TaxMatters@EY - July 2013

Tax risk on the rise in Canada and globally

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Fred O’Riordan, Ottawa

As a follow-up to EY’s global 2011-12 Tax risk and controversy survey (see the October 2012 issue of TaxMatters@EY), we recently conducted our own survey of executives in Canada focusing specifically on tax governance. We polled 120 companies across Canada to examine how they manage their tax risk today.

Our Canadian tax governance survey reviews the level of tax risk awareness among all departments in organizations, highlights the business areas that cause concern when managing tax risk, identifies potential areas for improvement to minimize tax risk, and reveals organizations’ tax priorities and plans for 2013.

Top 10 findings

Our Canadian survey revealed the following top 10 highlights:

  1. Tax leaders still hold primary responsibility for executing tax risk management.
  2. 95% of tax groups, 91% of finance departments, 79% of the C-suite and 60% of risk management committees are involved in managing tax risks.
  3. A surprising 56% of non-tax business unit leaders are unfamiliar with tax risk management policies.
  4. Fully half of survey respondents only report tax risks as needed, or never.
  5. 38% of respondents reveal a moderate to significant increase in boardroom discussions concerning tax risk transparency and reporting in 2012.
  6. 54% of participants plan to improve the existing tax risk policies and procedures within their organizations.
  7. A greater variety of tax software tools is starting to develop a footprint in automating the tax provision process.
  8. Cross-border transactions, intercompany transactions, business reorganizations and mergers and acquisitions are the top business activities that add to the tax risk profile.
  9. The tax function spends an average of only 7% of its time on tax risk management and reporting.
  10. Cash tax savings, timely and accurate tax compliance and managing tax authority audits are respondents’ top three priorities for 2013.

Looking ahead

Our Canadian tax governance survey results indicate that tax risk management is on the minds of corporate Canada in a more meaningful way than ever before. No longer the sole domain of the tax function, it’s finding its way onto the agendas of the finance department, the C-suite and risk management committees.

In our view, there are several factors contributing to this trend, including the CRA’s new risk-based Approach to Large Business Compliance (ALBC), the growing global footprint of Canadian companies and the associated exposure to unfamiliar tax regimes, and the ever-increasing aggressiveness of tax authorities in Canada and abroad. Add to this the growing demands on tax functions to provide more information, to provide it more quickly and with increased accuracy, and you can see why tax risk management has become an enterprise-wide issue.

However, notwithstanding the increased attention that Canadian companies are paying to tax risk management, our survey results indicate that there is more work to be done. Areas requiring particular attention include increasing the awareness of tax risk in non-tax business units, managing foreign tax risk and improving reporting protocols to boards of directors, audit committees and the C-suite.

To learn more, read our report Tax risk on the rise in Canada and globally: 2012-13 Canadian tax governance survey.