Tax Risk Management and Board Responsibility - International Tax ...

The results of the survey show that only 14 % of the companies included in the research
had board-approved tax objectives. Regular formal reviews of the tax department by
internal audit were carried out in only 22% of the companies. Only 10% of the tax
departments felt that they were widely understood outside the tax function. 19
The reasons for the contradiction between the awareness of the board and the lack of
implementation are many. It is mainly caused by the increasing complexity of tax law as
well as increasing reporting requirements that leave less time to consider strategic issues
and debate the big picture. A lack of expert staff makes change even more difficult. Finally
there is a lack of understanding on how the world’s tax authorities are changing their
approaches.
2 Tax risk attitudes versus actual behaviour
When informally asked about their risk appetites the majority of the board members
questioned would designate themselves ‘conservative’. Only very few would see
themselves as ‘very conservative’, meaning that they would do nothing to provoke the tax
authorities. The majority require a legal opinion comfort of more than 50% on their tax
planning. Companies are mainly willing to defend their tax planning in court, but none of
the board members questioned think a reputational risk is acceptable. The research
suggests also that attitudes have shifted towards the risk-averse end of the spectrum. 20
Surprisingly there is a gap between tax risk attitudes and actual behaviour as the results
of legal proceedings from tax authorities often show. Since that is the case the board
members are facing significant problems due to the fact that the company’s behaviour does
not reflect their attitudes and might trigger inquiries by tax authorities.
Tax authorities have shifted to a risk-oriented approach to identify non-compliant
taxpayers and look especially at questions like: Is a clear direction from the board given as
regards tax matters? Does the audit committee request information on tax issues and is
adequate supervision in place? Have there been compliance issues in the past? Is there
19 KPMG’s Wired Tax survey 2004 and 2006
20 KPMG’s Wired Tax survey 2004 and 2006
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