to organisations that participate in, or wish to participate in, horizontal monitoring. The document is also relevant for organisations that do not (or do not wish to) participate in horizontal monitoring but want to better understand what a TCF is. The good practices provide practical examples for each building block of the TCF that can be used in the setup. It is useful to consider the reflection of the Tax Authorities, even without horizontal supervision.

It is important for organisations to realise that a TCF is always tailor-made, and the ‘Good Practices’ may provide important guidance in setting it up. Organisations can gain a better understanding of the setup of a TCF according to the Tax Authorities' views based on the added cases in the 'Good Practices Tax Control' (September 2023).

Six basic principles

The Tax Authorities have six basic principles on which the TCF is based. 

These six basic principles according to the Tax Authorities are: 

1. Strategy

2. Tax function

3. Risk analysis

4. Control

5. Monitoring

6. Reporting

These basic principles can be recognised because they largely resemble the methodology put into practice by PwC, and are in line with the OECD guidelines on TCF. PwC can therefore provide excellent support in setting up your organisation's tax control.

In the document, the Tax Authorities also provides insight into how supervision is organised per the described category of taxpayer by means of a reflection on the practical examples. 

A number of points we would like to highlight here:

• The tax strategy is a core element in tax control. Partly on the basis of the organisation's strategy, the team within the Tax Authorities determines their approach. 

• The establishment of a tax committee is a good way to bring tax information together within the organisation. 

• An important part of tax control is the allocation of tax responsibilities. During a dialogue with the Tax Authorities, the way in which the tax management cooperates with the financial function and other parts of the organisation can be further specified. Also the policy with regard to the hiring of external experts (third parties) can be determined more fully.

• The tax risk analysis is an important basis for tax control. The Tax Authorities start from an analysis in which the organisation examines the inherent tax risks (without taking account of the mitigating control measures) from the broadest possible perspective. This is in any event the case for the so-called key risks. The Tax Authorities also prepare a risk analysis as part of the individual audit process, in any event for organisations with an individual horizontal monitoring covenant and organisations in the Top 100 category. Where the organisation's risk analysis differs from the Tax Authorities' risk analysis, this becomes a subject for further discussion.
• Monitoring the tax processes and testing the control measures are also important components of the TCF. The Tax Authorities note in this regard that, in many organisations, there exists a natural tension between the expertise of the staff members carrying out the monitoring activities and their objectivity. In many (relatively smaller) organisations, expertise in areas such as payroll taxes is concentrated among a limited number of staff members.