5. Engage with the tax authority
Not all tax authorities offer formal co-operative compliance programs, but it can still be worthwhile to establish an informal relationship through regular dialogue. Discussing complex transactions and effectively developing and enhancing the relationship reduces the likelihood of tax surprises and investigations.
6. Implement a tax governance framework
Global tax authorities are increasingly asking businesses to implement tax governance frameworks. Like other governance measures, these frameworks establish procedures and processes and appoint the board and management to take responsibility for all tax matters within a business. Establishing such a framework demonstrates to tax authorities the seriousness with which a business treats its tax obligations.
There is a significant internal benefit for businesses too – that of being in full control of tax risk and being able to report on it to stakeholders in the business, such as shareholders, lenders and regulators. This enables enhanced control of reputational risk arising from tax risk, especially in jurisdictions where tax authorities may publicize non-compliant businesses.
7. Go digital
Tax authorities increasingly have cutting-edge technology at their disposal to assist in retrieving lost or errant tax revenues. This involves use of wide-ranging and powerful tools to track business activities across a variety of national and international data sources. It also includes exchanging account and tax information with authorities in other jurisdictions – global initiatives encouraged by the Organization for Economic Co-operation and Development (OECD) and the G-20.
On a more granular level, the use of software and algorithms to explore company accounts and ledgers is becoming more common place among tax authorities. It makes sense from a tax compliance perspective, therefore, for a business to ensure that when tax authorities call for a set of data, it is in a position to provide it, with confidence, often in near real time.
A new world
In summary, keeping abreast of the kaleidoscopic international tax landscape is a huge data collection and analysis job for any business. The more geographically spread its operations are, the more complex and rapidly changing the rules are likely to be. As tax authorities resume operations post-COVID-19, they will be tasked with being as efficient as possible in generating revenues, helping to defray the cost of government support and stimulus.
It is therefore vital that businesses are proactive but also flexible in adopting new tax laws, new internal procedures and new adaptions to the way in which they manage tax. Installing robust systems, processes and governance will go a long way toward avoiding tax controversy - and regular dialogue with tax authorities plays an important role too.
Prevention of tax controversy is far less damaging and time-consuming than trying to cure a problem once it has occurred. Thorough and timely preparation is, as ever, the key to solid tax risk management.
This article was first published in the Women in Business Law Expert Guide 2020 edition.