Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘tax best practices’

New Tax Developments: Creating Efficiency & Effectiveness in a Tax Organization

We are all confronted with receiving several daily emails from many sources focused on the latest developments in all areas of tax: International, Federal, State, Direct / Indirect Taxes including VAT, etc.  Individuals in a tax organization, located in various parts of the world, generally try to browse the latest news for their area of responsibility, creating duplication of effort and the collective loss of valuable time.  Additionally, as tax responsibilities increase with limited talent resources and budget constraints, it becomes exponentially more difficult.  Opportunities may be lost, while risks of “not knowing” are also increasing.  The obligation to use new knowledge effectively could be viewed as a process to potentially gain efficiencies.

The following ideas are provided for consideration:

  • Share great resources and bookmarks with peers within your organization and global network, resulting in a Best Practice resource listing.
  • For tax teams organized by function, assign one team member of each function the daily task of reviewing the relevant sources of new developments, summarizing those articles that may be relevant and distribute to other team members to further investigate the impact upon the company and action steps.  This responsibility should be an objective, and measured, part of their job description to further enhance responsibility and accountability.  This change should create more time for other members within that function also browsing the latest, and often identical, developments.
  • Review the budget for cost/benefit effectiveness; coupled with a link to past success based on utilizing that particular resource.
  • Review fees incurred to obtain information, such as tax treaties, from external parties; could this resource be in-sourced more effectively?
  • Meet with your advisors providing tax developments; discuss the possibility of having them briefly summarize benefits (company specific) from key developments when you receive them, versus a straight transcript of all developments that contain many items that are not relevant.
  • Review key developments monthly within the functions and /or overall team to ensure relevant items are receiving priority and action plans.  This review could be internal, as well as coordinated with external advisors, to ensure there are no gaps.  Proactive advisors should recommend this action for a win-win result to encourage interaction and alignment, while also providing a good opportunity for brainstorming other ideas.
  • Review the legal structure efficiency, at least annually, to determine if business strategies have changed and/or new developments have occurred that provide opportunities.
  • Highlight developments aligned with your strategic tax objectives.
  • Align tax developments with the Tax Risk Framework.

I look forward to your insights.

Category:

Leadership, Tax Risk Management

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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.

Category:

Audits, Tax Risk Management

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Branch activity tax risk: Google UK controversy

http://news.yahoo.com/uk-lawmakers-set-date-google-ernst-young-tax-155316417.html

As this news has been widely reported, this controversy highlights the need to aggressively govern the activities of significant Branches worldwide.  This issue is a reminder in today’s tax environment of the necessity for diligence and governance for Branch operations.  The following ideas are presented for review and comment.

  • Review all material on your company’s website re: location of sales activity, associates and job postings.
  • Review job titles and descriptions for all personnel in Branches worldwide.
  • Compare Branch accounts and related disclosures with actual activities on an ongoing basis for consistency.
  • Have a Do’s and Don’ts list that is reviewed annually with individuals having market support activities.
  • Align with Global Mobility re: assignments/transfers of individuals to Branches with Sales titles and responsibilities.
  • Compare actual activities with the legal constraints of a Branch in the relevant jurisdiction.
  • Put a plan in place to regularly determine if a Branch is the best legal form of conducting business, vs. subsidiary, etc.
  • Conduct annual trainings at significant Branches to ensure the activities align with the legal form of doing business.
  • Ensure the concept of PE is well understood by individuals accountable for the Branch operations.
  • What job titles are individuals allowed to include on their business cards?
  • How do Branch personnel represent themselves to the external trade?
  • Is there an objective benchmark (i.e., number of personnel) for Branches that triggers an automatic review?
  • Review the relevant Double Tax Treaty safe-harbor PE provisions.
  • Reputational risk: Consider how Branch activities impact the Tax ERM framework, and monitoring controls in place.

It will be interesting to track the activities of this controversy and analyze how to further minimize risks for Branch activities.

Category:

PE, Tax Risk Management, Transfer Pricing

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Tax Newsletters: Proactive Tax Risk Awareness

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.

 

Category:

Tax Risk Management

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A new role: Head of tax controversy

http://tmagazine.ey.com/insights/the-rise-new-role-head-tax-controversy/

This informative article focuses on the growing importance of tax challenges, with a focused role on tax risk and controversy.

Exchange of tax information among tax authorities, joint audits, reputational risk, tax governance, increased focus by the Board of Directors, importance of intellectual property, royalties, service fees, intercompany financing techniques and transfer pricing complexities are reasons why this role is expected to become more common in multinationals.  The following ideas are provided for thought and comment:

  • Does your company have a Tax Risk Officer / Head of tax controversy?  If not, has this idea been discussed with the CFO, CEO and Board of Directors?
  • How are the tax, treasury and legal functions integrated in a global approach to tax risk and controversy?
  • Are resources in place to facilitate a “joint audit” across several jurisdictions?
  • Are tools such as CAP in the US, horizontal monitoring in Netherlands, etc. being used to provide certainty and timeliness?
  • Are APA’s being used as a tool; who is functioning as the champion for this initiative?
  • Tax amnesty awareness; are you aware of these initiatives on a global basis?
  • Who coordinates legal counsel, internal and external, on audits, appeals and court proceedings?
  • Do you have a process for consideration of tax counsel at certain stages of an audit?
  • What training is provided to finance and other functions to increase awareness of tax risk areas?
  • New transfer pricing legislation; who is responsible for reviewing risks and transfer pricing governance / documentation.

The above thoughts may inspire conversations re: this role to match the increased focus by tax authorities and governments.

Category:

Tax Risk Management

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