KPMG’s Chief Tax Officer (CTO) Insights provides Best Practices for improving relations with key stakeholders, including sample metrics that are a valuable working tool.
Regularly scheduled meetings should be scheduled.
Individualized dashboards should be presented for different stakeholders.
A Tax Value Report should be presented once or twice a year, including important metrics as cash tax savings, cash flow processes and people initiatives.
An on-boarding program for new stakeholders should be developed.
Sample metrics may include
Number of audits
Tax rates/effective tax rates/cash tax rates– Benchmarks relative to peers
– Country-specific for global operations
Various internal measures regarding risk management
Tax exposures and tax opportunities
Partnering with the business
Similar to a tax risk framework that is shared with the larger business and finance leaders, a CTO’s Best Practice tools provide win-win opportunities to interact with key stakeholders and provide assurance for the importance, and recognition, of the tax function in a multinational organizaiton.
The Australian Tax Office (ATO) has issued comprehensive and detailed rules addressing requirements for a formal tax risk framework, from which a taxpayer’s risk will be measured. The guidance includes a tax risk management and governance review guide, in addition to appendices for control testing and directorship responsibilities. The risk guide is focused upon Board and Managerial level responsibilities. EY’s Global Alert and ATO’s tax risk guide and appendices are provided for reference:
Mandatory self-assurance processes for tax governance for which the ATO may rely in assessing risk
A lack of requisite tax controls will affect the risk rating
Formalized tax control framework (Tax strategy document and policies endorsed by Board of Directors)
Formalises company director roles / responsibilities for tax risk management
Formal evidence of tax risk review and familiarity with tax risk matters
Periodic internal control testing, including senior management’s attestation / formal board review of the testing results
Managerial level responsibilities:
Clearly defined and documented tax compliance and risk management roles / responsibilities
Senior management’s active role and governance with objective criteria to demonstrate Best Practices
Identification of significant transactions via a policy, process, risk rating
Ensuring data controls are in place
Record-keeping policies, including a formal tax record-retention policy
Documented internal control framework
Documented procedures explaining significant differences between accounting disclosures, financial statements and the tax return
Complete and accurate tax disclosures, including compliance risk review and tax return review
Tax governance policies addressing legal and administrative changes
A: Testing of controls to test control design effectiveness, with a (comprehensive) example of a walk-through scenario
B: Directorship responsibilities, including a penalty regime, and an appointed public officer
The ATO has set forth new expectations and Best Practices for multinational organisations. The Board of Directors for all MNE’s, not only those operating in Australia, should review the new guidelines, as they set the standard for the future to regulate tax risk management.
Astute Boards will be acting proactively to ensure all controls are in place to effectively manage global tax risk in this brave new world of post-BEPS introspection.
Other countries will surely follow, limited only by current resources.
Accordingly, the concept of a Tax Risk Officer and additional focus on tax risk management / governance policies (supported by objective testing) are becoming the new norm for which all MNE’s should embrace.
The Italian tax administration will be accepting applications until 31 July 2013 for their new Co-operative Compliance program. The OECD Framework for Co-operative Compliance, as summarized in my posting of 13 June 2013, is intended to bring certainty into the tax filing and controversy process while developing a win-win relationship.
Mutual cooperation and transparency are the keys to success for this new initiative.
being qualified as a “Large Taxpayer” (under the section 27, paragraph 10, of decree-law no. 185/2008, as converted by section 1 of law no. 2/2009), i.e. taxpayers with total turnover or operating revenues not less than 100 million/€, with reference to the tax year 2011;
having implemented an organizational model pursuant to section 6 of legislative Decree no. 231/2001 or having adopted a “Tax Control Framework” to manage tax risks
belonging to a multinational group of companies, or to carry out its business activity in Italy or abroad through permanent establishments;
having adopted similar cooperative compliance programmes in foreign jurisdictions or having subscribed a code of conduct with other tax administrations;
having already entered into initiatives falling within the concept of cooperative compliance in Italy, such as the International Tax Ruling (provided for by section 8 of decree-law no. 269 of 30 September 2003, converted with amendments into law no. 326 of 24 November 2003 and implemented with Regulation of the Director of the Revenue Agency of 23 July 2004) or having adopted the transfer pricing documentation requirements regime.
Note the importance of having established a Tax Control Framework to manage tax risks, a mandatory requirement for this program.
Two excellent articles are linked to review Best Practices for tax risk management from a Board perspective. The first article is by the Canadian Chartered Professional Accountants and poses various questions and concepts for Directors to ask. The second article, approached from a practitioners point of view, was written by a KPMG partner. A related article is also attached as reference at the end of this posting.
The first article reviews various tax risks, including risks of tax planning and subsequent implementation, financial disclosures, tax compliance and audits. Examples of interesting insights and questions include the following:
Are outside consultants an integral part of tax planning?
Are direct, and indirect, tax risks addressed?
What are the capabilities of internal resources?
Are post implementation monitoring processes in place?
What are the trends of tax authorities in major jurisdictions?
How does the company keep up with change?
Is reputational risk considered in tax appeals or court filings?
What is the mindset of internal management in foreign jurisdictions re: alignment of overall strategies?
What are the source of tax planning ideas?
Have tax saving opportunities been missed?
The second article entitled “Tax Risk Management and Board Responsibility” defines a tax philosophy and establishment of a Tax Risk Framework. A tax philosophy pyramid is presented that correlates to tax risk. In addition, the following components of a Tax Risk Management Strategy are discussed:
Tax profile, relationships and communication
Processes and technology
Internal qualifications of tax staff
Both articles are excellent reading, and should form a basis for Best Practices to ensure alignment with Board responsibilities and expectations.
As you may know, the OECD has an Aggressive Tax Planning (ATP) Steering Group, whose objectives include:
Identify current trends
Focus on timely information sharing in understanding new schemes
Provide information enabling countries to adapt their tax risk management strategies
Additionally, the work of the ATP Steering Group is supported by the OECD Aggressive Tax Planning Directory. The ATP Directory is an online resource for governments to depict types of schemes discovered and fact patterns thereto, and details of their detection.
While “tax avoidance” and “tax planning” are frequently used terms, in direct contrast to “tax evasion,” it would be worthwhile to review Global Tax Policies and Tax Risk Management Strategies and verify if additional clarification is needed due to today’s tax environment.
Centralization of information by OECD: is your company also centralizing its issues, tax risks and strategies for synergy?
Are current trends being analyzed to adjust “tax planning” strategies and relevant tax risks?
Are you ready to explain the difference between tax planning, aggressive tax planning, tax avoidance and tax evasion?