This post is a complement to my 5 April Pre-Audit Strategies blog. Pre-audit strategies are addressed, the audit is conducted, ultimate settlement is achieved and workpapers are returned to the files. Post-audit tax strategies can be utilized to address learnings for future audits, critique the pre-audit strategy approach, and form Best Practices to minimize global risks.
The following ideas should be beneficial in a post-audit tax strategy review:
- List all items in the pre-audit strategy checklist, using my prior blog as a reference along with your ideas. Based on hindsight, provide a rating of 1 to 5 for each strategy with comments.
- Revise the global checklist, if applicable, for future audits.
- Cross-reference the pre-audit checklist against the top risks encountered / not initially settled in the audit for correlation. Are there items that should have been performed before commencement of the audit that were not foreseen at the time?
- Review utilization of tax counsel in the audit to address significant risks; were they involved, should they have been involved earlier, was counsel appropriate for the risks being contested, what learnings can be gained?
- Were audit meetings negotiated efficiently using the appropriate individuals? Should there have been additional training to address significant tax risks, educate the auditor in the company’s transfer pricing methodology, etc.?
- Should a company overview have been provided, if applicable, to provide context for the auditor prior to requests for data?
- Conduct a 360 feedback with everyone involved in the audit to gain efficiencies in the ways of working.
- Were there basic misunderstandings between the auditor and the company that could have been addressed differently?
- Assess the consistency of audit responses with other audits being conducted globally; are they globally consistent to form a uniform basis for discussions between tax authorities sharing information?
- Are there new risks identified that should be included in the global Tax Risk Framework?
- Were audit defense mechanisms reviewed timely to plan effectively?
- For US multinational companies, were memorandums prepared for foreign audits to obtain additional assurance for receiving the benefit of a Foreign Tax Credit? Foreign counsel should be proactive in this effort from the beginning of the audit, outlining cost/benefit relationships, practical appeal opportunities, probability of success for alternative appeals, etc. This memorandum should be discussed early in the audit to align expectations.
- Review precedents established for future years, and applicability for post-audit years.
- Review tax reserves established for the audit years, and all open years.
- Provide a brief memoranda to the audit participants and senior management, summarizing the audit and successful interaction of internal and external resources.
- Were Double Tax Treaty, bilateral and/ or multilateral defenses used? Review their effectiveness, or choice not to use.
- Review the interaction of internal and external resources; who was in control of the strategy?
- In today’s environment of increased collaboration between the tax authorities and multinational companies, should an enhanced collaborative tax return / audit strategy be considered to provide timely certainty?
- Develop a post-audit tax checklist as a learning tool for individuals engaged in tax audits.
The above points should form a foundation to engage in this beneficial exercise, highlighting learnings and opportunities, while adopting a Best Practices approach.
I look forward to your valuable comments.