Pioneers in Tax - WTS in Germany
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Internal Tax Control Framework

Where negligence occurs in a company’s organisation of tax processes, this could lead to penalties. If tax obligations are breached, the management board, executive board and the management of the tax department are held – sometimes even personally – liable. The people involved are, however, often unaware of this risk.

With the publication of the application order to Section 153 of the German Fiscal Code (Abgabeordnung, AO) (23/05/2016), the German Federal Ministry of Finance assists companies and their representatives in protecting themselves from legal consequences. Accordingly, the introduction of a Tax Internal Control Framework (Tax ICF), which serves to fulfil tax obligations, can minimise liability risks for companies and their management and provide protection against possible reputation risks.

By digitising processes, in addition to the described preventative functions, the Tax ICF also ensures increased efficiency of business processes and provides the opportunity to better integrate the tax department in company processes.

A prerequisite for a Tax ICF to succeed is a Cooperative Compliance approach, i.e. a cooperative and trusting working relationship between the company and the tax authorities that allows processes and systems to be tested and “simulated tax audits” to be performed in advance.

WTS supports you in all steps of the requirement analysis, design, implementation, and continuous development of your tax internal control framework, as well as in communications with the relevant tax authorities.

Cooperative Compliance
  • Identifying weak points and loopholes; documenting and deducing recommendations for action
  • Takes place by means of document analysis and workshops in the individual tax areas requested by the client; however, this also extends to cover tax governance, in particular
  • Completing the analysis phase: Reporting to the client on the current status quo; identifying strengths and weaknesses along with recommendations for action
  • About the scope of implementation and incorporation of internal tax control systems in the company-wide risk management system
  • About the level of detail of risks and controls
  • Relating to the geographical relevance of internal tax control systems (e.g. for domestic and foreign subsidiaries as well)
  • Relating to the recommendations for action in cross-departmental measures and any required partial restructuring of processes (including risks and controls)
  • the implementation of measures (if applicable, it may also be that only step-by-step implementation is requested)

The structure of an internal tax control system is based on seven basic elements that must be firmly embedded in the entire company



Awareness across the entire company of the importance of tax laws



Minimum objective: “Compliance with tax laws” within individual sub-areas



Definition of roles and responsibilities



Identification & evaluation of major tax compliance risks



Documentation e.g. risk & control matrix



Communication with and between all employees who perform tax-relevant functions, and reporting of compliance breaches, if applicable


Monitoring and improvement

  • Continuous monitoring of adequacy and effectiveness
  • Reporting of weak points and breaches
  • The implementation is based on the only auditing standard of the IDW PS 980 currently available as a guidelines for comprehensive auditing possibilities with regard to the design of the internal tax control system
  • Continuous alignment with other guidelines
  • Certification is not essential, but can be carried out by WTS
  • An effective internal tax control system is tailored to the needs of the company and should be appropriate, and above all else, effective.
  • This requires process transparency and clear presentation of the interfaces
  • The adequacy review should also cover the needs and/or expectations of the tax authorities
  • The internal tax control system is only effective if it is actively used and monitored accordingly, and this is also documented

A permanently effective internal tax control system needs to be developed continuously,

  • both in the event of changes to tax circumstances
  • and, in particular, in the event of changes within the company (changes to the company structure, as well as to the value-added contributions and reporting lines)

Liability risks can only be minimised for companies or their senior management if, prior to the start of a tax audit, a common understanding is reached between the tax authorities and the company about the tax, ICS, its processes and, in particular, the effectiveness of the defined controls.

Cooperative compliance is reflected in the following measures:

  • Enabling system and process testing at the beginning of the tax audit
  • Checking the effectiveness of the imported controls together with the tax auditors
  • Carrying out "simulated" tax audits in advance and discussing the results with the tax auditors
  • Concentrating on focussed/weighting issues (in particular, income tax and VAT)
  • Create process transparency, particularly with regard to incorporating information from the tax department into operational business decisions and tax-relevant data flows up to the preparation of tax statements and tax returns
  • Create transparency of responsibilities: Clear separation of responsibilities for data quality and/or processing by the tax department
  • Through a cooperative compliance approach: Acceleration of the entire taxation process by integrating efficient tax audit and joint audit arrangements to shorten audit times and achieve final legal certainty as soon as possible

Digital processes

Support both the processing of data flows and the reporting of tax risk management

WTS provides practical and easy-to-use workflows and tools that can be deployed in the company with minimal implementation effort

Workflows and tools are revised and expanded as needed

Enforcement of effective tax regulations

Regular reporting, especially to management, ensures that the tax, ICS, is also nurtured in the company

Early involvement of the tax department in changes, including those that ensure adaptation within risk management

Proof of effective implementation of the processes, in particular, corresponding information

Your contact persons on Tax Internal Control Framework

Main Contact
Fritz Esterer
Certified Tax Consultant
> View Profile
Main Contact
Lothar Härteis
Managing Partner
Certified Tax Consultant
> View Profile

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