Tax Control Framework (TCF)

Companies operating nationally and internationally are being faced with increasingly complex tax and legal requirements. Transparency and documentation obligations, and challenges due to digitalisation are constantly on the increase. The failure to comply with tax obligations can have significant consequences of a reputational, financial and criminal nature for the company concerned and the persons responsible.

With its ruling dated 9 May 2017 on § 30 OWiG [German Regulatory Offences Act], the German Federal Supreme Court has tightened up case law. At the same time, we are observing more aggressive intervention by the tax authorities with a more rapid initiation of criminal tax proceedings and fines, and an increase in special audits. Many medium-sized companies, but also members of the Executive Boards of large groups, are not aware of the extent to which they are personally liable and can be prosecuted under criminal tax law - even without intent. This is a situation that must be avoided. But what can you do to avoid getting into such a situation in the first place?

The sanction structure for large companies and groups is also in a state of flux. The draft of the planned Association Sanctions Act replaces the present cap for corporate fines of € 10 million with a flexible upper limit determined as a percentage of average annual turnover (5 % for negligence or 10 % for intent).

What are the advantages of a Tax Control Framework?

A Tax Control Framework (TCF) tailored to the company offers protection against liability risks and consequences under criminal tax law. In May 2016, the application decree on the German Tax Management Code (“Abgabenordnung” /”AO”)) clarified the tax administration's position with regard to § 153 AO to the effect that the tax administration considers the existence of a so-called internal control system for the area of taxes to be an indication against the existence of intent or negligence. Thus, a resilient TCF can rebut accusations under criminal tax law and protect the company and its officials (management) from financial damage.

In addition, thanks to a TCF, tax processes have a higher quality and operate more efficiently, and the supply of quality data from other areas is facilitated. It is important that the measures be implemented directly in practice and be "lived" and that they contribute to a possible tax digitalisation strategy.

The introduction of a tax control framework is an absolute must for every nationally and internationally oriented company.

A resilient Tax Control Framework:

  • protects the company from tax risks, unexpected additional taxes, fines, penalties and loss of reputation,
  • provides a strong indication as part of the exoneration of the managing bodies and the in-house tax function,
  • creates trust in the finance function and increases the quality of tax-relevant data,
  • improves the cooperation with and creates an atmosphere of trust vis-à-vis the tax authorities,
  • opens up the possibility to file also in the future corrected tax returns in accordance with § 153 AO and mitigates the risk that the tax authorities classify amendment applications as self-denunciation,
  • offers transparency and thereby optimises tax processes and the tax organisation,
  • forms the basis for automation and digitalisation of processes and
  • last but not least, serves as the basis for sustainability reporting.

What exactly is a Tax Control Framework?

It is very difficult for the business owner or manager to keep track of all tax obligations at all times. As part of the internal control system, the so-called Tax Control Framework therefore aims to ensure compliance with all tax regulations. The purpose is the complete and timely fulfilment of all tax obligations in your company.

What does this mean for your company?

In order to be able to meet the increased requirements in a legally secure manner, you should routinely review your tax processes for appropriateness and effectiveness. To provide an audit trail, particular attention should be paid to documentation. The tax processes must be written down in a binding organisational briefing with a clear distribution of competencies and responsibilities and the employees must be trained accordingly. In addition, it is important to monitor the implementation of the instructions and to incorporate the knowledge gained into the routine changes mentioned above.

How can we support you in the implementation of a Tax Control Framework?

Based on your assessment, we provide you with modular support in the implementation of a Tax Control Framework so that you can rely on a legally compliant system tailored to your company. Our experts from the various tax disciplines and our tax compliance and technology experts work hand in hand and combine tax law with compliance and technology requirements. Professional project management plans, controls and monitors the progress of the project and thus ensures its success. As a result, you not only receive a customised Tax Control Framework, but also the basis for your tax digitalisation strategy.

We draw on existing and functional processes in your company. We attach particular importance to developing pragmatic and goal-driven solutions and to achieving the smoothest and quickest implementation possible. This means that we carry out our work in tune with your business processes and your day-to-day business.

Project approach for the introduction of a Tax Control Framework

The project approach we have developed for the implementation of a Tax Control Framework involves three project phases: preparation phase, analysis phase and implementation phase.

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Questions & Answers regarding TCF

We have summarised the most important questions and answers regarding Tax Control Framework (TCF) for you below.

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Tax Compliance-Quick-Check: Haben Sie Ihre steuerlichen Risiken im Blick?

Setzen immer höher werdende Compliance-Anforderungen Ihre Steuerabteilung unter Stress? Haben Sie im Blick, welche konkreten prozessualen Pflichten im Bereich Tax in naher Zukunft auf Ihr Unternehmen zukommen? Sind Reportinglinien und Prozesse in Ihrem Unternehmen insoweit klar definiert und dokumentiert?

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