Newsroom > Tax risk management more important than ever - Ernst & Young - Belgium

Improving the tax function to address risks is vital, and more than 90% of respondents say that tax risk management will be an important area for them over the next two years.

“The global financial crisis and ever-changing regulatory environment have put pressure on companies to increase their focus on tax risk management. Progress has been made over the last two years, but there’s still a long way to go for many companies. Today, tax risks are everywhere, all the time, and companies are forced to integrate tax risk management more closely with the enterprise as a whole. This goes beyond processes and controls and into areas of strategy, performance and communication,” says Herwig Joosten, National Director of Tax at Ernst & Young Belgium

The trend in tax risk management is to be proactive, and tax executives say that they are becoming more efficient and broadening their response to risk. Linking into other parts of the organization, such as internal audit or the company’s enterprise risk management program, is important. In fact, 49% of companies report having process improvement measures in place to integrate the tax function with the rest of the organization.

The respondents cite communication as critical. Companies that have regular communication with their boards about tax risk issues are more likely to have specific measures in place to address those risks. 87% of respondents say they have well-established communication with senior management, while only 14% say their board never receives a presentation on tax risks. The companies whose boards hear about tax risk every quarter also use data collection and workflow technology more effectively.

The lack of qualified people is a challenge, and the tax executives say that it is increasingly difficult to hire enough people. 77% of companies indicate that the lack of skilled resources is a contributing factor to tax risk. They also struggle to train the people they have. And as companies operate increasingly on a global basis, managing resources in overseas locations also becomes an issue.

Managing legislative changes is a key area of concern for the tax executives. 68% of respondents say that new or changing legislation is a major challenge. “The expanding role of governments will only accelerate these pressures in coming years, as they seek to devise policies to enhance much needed revenues and provide a competitive environment for job and business creation,” says Herwig Joosten. 

Large multinational companies (with revenues above US$25 billion) are leading the way in tax risk management across planning, compliance, provision (accounting and controls), and controversy. Large companies also place a higher emphasis on tax risk management in general, with 50% identifying it as a critical measure compared with 42% overall.

“In uncertain economic times, a company’s business objectives and operations may undergo sudden changes, and its financial profile may change significantly. That doesn’t mean that good tax risk management becomes a luxury. On the contrary, building best practice across the enterprise is vital in responding to tough market conditions,” concludes Mark Weinberger.

Other key survey findings include:

- Many companies are struggling to understand the effects of IFRS on their global operations or deal with increasingly sophisticated revenue authority “risk- and systems-based” audit reviews
- 88% of respondents report that “success in dealing with tax authorities” is either critically or very important as a performance measure
- Almost 70% of respondents report that effective tax rate planning is either very important or critically important to the tax function
- 48% do not have a tax controller post accountable for financial reporting within the tax function

About the survey

The survey was carried out by independent researchers and analyzed by Ernst & Young’s Quantitative and Economic Statistics practice. 541 senior tax decisions makers from 18 countries were interviewed by telephone during May and June 2008. The respondent population was qualified to ensure that only senior decision makers for tax were interviewed. 63% gave their job title as head of tax for the global group, VP of tax or tax director. The others had a variety of titles. The sample universe was the top 250 companies in each country. 25 interviews were carried out in each country except for the United States (116).