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

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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 Page 14 / 25
department needs to be in line with the established tax philosophy and tax strategy of the business. External and internal relationship management is a key success factor. Furthermore, it is important that the tax department goals and strategic drivers are understood by the business as a whole and that there is awareness of tax issues throughout the business. The tax department should have a clear reporting line to the board. Boards need to be informed about issues that could have material impact on the business. Frequency and method of reporting can vary but should include a regular annual report on the state of the company’s tax affairs. It is important to ensure that the board receives adequate data in a digestible form. Reporting should embrace all taxes and include all tax systems at group and business unit levels 34 . Processes and technology Processes and controls in a tax department should be documented not only to comply with SOX and other corporate governance regulations but to allow regular evaluation and improvement. The tax technology system should be part of the accounting system of a business since significant information for the taxation process will be obtained from it. Staff The tax team needs to understand the business model a company acts upon. This includes being aware of their role in achieving the business strategy. The mindset of the tax department should be one of a service provider to internal clients. Within the department clear roles around tax management and adequate support to internal clients will have to be defined. The success of a tax department depends to a great extent on the appropriate qualification of the staff. The complexity and speed of change in tax regulations demands ongoing training and specialisation 35 . 34 KPMG Tax in the Boardroom, A Discussion Paper, 2004, Appendix III 35 KPMG Tax in the Boardroom, A Discussion Paper, 2004, Appendix III Page 15 / 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 and 12: extraordinary pressure from investo
Page 13: made on how aggressive tax manageme
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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