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Tax risk management more important than ever
Large multinationals are leading the way, while many other companies still have a long way to go
LONDON, KYIV, 11 DECEMBER 2008 – Tax executives around the world find effective tax risk management more important than ever, according to Ernst & Young’s third global tax risk survey, Steady course; unchartered waters. The biennial survey of 541 tax executives from 18 countries shows that the majority of respondents now spend up to 20% of their time on tax risk issues. The percentage spending more than 20% on tax risk issues has increased from 16% in 2006 to 26% in 2008. 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 Mark Weinberger, Ernst & Young’s Global Tax Leader.
"In the current economic environment, governments around the world, including Ukraine's, will be required to collect more taxes. This will inevitably result in increasing pressure on business with more aggressive tax audit reviews focusing on areas which they have previously found difficult to enforce. Managing business tax risks will become even more challenging than ever and methods which have previously been effective may no longer be so. Now is therefore a good time for Ukrainian businesses to take a look at how they manage their tax costs," adds Trevor Link, Tax & Legal Leader with Ernst & Young Ukraine.
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 Mark Weinberger.
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.
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).
About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 135,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve potential.
In Ukraine Ernst & Young established its practice in 1991. Ernst & Young Ukraine now employs more than 570 professionals providing a full range of services to a number of multinational corporations and Ukrainian enterprises. For more information, please visit ey.com/ukraine.
