Staying aware of advancements in government technology is also advantageous as tax administrations are harnessing the power of new technology to make better use of their limited resources and extract more value from the information they receive. They are increasingly relying on digital methods to collect taxpayer data and are using data analytics to mine this data to help them boost tax collections, target compliance and audit initiatives, and improve overall efficiency.
We are seeing more businesses enhancing their relationships with revenue authorities and seeking to participate in various cooperative compliance activities. More businesses are also holding periodic internal meetings to discuss emerging regulatory and tax administration changes to prepare their businesses for changes that might affect them.
Benefits of managing tax controversy on a global basis
Best practices for dealing with tax controversy on a global basis are not adopted just to benefit the tax function or ease its burdens: they are also key to overall business success and performance. While compliance and dealing with tax controversy are mandatory, doing so proactively and properly can also have benefits.
Avoiding surprise tax bills
By following best practices, businesses can avoid unexpected tax bills and minimize tax uncertainty. This is especially true as tax authorities begin sharing more data and performing increasingly sophisticated data analytics. Tax authorities may take data submitted by the taxpayer as well as data received from other countries and use data analytics engines to find any discrepancies by comparing data across jurisdictions and taxpayers. Tax authorities will make tax and audit assessments based on these analyses. Knowing what data governments have and addressing potential issues before they become controversial can avoid more difficult challenges down the road.
Building stronger relationships
In addition to reducing tax uncertainty, adopting tax controversy management best practices is an effective way to build trust and transparency between tax authorities and businesses. Developing stronger relationships based on a track record of cooperation, collaboration, transparency and responsiveness to inquiries can create a “bridge” between tax authorities and businesses that eases conflict. Good governance is also a strong component of demonstrating good corporate citizenship.
Building business efficiency
Following these best practices could also result in business efficiencies and cost savings. While the initial planning and development of strategies, systems and personnel may be costly and time consuming, it will result in better management oversight and accountability of tax controversy activities and provide opportunities to budget and allocate tax function resources to achieve a smoother path to controversy resolution.
For example, by developing and organizing personnel in a manner consistent with the tax strategy, businesses may determine that outsourcing some tax functions is advantageous as it leads to a smaller, more focused staff that has the right budget to address arising challenges. These professionals, no longer mired in routine obligations, can concentrate on strategic governance and tax risk management matters, which could also lead to increased retention as individuals are challenged in more well-defined roles.
Additionally, having systems in place to manage ongoing and upcoming controversies allows for the creation of a properly allocated budget. Having the budgetary resources available as needed permits a business to execute and deal with a problem before it gets worse, potentially reducing the tax risk and improving the overall outcome.
Avoiding reputational damage
Having ineffective tax processes and controls can have profound consequences for businesses not only in terms of financial penalties but also in reputational damage, which is more than just the cost of defending tax filings or incurring a tax bill in any single jurisdiction. This negative impact can lead to a whole range of issues involving customers, suppliers, investors – or even host nations. Businesses must consider whether their tax decisions will meet globally agreed coherence and substance standards as well as be deemed “fair” and “acceptable” by multiple stakeholders.
As Martin Luther King Jr. said: “The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.”
Overall, the tax landscape is rapidly becoming more connected, and controversy worldwide is increasing as a result. Where a business stands in times of challenge and controversy is indeed a measure of its readiness to face tax controversy. It is with this in mind that businesses should move to adopt a strategic, globally integrated approach to tax controversy management by adopting best practices that can help achieve the best outcomes and contribute to the overall business objectives.
Please see the summary below.
What businesses are doing today
Businesses today are reaping benefits by adopting these best practices and implementing them in various ways, as illustrated in the practice tips. These tips can be used as a checklist to determine if your business is prepared to manage growing tax controversy.
Adopt a top-down, end-to-end global approach to tax controversy
- Establish and communicate a global tax controversy management strategy and policy statement
- Create or revise global tax controversy management procedures that align with the overall tax risk management oversight and corporate governance framework
Have the right people, with the right skills, in the right jurisdictions
- Create a global tax controversy management structure headed by a designated leader and supported by controversy professionals
Evaluate existing systems
- Develop and implement a global tax controversy tracking system to generate periodic management dashboards
- Initiate efforts to develop and enhance data management capabilities that support global tax controversy management efforts
- Implement processes to accurately and effectively comply with tax authorities that have specific digital tax administration requirements
Integrate tax with business planning
- Include the tax functions in planning discussions
- Enhance relationships with revenue authorities and seek participation in various cooperative compliance activities
- Hold periodic internal meetings to discuss emerging regulatory and tax administration changes
This article was first published in the Asia-Pacific Journal of Taxation, Vol. 23 No. 1 – 2019.