What the C-suite can do about tax risk and controversy
The positive news is that there are several clearly established leading practices that can be adopted now to best position your enterprise. Broadly, these actions occur across the three core phases of the tax controversy lifecycle, with a key focus on preventing disputes from arising in the first place:
- First, put in place the interlinked people, tax and business controls, and global technology that will help your enterprise assess its spectrum of active tax risks – globally and in real time
- Second, better manage ongoing tax risks via a comprehensive strategy that continuously refines these controls and makes use of all available dispute prevention and resolution tools and programs
- Third, when any tax disputes do occur, secure a rapid, effective resolution, ideally allowing your company to move forward free of unwanted litigation and the commonly resulting tax provision
Many multinational companies have historically focused, sometimes to the point of exclusivity, on that third and often final step, missing the opportunity to reduce the likelihood of tax risks turning into tax disputes in the first place. There is a different way, though, based on earlier, more proactive management of tax risks and focused on transparency, proactivity, consistency and predictability.
Preparing for the evolving tax enforcement environment requires investment and commitment, and may also require a re-think of plans at the executive layer – especially if the 79% of executives in the 2020 EY Tax and Finance Operate survey follow through with their planning to reduce the cost of their tax and finance function over the next two years. But while such impulses to cut costs are near universal in challenging times, being unprepared for future tax risks may be more costly in the long run.
Fully-fledged transformation to your future state tax risk and controversy model does not need to occur overnight. Those companies that we believe are making the strongest progress in this space all took time to carefully identify the highest value, most immediate priorities – the proverbial low-hanging fruit – while simultaneously defining which other leading practices should form their longer-term strategic road map for change. In effect, they are building their Tax Controversy Department of the Future – not all at once, but piece-by-piece, and with a clear future state in mind that allows for adaptability.
The C-suite should consider supporting – or even spearheading – this effort within their organizations.