Prevent VAT Liability through a Tax Control Framework (TCF)

March 26, 2024 – If tax risks within your organisation are not properly managed, you could be held liable for VAT fraud committed by your employee, among other things. This was decided by the Court of Justice of the European Union (CJEU) in a recent ruling. The decision highlights the importance of good tax risk management. A Tax Control Framework (TCF) can be helpful in that regard.

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.

Want to know more about TCF?

Would you like to know more about how to manage tax risks through a TCF? Please contact Menno van Werkhoven via email or phone: +31(0) 88 277 18 12, or Ronald Plat via email or phone: +31(0) 88 277 14 16. They will be happy to help you.