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

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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 Page 12 / 25
made on how aggressive tax management should be and what level of risk is acceptable for the company. Furthermore short term and long term effects have to be balanced properly. The tax risk management system will be derived from the tax philosophy. It is embedded in a framework which is outlined below. The aspects of the framework are at the same time practice indicators on the operation of the tax risk management system 28 . Once the framework and the policies are defined it is important to give guidance to the staff on how they should be implemented. 29 2 Components of the tax risk management framework Strategy Tax risk strategy is derived from and aligned with the tax philosophy as well as the business strategy. Tax strategy should reflect where in the spectrum of positions the 28 29 KPMG Tax in the Boardroom, A Discussion Paper, 2004, page 11 Henderson Global Investors, “Responsible Tax”, October 2005 page 61 Page 13 / 25
Page 1 and 2: Tax Risk Management and Board Respo
Page 3 and 4: I. Introduction Is the board respon
Page 5 and 6: II. The changing Landscape - Why ha
Page 7 and 8: usiness transactions such as merger
Page 9 and 10: III. Tax is in the boardroom - What
Page 11: extraordinary pressure from investo
Page 15 and 16: department needs to be in line with
Page 17 and 18: Processes to raise awareness of tax
Page 19 and 20: Direction The tax philosophy has to
Page 21 and 22: Control It is the responsibility of
Page 23 and 24: VI. Future developments Stakeholder
Page 25: VII. Conclusion The board is respon

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