The OECD has, via a pilot program, developed five stages of ERM maturity against which tax administrations can self-assess their progress, for which anonymous data will also be helpful for the OECD going forward.
Multinationals have employed such tools for several years, and tax administrations can now assess their progress and risk status going forward.
The referenced link is a Best Practices portrayal of tax risk management and governance overview as published by the Australian Tax Office (ATO).
The outline summarizes:
- Director’s Summary
- Board-level responsibilities
- Managerial level responsibilities
- Tax control framework
- Testing of controls
- Self-assessment procedures
The outline is a valuable review of the tax processes and controls that demand a more formal approach, with the advent of subjective guidelines, anti-avoidance rules, etc.
This informative study by Accenture is based on a survey of 446 organizations, with the phrase “Action is not optional” as a key driver for its insights.
Click to access Accenture-Risk-Management-Research-For-An-Era-Of-Greater-Uncertainty-Report.pdf
The value of this study is initially revealed in the Contents, including the following topics:
- Current market pressures
- Becoming a high-performance risk organization
- Risk management talent
- Four things to do differently:
- Treat risk management as a people game
- Look ahead, as new risks are relentless
- Manage compliance through a transformational lens
- Focus on insight, not just data and analytics
Key excerpts from the study:
- It is easy to say what the risks are, but if you do not have the instruments to see them or hear them coming, that is a problem.
- 96% of risk management owners now report directly to the CEO.
- “Risk Masters” are organizations with highly developed risk capabilities, likely to have a CRO, active Board involvement, adequate resources and budgets, integration of risk management in strategic decision-making, focus on strategic and emerging risk, talented staff and training programs and are ahead of the curve in using risk analytics.
- Weighted priority on compliance requirements ahead of business value and newer hazards.
- Risk management ownership is an executive board-level position, moving from the CFO to the CRO and CEO.
- The goal is to infuse risk management comprehensively into business processes.
- The least developed risk capability is risk organization and governance.
- HIgh-performance risk management organizations have a people strategy of identifying, training and rewarding risk management talent.
- Focusing on the “next war” may require a strategic plan for the risk management function, an integrated approach and direct involvement of senior management.
All Multinationals should have a prioritized objective for global risk management, and this study is instrumental in developing “Risk Masters” capabilities.
Click to access 2012-13-Canadian-tax-governance-survey.pdf
This insightful survey, published by Ernst & Young, polled Canadian executives from 120 companies to review the tax level awareness in organizations. The findings include the following observations:
- 56% of non-tax business unit leaders are unfamiliar with risk management policies.
- 7% of time spent by the tax function is devoted to tax risk management reporting.
- 15% of tax risks and opportunities are identified timely.
- Over 50% of the respondents are planning to improve existing tax risk policies and procedures.
- Significant areas of tax risk requiring improvement include transfer pricing processes and controversy, foreign tax planning, and legal entity accounting.
The findings should be compared to current Best Practices within every organization. Some ideas for consideration include:
- Develop / review the Tax Risk Management Policy.
- Communicate all significant tax risks, and corresponding Tax Risk Management Policy, to business leaders globally.
- Prioritize tax risk awareness, including reputation risk, in business reviews and training.
- Measure the time spent by the tax function on tax risk awareness and internal controls. (Refer to 23 June blog posting)
- Develop a system to measure tax risks on a quarterly basis to address potential issues timely.
- Conduct tax risk workshops with the business leaders.
- Review significant risks, noting areas for improvement, and establish a timeline to address such risks.
- Address tax risk management as a priority agenda item for the global tax function.
- Develop an efficient process to address tax controversies around the world.
Tax risk awareness is a critical issue that should be prioritized within an organization, ensuring alignment with the CFO and Board of Directors.
A proliferation of complex and significant tax risks are at the forefront of global news. Aggressive tax planning, tax avoidance, tax evasion and fraud are terms used interchangeably to describe actions by multinationals. Tax authorities, governments, G8, G20, among others, are discussing new ways to combat these perceived risks in the form of additional tax transparency, audit resources, new legislation, etc. Similarly, tax organization structures should also be reviewed based on a tax risk management approach. Ideas for developing Best Practices in tax risk management include the following:
- List the top 5 tax risks; then align these risks with the tax personnel whose primary function it is to focus on such risks.
- Are the top 5 risks being managed efficiently internally and / or externally?
- Is each risk the top priority of one or more members of the tax team?
- Is the strength of each tax member aligned with the respective risk?
- Are you currently able to shift resources away from geographical / functional responsibilities to address current risks?
- Are the tax members adding focus on these risks in addition to their other responsibilities?
- Have specific strategies been developed to address the top tax risks, and champions assignable for each risk?
- Are specific training courses being developed to better inform the tax team and the business of developing risks?
- Are proactive discussions being held with senior management and the Board to ensure efficient tax risk management?
- Is there a quarterly tax risk review to assess status and future actions?
- Have internal procedures been reviewed, as well as mitigating controls, to address potential risk gaps?
- Is the business aware of such risks on an ongoing basis?
- Is this an opportunity to review tax resources to achieve the proper focus on the top tax risks?
- Compare the current tax organizational structure with the tax risks; is it fit for purpose?
- Review Best Practices for obtaining APA’s, entering mutual audit procedures such as CAP, horizontal monitoring, enhanced cooperation in today’s increased emphasis on mutuality and and tax transparency with tax authorities.
- Who conducts audit meetings with tax authorities around the world? Is this an opportunity to minimize risks at an early stage? Are these individuals knowledgeable of the top tax risks? Do you conduct training for audit meetings, including negotiation skills?
- Is internal audit aligned to identify tax risk gaps in their routine audit reviews?
- Is Global Mobility trained to identify potential PE risks? Consider a review of their internal processes for assignments.
- Who reviews Branch activities to ensure such activities do not inadvertently lead to a PE?
- Review the Transfer Pricing documentation framework to address transfer pricing issues early.
- Ensure Treasury is aligned with the tax risks and processes are in place for intercompany loan arrangements.
- Align cross-functionally to ensure new strategies, or a change in current strategies, are reviewed for tax risk exposure.
In summary, I would encourage a review of the tax organization structure based upon a creative tax risk approach, as compared to the present organization to highlight opportunities and Best Practices.
Communication of emerging tax risks targeted at increasing awareness of Best Practices via a regional/global tax newsletter provides a timely and efficient vehicle for valuable discussions. Examples of some benefits include:
- Increased focus and awareness on important aspects of a Global Tax Policy and / or Tax Risk Policy.
- Resource for regional / corporate tax team contact information inviting questions re: potential tax risks.
- Communication vehicle for introducing emerging strategic tax risks, especially in developing markets.
- Highlights lessons learned in forming new Best Practices.
- Introduction of new Tax Team members around the world.
- Provides updates on tax related benefits derived from collaboration on plant expansions, R&D credits, Patent Box and Innovation synergies achieving lower local effective tax rates, etc.
- Forum for tax diligence procedures of new accounting policies.
- Reference for upcoming tax training courses, webinars and related reference materials.
- Tax topic focus, describing potential risks in non-technical language, such as PE – what it is, how to recognize it, its adverse impact on cash taxes, ETR, accounting / operational complexities, etc.
- ETR overview, why it’s important.
- Increased tax return disclosures and self-assessment determinations; local and global significance.
- Country and Regional developments.
- Tool for heightened awareness among Tax Team members, inviting newsletter contributions and ideas.
I invite your ideas.