Canadian C-suite must prepare as tax controversy heats to boiling for 56% of companies: Ernst & Young

(Toronto, 16 November 2011) With converging trends creating the riskiest tax controversy environment in years, 56% of Canadian companies have already seen a rise in the volume or aggressiveness of tax audits, Ernst & Young finds in a new survey. And C-suite executives must understand the full implications to navigate this uncharted territory effectively.

“The financial crisis that’s rocked the world in the last three years has led to a new era of tax scrutiny as governments moved to deficit financing to jump-start their economies, and companies expanded into new markets with uncharted tax regimes to survive,” explains Fred O’Riordan, Ernst & Young national tax advisor. “What’s important now is how businesses and tax administrations react. The Canadian C-suite must beware: prepare now to answer tough questions, or expose your business to serious risk.”

Ernst & Young’s 2011–12 Tax risk and controversy survey: a new era of global risk and uncertainty shows that 57% of all global companies interviewed saw the same increases as the Canadian contingent. That number jumps to 75% for large companies with revenues over $5 billion.

What’s more, 97% of tax administrators interviewed globally will increase their focus on tax risk related to international structures and cross-border transactions in the coming three years. While 77% of all companies agreed or strongly agreed that tax risk and controversy management will become even more important to them, only 50% of all CFOs subscribed to that same viewpoint.

“With the Canada Revenue Agency rolling out new projects focused specifically on tax governance and risk management, we can expect more scrutiny of companies’ tax process, oversight and decisions. The CRA has signaled it will also be looking for more C-suite involvement in these discussions,” O’Riordan says. “Tax needs a seat in the boardroom, and CFOs must recognize that if a business is going to thrive in this quickly changing world.”

The survey report suggests a five-step approach to overall tax risk and controversy management, which O’Riordan says is a good framework for Canadian businesses and their C-suite to follow:

1. Adopt a global approach to tax risk and controversy management.
2. Evaluate resources, processes and systems for global tax risk management.
3. Address tax risk and controversy at a strategic level — and execute well.
4. Make strong corporate governance in tax a priority — because it is to tax administrators.
5. Stay connected with complex, voluminous and fast-paced change.

“The past few years have created a perfect storm in which businesses cannot afford to be unprepared to handle authorities’ questions. Planning ahead — before businesses find themselves in the spotlight — is the very best way to move forward,” O’Riordan says.

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