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

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The main question that arises, therefore, is how to establish a system of communication that informs stakeholders adequately and gives comfort to tax authorities as well. The right message to investors, authorities and legislators is the key. One vehicle to convey this is the annual report of the company. This gives the opportunity to state the overall tax philosophy and strategy of the business. It should also outline the internal control process for tax risks and include information on tax department structure and training. A commitment to compliance with legal requirements is a significant statement to establish confidence among stakeholders. Also important for investors is the message that within legal boundaries the company seeks tax efficiency in the corporate structure, the supply chain and acquisitions and disposals 42 . Besides the question of what to communicate the company also needs to address the questions of who to communicate to, and how. It is the responsibility of the board to implement processes that identify, and establish relations, with stakeholders who have a specific interest in tax issues of the company. This naturally includes the tax authorities. An international business whose tax strategy is to be a leader will, for example, engage actively in communication with legislators and international standard setters such as the OECD. If the main focus of the tax strategy is on compliance and maintenance the relationship management will concentrate on local tax authorities. Good and consistent communication can only be achieved if the information reported has substance. Unsupported general statements are likely to have an adverse effect on the company if there are grounds to challenge them at a later stage. What the company communicates has to reflect its policies and organisational culture as well as its relative appetite for risk and opportunity. 42 The governance of tax, A Discussion Paper, KPMG Global Tax, 2006, page 15. Page 22 / 25
VI. Future developments Stakeholders do not always have the same interests when it comes to taxes. Companies will need to balance the demands of reducing tax to become more competitive and at the same time being good citizens and thus paying taxes. Tax may be expected to pose an increasing reputational issue because of growing awareness of its ethical dimensions. The expectation on companies to apply the concept of corporate social responsibility is gaining more and more importance. The OECD has announced that the Corporate Governance Guidelines will be expanded. There will be a greater attention to the linkage between tax and good governance. Furthermore the OECD produces statistics of international comparisons, engages in monitoring and encourages the exchange of information between national tax authorities 43 . Legislators are beginning to work globally on solutions for tax problems. The OECD has established the “Forum on Tax Administration”, as a panel of national tax administrators. Regulators such as stock exchange supervisors will extend the focus on internal control systems 44 . In the US the Public Company Accounting Oversight Board (PCAOB) was created by the SOX and is already focusing on audit of internal control systems to protect the interests of investors and the public 45 . International co-operation and information sharing between tax authorities will increase significantly over the coming years. A joint international tax shelter information centre taskforce was set in place by Australia, Canada, the UK and the US in 2004 46 . The Committee on Fiscal Affairs of the OECD is working to improve exchange of information both from a legal and a practical perspective. 47 The establishment of the “Leeds Castle Group” which will be an extension of the IRS was agreed in 2006 and nine countries have 43 OECD, 2007, http://www.oecd.org/topic 44 Internal Revenue Services, Department of the Treasury , USA http://www.irs.gov/newsroom/article 45 PCAOB, 2003-2006, http://www.pcaobus.org/ 46 Internal Revenue Services, Department of the Treasury , USA, May 3, 2004 http://www.irs.gov/newsroom/article 47 OECD, 2007, http://www.oecd.org/topic Page 23 / 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 and 20: Direction The tax philosophy has to
Page 21: Control It is the responsibility of
Page 25: VII. Conclusion The board is respon

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