A letter to the editor in this morning’s Dutch daily “De Telegraaf” pretty much sums up what tax authorities world-wide have been suffering from: lack of money.
An auditor with a 40-year track record at the Dutch revenue service says that the operations of midsize and larger companies have become so complex, that with the current budget a thorough tax audit is almost impossible. The politicians want a smaller revenue service, but the number of companies has only increased.
The auditor also mentions that the current population of tax inspectors is simply not up to the task of ensuring that the correct amount of tax is collected.
From my perspective, these thoughts are spot on. Where I am involved with VAT audits, inspectors hardly take the time to get to understand how the company’s operations work, and are solely focused on “denying as much input tax credit as possible”, or “rejecting as many zero-rated exports as possible”. Sometimes it seems like indirect taxes are too “embedded” in the company’s complex global operations for a tax auditor to really understand. Direct taxes are a bit more removed from the supply chain and seem easier to review.
This structural complexity, but also the lack of audit risk, may be among the reasons why VAT is not very visible to a company’s CFO and even the tax department, even though an average MNC’s VAT risk is easily 25%-45% of its global sales.
Also, the much-heralded initiative of the Dutch revenue service to agree on a “tax covenant” with large companies does not seem to have taken off. This is an on-going agreement where the tax man agrees not to bother a company too much, provided that the company voluntarily discloses all potential tax issues.
Unfortunately I don’t have an English translation of the letter – Dutchies can refer to this link: