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

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decision as to the jurisdiction in which a production site is located will determine the amount of labour taxes, transfer pricing requirements and customs duties. In addition external factors such as market development, position of competitors, expectations of customers and investors, as well as differences in national tax systems, will have an influence on the tax direction of a business. A final check of the areas outlined in the following illustration will cover most significant questions. For multinational businesses compliance is not a question but an obligation. Aspects to consider on tax management are the cost compared to the gains from tax savings achieved and tax risks avoided. Planning and accounting should take into consideration effects on the profit and loss account and the balance sheet. This includes the deferred taxes shown in the financial statements, that also need to be managed. Controls and reviews will involve ensuring that the risk attitude of the board is reflected in processes and transactions. The effective tax rate is an important factor for a company to increase value and stay competitive in the market and with regard to attracting investors. Page 20 / 25
Control It is the responsibility of the board to ensure a control environment where there is a common awareness of potential tax issues throughout the company. An effective risk management system includes, essentially, controls that identify risks, analyse the impact and define measures to manage risk 41 . Control over tax issues is mainly executed through the tax department. The tax department is responsible for the implementation of the tax strategy and for providing adequate information to the board, but it is also part of the internal control system and needs to be reviewed by internal audit. Adequate staff and ongoing training are critical success factors to watch over. To obtain an overview of the state of control the board can check on questions such as the following: Does the board receive sufficient data and in a digestible form? Has the company appropriate reporting lines and access to the tax function? Are responsibilities defined and authority delegated as appropriate? Is the tax department set up in such a way as to provide appropriate resources to implement the strategy? Is the quantity and quality of staff appropriate? Are the appropriate controls in place? Are independent reviews of the tax function carried out? As with any risk management system, effective tax risk management requires that tax risks are identified, that they are analysed with regard to their impact, and that measures are defined to manage them. Communication The right communication on tax issues is a significant factor for the reputation of a company and therefore for the success of the business. In practice a reluctance to disclose information on tax issues and tax risks in the annual report can still be found. This is often because tax authorities have access to such information as well. There is a general concern that through the report critical areas could be identified which then might be subject to inspections by tax authorities. As a result statements on tax issues often remain generic and too unspecific. However, communication of this sort is likely to trigger insecurity and distrust and not to achieve its aim since tax authorities are focusing more and more on a risk-oriented approach. 41 Dörner, Horvath, Kagermann, Praxis des Risikomanagements, 2000, page 109 Page 21 / 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 and 14: made on how aggressive tax manageme
Page 15 and 16: department needs to be in line with
Page 17 and 18: Processes to raise awareness of tax
Page 19: Direction The tax philosophy has to
Page 23 and 24: VI. Future developments Stakeholder
Page 25: VII. Conclusion The board is respon

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

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