Businesses have known for some time that tax is not a standalone function operating in and of itself. Today's boards need to understand the risks for the company — from expiring tax provisions and fundamental tax reform, to the changing legislative landscape and increasing cross-jurisdictional cooperation. Tax requirements and the broader implications are an integral part of the enterprise and should be an essential item on the corporate and board agenda.
With boards and audit committees primarily focussed on business and regulatory risk, strategic planning and enterprise risk, tax is often left off the agenda. Along with increased scrutiny from tax authorities and rapidly changing tax environments, the issue of tax and its broad implications needs to be added to a comprehensive agenda that will help companies better prepare for the issues ahead.
The Australian Taxation Office (ATO) has announced a renewed focus on tax corporate governance, and has set out its expectations of taxpayers in this area. Whilst they do not expect board members to be tax experts, they do expect boards to establish a corporate governance framework that manages tax risk whilst ensuring tax obligations are consistently met. In doing so, boards and audit committees should regularly consider some obvious tax related questions.
As tax administrators are working diligently to elevate tax strategy to the boardroom agenda, CEO's and boards need to consider tax risk management as part of overall corporate governance and expand their focus from issues of tax compliance to tax risk management.
Due to the significant costs (both financial and reputational) of "getting it wrong," boards should understand how companies are seeking ways to manage their relationships and risk profiles with tax authorities around the world.
The top ten leading practices of tax risk management are based on analysis of recent issues identified within corporate tax departments from around the world. They are guidelines that can help companies to determine their tax risk profile and align the structure of their tax function to protect corporate reputations.
In an ever more complex tax environment, companies need to ensure the appropriate framework and control mechanisms are in place to handle day to day tax and reporting requirements. Tax must be properly considered as part of board and corporate decision-making processes for major financial transactions and overall corporate strategies.