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.