Strategizing Multinational Tax Risks

EY has put forth a compelling article addressing the necessity of a company tax policy, stating it is not an option to delay action and hope the debate over transparency and what represents a fair share of tax will stop.  The article is referenced by the following link:

http://taxinsights.ey.com/archive/archive-articles/the-future-of-tax.aspx

Key excerpts:

So how can companies adapt to this new landscape and best address the different concerns of these very engaged stakeholders? It starts with formally and carefully defining a company’s tax policy, which gives effective guidance from the board to the group tax function on what the company’s responsibilities and required behaviors are worldwide.

This policy needs to take account of the often conflicting interests of various constituencies, such as tax authorities, investors, employees, the media and the general public. In the future, a business model must adjust to recognize that, while commercial decisions must continue to take account of tax analysis, such analysis itself needs to include wider business risks.

A company’s tax policy will also help in determining how transparent a company wishes to be with stakeholders about its tax affairs. Companies are concerned that stakeholders could misinterpret the complex nature of their tax affairs.

Any effective tax policy needs to strike a balance between clearly communicating the risk appetite and approach of the company, while also managing all costs, including opportunity costs caused by its tax approach and its consequences regarding reputation and the risk of controversy.

Best Practice: One of the foundations, and a good starting point for the Tax Risk Framework, is a tax policy.  The policy should be drafted with the knowledge that it is a valuable tool which the tax authorities may request to better understand, and assess, the company’s global tax risk.