The key to promoting effective tax risk management in general is to improve tax risk coverage while balancing cost and value.
10. Across the organization (operations, HR, finance and tax), it is important to understand the key tax risks. Responsibility for their management should be made clear, importing techniques from risk colleagues as necessary.
The global financial crisis has caused organizations to consider or reconsider how they manage risk. Tax risk management can be thought of as the identification of business risks arising from an organization’s tax-related activity (across all taxes and all jurisdictions) and its effective management and control of those risks.
Tax risks are much broader than simply the operation of the tax department and encompass strategic, financial, operational, product and compliance risks.
The introduction of new regulatory and reporting requirements (e.g., FATCA) and the increasingly complex nature of tax legislation in many countries require that the tax risk management bar be raised to bring tax risk management capability in line with general risk management practices.
A formalized “three lines of defense” approach for tax risk is not essential for every firm, although some firms are moving in that direction. Formalized communication between the stakeholders, plus early involvement of the tax team in the product life cycle and adherence to road maps and KPIs for FATCA, is highly recommended.
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