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

with other legal issues. Uncertainties with regard to interpretations of legal regulations are
also not uncommon. To ensure full compliance with all legal requirements has become a
challenge for almost every corporate governance system. As the OECD Principles state:
“Corporate governance requirements and practices are typically influenced by an array of
legal domains, such as company law, securities regulations, accounting and auditing
standards, insolvency law, contract law, labour law and tax law. Under these
circumstances, there is a risk that the variety of legal influences might cause unintentional
overlaps and even conflicts, which may frustrate the ability to pursue key corporate
governance objectives.” 14
Global markets and the free flow of capital made it possible to control the jurisdiction in
which profits arise which is a challenge for tax authorities. As a result the enforcement
processes through civil and criminal actions have been strengthened in many countries and
on an international level.
Reporting and documentation requirements have been enhanced to address the problems
of information asymmetries resulting from the principal-agent conflict - between
shareholders and the management - and in the light of corporate scandals like Enron and
WorldCom. Most notably the Sarbanes-Oxley Act (SOX) was introduced in the United
States which required a significant effort from companies in documenting their internal
control systems. The Financial Accounting Standards Board (FASB) Interpretation No. 48
(FIN 48) also intensifies the focus on accounting and disclosures for uncertainties in tax
positions in the financial statements 15 .
In the light of these developments tax cannot stay in the splendid isolation in which its
technical nature has historically placed it. The management of tax risk has become even
more important in the light of recent changes. The public, shareholders and legislators
expect board members to address these effects through the corporate governance system of
a business.
14 OECD Principles (2004), I.C Annotations, page 31.
15 FASB Interpretation No. 48, Accounting for Uncertainties in Income Taxes, an interpretation of FASB
statement No. 109
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