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

IV. Tax Risk Management in practice
1 Defining a tax philosophy and setting a framework
The board has to set the general standards for tax issues by defining a global tax
philosophy and setting a framework for the governance of tax issues throughout the
business. The tax philosophy on a practical level is the code of conduct for tax issues 24 . A
code of conduct is intended to establish the ethical norms of the company and to set
standards for ethical behaviour when dealing with those inside and outside the firm 25 . So
the tax philosophy as code of conduct with regard to tax issues states the overall position of
the company towards tax.
The OECD Guidelines for Multinational Companies indicate what can be addressed: “It
is important that enterprises contribute to the public finances of host countries by making
timely payment of their tax liabilities. In particular, enterprises should comply with the tax
laws and regulations in all countries in which they operate and should exert every effort to
act in accordance with both the letter and spirit of those laws and regulations. This would
include such measures as providing to the relevant authorities the information necessary
for the correct determination of taxes to be assessed in connection with their operations and
conforming transfer pricing practices to the arm’s length principle.” 26
The tax philosophy needs to be embedded in the overall goals of the business. As the
code of conduct it must not only be a set of rules for good behaviour but must be part of
company’s culture and become a factor in everyday business dealings 27 . Establishing a
position requires the board to decide on the focus areas for tax management. Is tax mainly
seen as a normal cost factor that needs to be minimized as a duty to shareholders or is its
payment a social obligation and a duty to the local community. Most companies take a
position closer to the idea that ‘tax is a cost factor’ and therefore a decision needs to be
24
25
26
27
KPMG Tax in the Boardroom, A Discussion Paper, 2004, page 6
Eric Banks, Corporate Governance Financial Responsibility, Controls and Ethics, 2004 page 47
OECD Guidelines for Multinational Enterprises, 2000, page 27;
http://www.oecd.org/dataoecd/56/36/1922428.pdf
Eric Banks, Corporate Governance Financial Responsibility, Controls and Ethics, 2004 page 47
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