7 Key Factors in Tax Management

Danny Septriadi, S.E., M.Si., LL.M Int. Tax

 7 Key Factors in Tax Management

1. Vision Mission 2. Tax Function 3. Risk Management 4. Processes 5. Data Management

Targets Strategies Structure Control

6. Technology 7. Communication
1. Vision, Mission, Targets, and
Strategies
Tax Philosophy Pyramid
The manner in which a company Planning
manages tax risks and issues depends Driven
on the tax philosophy set by the BOD.

Risk Management Throughout

Advantage
BOD plays a role in determining
general standards in managing tax

Value
risks and issues by defining the tax
philosophy in the corporate
environment.

The tax philosophy defined by the

BOD is sourced from and aligned with
the company's overall management Compliant Compliant
strategies. Driven

Source: Bernd Erle, “Tax Risk Management and Board Responsibility”, in Wolfgang Schon (ed), Tax and Corporate Governance, (Leipzig: Springer, 2008), 216
 Compliance Risk

1. Vision, Mission, TAX RISK

Transactional
Risk
Targets, and
REPUTATIONAL
RISK
Operational Risk

Strategies Financial

•
Accounting Risk

Tax strategic plans Board of BoD ensures that the

Frequently
are implemented by
organization complies
Directors (BOD) with all tax regulations prioritized risk

establishing Vision, Impacts

Mission, Targets, and

TAX PHILOSOPHY

Strategies of Tax
To set out

Management
VISION AND MISSION
Tax Management
Function
Function in the To outline

following framework: TARGETS

Tax Management Function

STRATEGIES
Tax Management Function
1. Vision, Mission, Targets, and
Strategies
TAX RISKS
Compliance risk is related to the risks on the Tax Returns
filed by Taxpayers. In managing this risk, taxpayers must
take into account the systems, processes, and procedures
in preparing Tax Returns.
Tax underpayment
Transactional Risk is related to the tax risks faced by risk
taxpayers in performing strategic and irregular
transactions. To manage this risk, sufficient documentation
Risks in the is required to assess factual conditions and, whenever COMPANY
Implementation of necessary, experts may be involved in assessing the Impacts REPUTATION
Tax Obligations appropriate tax treatment for said transactions.

Operational risk is related to routine transactions of

taxpayers’ business operations. To manage this risk, proper Tax overpayment risk
procedures are required.

Accounting and financial risks are related to financial

accounting impacts resulting from tax calculations, thus
affecting the management’s decisions.

BOARD OF DIRECTORS’ RESPONSIBILITY

2. Tax Function Structure
Tax function structure can be divided into 2 (two) models with their respective advantages and disadvantages

Advantages Disadvantages

Head • More controlled tax costs for the • Far from the business unit
Office organization • May be deemed as “head office overhead”
Model • Easier to align with the overall organizational
strategies
• Good coordination
• Centralized tax experts
Business • Close to each business unit or subsidiary • Difficulty in overseeing activities and controlling the
Unit Model • Tends to have specific tax skills related to a organization’s tax risks as a whole
subsidiary business or industry • Less focus on the overall organizational strateges
• May reduce reliance on external advisors. • May lead to inconsistency of position with the tax authorities
• More frequent reporting to local management, making it
difficult for the head office to control
• Difficulty in ensuring the optimal level of resources
• Tax staff at smaller subsidiaries will feel neglected
2. Tax Function Structure
Tax Strategic Plan

Required Tax Function

Resources

 Reward Maintaining Identifying “gaps”  Required competency

 Career Planning  Evaluating existing skills
 Mentoring  Analyzing training needs
People
strateg
 Training  Recruitment strategy
 Coaching y  External
 IT Knowledge  Internal
 Role Change  Tax function branding
Developing Recruiting
2. Tax Function Structure
The leader of the tax function is essential in the tax function structure

Influence
•Effective interaction with the C-Suite (CEO-CFO-COO-CIO)
•Convincing the importance of changes to tax-related business processes
•Reporting tax risk and values
•Having a positive impact on business processes and functions other than tax

Strategies
•Developing operational strategies and an effective tax organization
•Ensuring that tax strategies are in line with business strategies
•Minimizing tax risk

Relations
•Collaboration among departments for common goals
•Asking for input from other departments to improve tax processes
•Becoming an ideal role model for tax professionals
•Establishing relationships with internal and external stakeholders
 3. Risk Control and Management
Reconciliation/Equalization
Control related to the preparation of Periodic
and Annual Tax Returns through
reconciliation which is carried out every
month and the determination of the schedule
for the Input Tax Invoice.
Tax and Process Review
Tax obligation-related control at the
General Control branch/subsidiaries is implemented
through annual tax review. Working
Tools of the process review is performed regularly.

Company Tax
Function Monthly Report
Tax-related control at the
branch/subsidiary is implemented
through monthly reports.

KPI
Control related to the tasks and
responsibilities of every person in the tax
function is outlined in the KPI.

ddtc.co.id
3. Risk Control and Management
MAJOR AND SUB PROCESSES

Tax Management Tax Planning Tax Compliance Accounting and Internal Audits & Litigation Business Processes
Controls

Production Process
Resource Alocation
No

Tax Policy Support

Audit Support and

Key Business Risk

System Integration

Coordination with
Tax Planning for

Documentation

production, etc
Data Gathering
Business Units

Business Units

Cash Forecast

Balance Sheet

Tax Litigation
Development
Management

Coordination

Management

Management
Management

Tax Accruals
Tax Queries

Tax Proxies

Fixed Asset
Statements

forecasting

Marketing,
Long-term
Disclosure
Executive

Employee

Inventory
Tax Basis
Financial

Support
Project

Filings
1 Reports of tax information required by regulatory √ √ √ √ √ √ √ √ √ √ √ √ √ √
agencies are incomplete, inaccurate, or not timely

2 Inadequate involvement of tax department in enterprise √ √ √ √ √ √ √ √

business planning

3 Failure to communicate with executive management, √ √ √ √ √ √ √ √

audit committee, and business units on a frequent formal
basis

4 Changes in existing general ledger or new systems do not √ √ √ √

enable or support tax financial reporting, regulatory
compliance or planning

5 Competency, experience and training necessary for √ √ √ √ √

complexity of the Company's tax affairs do not exist

6 Lack of appropriate documentation and recordkeeping to √ √ √ √ √ √ √ √ √ √ √

support material tax positions

7 Resources to meet demands of stakeholders do not exist √ √ √ √

8 Changes in business operations and/or legislation do not √ √ √

support previously implemented tax planning

9 Failure to identify and/or support appropriate permanent √ √ √ √ √ √ √ √

and temporary differences to calculate tax provision
(domestic and foreign)
3. Risk Control and Management

Name of the Risk Define Risk Risk Owner Response

Risk Impact/Priority
Business Lack of adequate High/High
Process documentation
Changes in business Medium/High
Tax Department and
operation or business
Related Business Sharing
process do not support
Department
existing tax planning
Changes in existing general High/High
ledger – Manual Process
Tax Compliance Data Gathering., e.g. High/High Tax Department, Finance Avoid
reports are inaccurate Division, CFO
Documentation – lack of High/High
appropriate documentation
and recordkeeping
Tax Accounting Tax expense and deferred Medium/Medium Tax Department, Reduce
tax calculation – failure to Accounting Division, CFO
identify permanent and
temporary differences
3. Risk Control and Management

Board Level Control

• Reviewing control over tax activities and tax management policies – risk appetite, acceptable risk levels, sub-
committee board for tax risk, tax risk management documentation, compiling and re-checking the tax risk
register;
• Periodic Control Testing: Half yearly/annually.

Managerial Level Control

• Determining Adequate Capacity and Capability (personal roles and responsibilities in the tax department,
quantity and quality of tax officers in the tax department, tiered control processes in the tax department,
ability to identify risks from significant transactions);
• Ensuring optimal use of information technology (in automation processes related to control processes for
data accuracy and appropriate recording policies);
• Ensuring the flow of information from commercial financial statements, working papers and reconciliation
reports, procedures and level of approval/authorization, accurate, complete, and clear reporting
• Regulatory update and communication with DGT (Impact of changes to regulation on internal processes or
internal control, correspondence and communication with the tax authorities);
• Periodic Control Testing: monthly/quarterly/half yearly/annually.
 4. Processes
Given the challenges faced by organizations in carrying out tax processes, processed must be improved to achieve the expected goals. For
this reason, a methodology is required to guide the organization in improving processes.

Challenges Methodology Main Goals

Mapping the “as is” process 1. Improving quarterly and

year-end processes;
1. Quality and access to
2. Integrated processes;
information
Rechecking the “as is” process 3. Optimal use of
2. Limited time in performing tax
resources;
analysis
4. Automation of
3. More time spent on tax
Compiling new processes processes;
compliance and tax reporting
5. Improving the quality of
compared to other deliverables
New Processes and System information from
4. Use of different systems
Trial internal information
5. Costs
sources in the tax
6. Meeting the needs of end
Implementation division and other
users
divisions.

Monitoring and Reviewing

4. Processes
Areas of Improvement
Challenges Company Condition Description

Quality and access to information V  Information related to the tax analysis of  Data access authorization and automation
business schemes  Re-evaluation of business processes
 Access to legal agreement data

Limited time to prepare a good V In tax audits, auditors sometimes ask for  Technology automation
analysis unanticipated data or responses, responding may  Anticipation of unique auditor requests
be resource-intensive  Data management
 Physical and digital archive storage

Time required for compliance and Compliance = V ;  Compliance  Strengthening the tax analysis process for tax
other deliverables Compliance vs Other Timely reporting planning and tax audits
Deliverables= X  Other Deliverable  Technology automation
Tax Analysis

Differences between information X Not integrated Integration and automation of information systems
systems

Meeting the needs of tax users Internal V  Does the data meet the needs and requests Process Automation and Business Analytics
External X of tax users (e.g. Auditors)

Risk and error control Compliance: V  Existing control in the Company related to  Tax accounting controls and tax audit risk
routine tax reports.
5. Data Management
The main purpose of data management is to standardize and reuse accurate data and focus on compiling data that has
been clearly defined and does not change the data contained in the department. The manual collaboration of data from
outside or internal to the tax division may result in material error or misrepresentation. The concepts of corporate
data management include:

Master data management

• Focuses on formalizing the process of creating, maintaining, and deleting master data

Data governance and collaboration

• Synchronization of policies, standards, procedures, organization and technology for data
management

Data quality
• Data with accurate information is conveyed to the appropriate people at the appropriate time

Data retention and archiving

• Focuses on storing and archiving data that is at the end of the data lifecycle
 5. Data Management

• Cost center master data

Operations Controlling • Cost center hierarchy

• Expense classification
Legal A/P • Withholding tax

• Book-tax differences • Compensation

Finance/GL HR/Payroll
• Consolidated financials TAX DATA • Employee benefit
plans
COLLABORATION
• Transfer pricing policies Sales &
• Sales/customs/excise taxes IT
Distribution

• Cost segregation Asset Materials • Inventory valuation

• Cost capitalisation Management Management • Material movements
 6. Technology

Technology may be the main enabler of the tax function’s overall effectiveness. Technological sophistication may imply huge
differences to the tax function's ability to produce deliverables within the appropriate timeframe and risk parameters. The
diagram below illustrates one of the best-in-class tax technology platforms.

On-site and off-site stakeholders

Data Tax function web portal Web Access

Collection

Financial System Data Third Party Data

Integration Warehouse Apllication Management
System
7. Communication
To develop effective communication, the following aspects and steps are to be taken into account:

Steps
Aspects
Determine the party serving as the
target of communication and its
role
Identifying the
Criteria of Different
Stakeholders
Define communication content
(data version, sensitive data,
meta-data tagging)

Designing the Determine the line of

Appropriate communication
Communication Method (virtual vs. real meetings)

Specify communication time

(sharing of important dates)
Sample: Tax Audit-Related Tax
Management
Setting the Vision and Mission
VISION MISSION
of Tax Strategy Targets that are
TARGETS STRATEGI
in Line with the Company’s
ES
Vision and Mission
Evaluating the Tax Function
TAX FUNCTION
Structure, both Core and Non-
STRUCTURE
core
RISK CONTROL AND Review and Documentation of
MANAGEMENT Tax Strategies and Risk Policies
Integration of the Tax
Function in Business Processes
PROCESSES
from Conception (BusDev) to
Operational
Facilitating Data
DATA Collaboration, either Internal
MANAGEMENT Tax Function or Other Company
Functions
Evaluation of Current System
Capability to Provide
TECHNOLOGY
Information on Tax Dispute
Handling
Identifying the Characteristics
COMMUNICATION of Various Stakeholders’
Interests
Determine Policies and
Strategies in ‘Tax Disputes'
Determine and Plan
Regeneration and
Competency Improvement of
the Tax Function
Tax Risk Assessment and
Determination of Tax Risk
Assessment Procedures
Mapping and Updating Tax
Dispute Handling Process
Index Automation for Easier
Search and Retrieval of Data or
Physical/Digital Documents
Automation of the Testing
Process as per Audit
Technique Method
Updating Lines of
Communication within the
company and with
stakeholders
Communicate the Policies and
Strategies to internal and
stakeholders
Determine the Level of
Involvement of External
Professionals in the Tax Dispute
Process
Strategy Development and
Optimization of Tax Risk
Management Procedures
Automation of Delegation and
Monitoring of Tax Dispute
Handling Task
Facilitating Cloud Computing
that Can Be Accessed from
Various Devices
Integrating Tax Data Needs
with Financial and Legal Data
Determining the Content of
Communications with
Government Stakeholders
Specifying Strategies and Road Map
for Raising Corporate Awareness of
Tax Issues
Determine Core and Non-core ad-
hoc Teams in Facing Tax Disputes
Monitoring of Tax Risk and Control
Automation of BoD’s Involvement
in Monitoring the Tax Dispute
Handling Process
Setting Data Management Policies
for Data Packages that are ‘Ready to
be Audited’
Automation of Statistical Analysis
related to KPI for the Tax Function,
specifically in Tax Dispute Handling
Establishing Ad-hoc
Communication Channels related to
Tax Dispute Handling
 Curriculum Vitae
Danny Septriadi, SE, MSi., LLM Int.Tax – Senior Partner
DANNY SEPTRIADI is the Senior Partner of DDTC. His specialization is international taxation and transfer pricing. He is one of Indonesians recognized as a World’s Leading Transfer
Pricing Adviser for 2 consecutive years by international tax magazine Expert Guides. He was experienced in Arbitration Disputes as an expert at International Chamber of Commerce
in London, United Kingdom. With his capacity, Danny was asked several times to provide his expert insight to the Tax Court to explain transfer pricing cases. He also teaches Master
of Accounting Program of University of Indonesia.

EDUCATION SEMINAR & COURSES

• Master’s degree in Tax Policy and Administration University of Indonesia, • Summer School of Transfer Pricing Program, Universidade Católica Portuguesa,
Lisbon, Portugal, 2012.
• Master’s degree in International Tax Law Vienna University of Economics and
• Advanced Course in Transfer Pricing, Maastricht Center for Taxation, Maastricht
Business Administration, Austria
University, the Netherlands, 2014.
• Transfer Pricing: Policy and Practice, Duke Center International Development,
PUBLICATION Duke University North Carolina, USA, 2015.
• 10 books, • The 2nd International Conference on Taxpayers Rights, Vienna University of
• 48 taxation articles of in various media and a number of domestic Economics and Business Administration, Austria, 2017.
and international journals • Value Chain Analysis - Functional Analysis post-BEPS, Maastricht University and
TPA Global, Amsterdam, Netherlands, 2017.

ACHIEVEMENTS SPEAKER AT
• One of the World’s • Directorate General of
Leading Transfer Pricing Taxes,
Advisers in 2015-2019 by • Fiscal policy Agency,
Expert Guides. • Secretariat of Tax
• One of the World’s Supervisory Committee,
Leading Transfer Pricing • The Secretariat of Tax Court,
Advisers in 2020 & • Astra International
World’s Leading Indirect • Unilever Indonesia
Tax Advisers in 2021 by
• Great Giant Pineapple
International Tax Review.
• Nestle Indonesia,
• Pusdiklat Pajak,
• Institute of Indonesia
Chartered Accountants,
• University of Indonesia,
• Tarumanagara University,
• Bina Nusantara
University,
• Petra Christian University,
• 17 August University,
• Jentera School of Law and
others.
 Thank you

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