Prevent VAT Liability through a Tax Control Framework (TCF)
Liability for fraud committed by employee
The CJEU ruling involves an employee who issued fake invoices with VAT on his Polish employer’s letterhead. The employer was unaware of all this; the fake invoices were kept out of the accounting records. Moreover, it was not unusual within this company for VAT invoices to be manually drafted.
According to the CJEU, the Polish Tax Authority could collect the fraudulently invoiced VAT from the employer, when the latter had not exercised sufficient control over the employee’s actions. The fact that the employer was unaware of the committed fraud, was irrelevant in this case.
Importance of a TCF
The ruling on the fraudulent employee once again highlights the importance of strong and auditable management and control measures within a company to avoid tax claims. With a Tax Control Framework (TCF), such tax risks can be effectively managed.
A TCF is an internal control system to identify and manage tax risks. It enables a company to constantly have an overview of all tax-relevant activities. A TCF enables an effective tax strategy and ensures compliance at both strategic and operational levels. This prevents employee fraud from leading to tax liabilities for a company.
What can you do?
Have you clearly identified and systematically documented the tax risks in your organisation? Do you want to monitor (potential) tax issues closely? We have extensive experience in helping set up and structure Tax Control Frameworks for taxpayers in almost every sector. Additionally, Mazars offers a unique monitoring solution to continuously provide insight into your tax risks.