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

company wants to place itself. Businesses are not limited to compliance with tax
regulations, but can claim leadership through engaging in discussions about the tax policy
development with legislators 30 .
It can be left to the tax department to develop an action plan and deal with risk areas,
but the tax strategy should be understood and approved by the board and communicated
within the business.
Policies around key strategies and risks need to be documented and communicated. This
is not only a requirement of SOX 404 31 but also sends an important message to
stakeholders of the company. It will also help align the tax behaviour of managers
throughout the organisation 32 .
Risk management and control
Tax should be an integral part of the internal control and the risk management system of
a business. Hence the same rules apply for tax risks as apply for recognition and control of
general business risks. Publishing the tax philosophy and tax strategy is important as is a
control environment that ensures that deviations from rules are dealt with. Only then does a
control environment actually exercise control. Establishing the control environment is
normally the duty of the board.
Effective control also implies that the tax department is subject to independent reviews
from internal audit. To review the tax processes professionals need to have adequate
knowledge and experience in tax. The review should address compliance with strategy and
policies as well as the quality of advice provided by tax staff to other functions 33 .
Profile, relationships and communication
The profile of the tax department should be one of a business partner across the various
business functions with clear contact points. The tax department has a role as both an
external and an internal contact point and therefore needs to be aware who its stakeholders
are (e.g. the tax authorities, financial market, legislators) are. Communication from the tax
30 KPMG Tax in the Boardroom, A Discussion Paper, 2004, page 7
31 SOX 404, 2002
32 Salzberger, 2005, Corporate Governance – Begriff und Aufgaben, page 167
33 KPMG Tax in the Boardroom, A Discussion Paper, 2004, Appendix III
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