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Governance, risk management and tax responsibility

Governance, risk management and tax responsibility

Governance, risk management and tax responsibility

Governance, risk management and tax responsibility

The amounts of tax that global companies pay in total and in various jurisdictions have captured the spotlight in recent years. Tax leaders are being asked to explain their companies’ tax affairs to senior management, boards and other stakeholders. Tax authorities are looking at the quality of companies’ tax governance and strategies as they evaluate tax compliance risk. Investors, the media and the public are increasingly calling on companies to be more transparent and show they are socially responsible in their policies and approaches to taxation. At the same time, tax leaders are challenged to spot strategic opportunities and partner with the business so that taxes are managed effectively and the data collected for reporting and compliance obligations can, in turn, be used to offer valuable insights for the business.

Survey results show that many companies have recognized and responded to the need to demonstrate strong frameworks for tax governance, risk management and tax responsibility. These frameworks often mandate board-level involvementin tax governance. Most tax leaders say they are well involved in strategic decision-making. However, tax involvement is suggested, but not required, in decisions involving many high-profile risk areas, and some high-profile risk areas may be overlooked.

Governance, risk management and tax responsibility

Tax approaches and risk management

Nearly 55 percent of respondent companies have a documented tax strategy or overarching tax policy document covering tax risks. Of these companies, just over half of respondents review and update this strategy at least annually. Respondents say the most important objectives within their tax strategy’s scope are (on average; in ranked order):

  1. tax compliance
  2. risk minimization
  3. tax reputation.

The majority of respondent companies have a tax code of conduct to frame their risk tolerance and tax decisions. As part of their approaches to corporate social responsibility (CSR), about 30 percent disclose some tax information, and 15 percent do so publicly. Nearly a third of respondents intend to increase public disclosures about their tax information in the future.

Board and business involvement in tax strategy

In 60 percent of respondent companies, a board member (or board-level individual) has been assigned responsibility/ accountability for tax.

Within tax strategy or overarching government policy documents, other parts of the business are instructed to involve the tax department most commonly in the highprofile risk areas of reorganizations/merger and acquisition (M&A) transactions, transfer pricing and setting up foreign permanent establishments. However, fewer tax strategy documents instruct other departments to seek tax department involvement in other areas that could bear equivalent tax risk, such as changes in information technology (IT) structures, product launches and personnel secondments.

For any of these matters, involving the tax department is usually optional. Documented guidance requires (legally binding) involvement of the tax department in only 30 percent of respondent companies.

With the global trend toward increased transparency, there is a need for tax professionals to be exceptional communicators and brand ambassadors. Many tax leaders are conscious that they need to be able to articulate internally and externally the ways in which their departments embody the values of the organization and contribute positively to society, while also adding value to the business. Jane McCormick, Global Head of Tax, KPMG International

Key takeaways:

  • Many companies have recognized and responded to the need to demonstrate strong frameworks for
    tax governance and risk management.
  • Over half of respondents have some form of documented tax strategy. Tax compliance, risk
    minimization, tax reputation and group tax rate are the most important objectives within the tax
    strategy’s scope.
  • Other parts of the business are often instructed, but not formally required, to involve the tax
    department in high-profile risk areas. The most common of these areas are reorganizations/M&A
    transactions, transfer pricing and setting up foreign permanent establishments.
  • Nevertheless, half of tax departments are well involved in operational business planning/business
    strategy, and this involvement has increased in the past 2 years in the majority of cases.
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