Strategizing Multinational Tax Risks

Post-Audit Strategies: Best Practices

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.