Global Tax Outlook - Spotlight on Global Tax Assurance and Risk Management
26 January 2021
BDO’s Global Tax Outlook international research, reports on how a broader range of executive stakeholders are concerned about the impact of changing tax regulation and public scrutiny on their tax affairs and the wider business, and how in tax - governance, assurance and managing tax risk has become a key focus.
Keeping up with, and responding to, continued regulatory and legislative change presents major challenges for tax leaders and tax functions across the globe. Being and staying compliant becomes the primary concern - dominating the tax agenda and increasingly the Board’s time.
More organisations accept that tax compliance involves having a proper governance structure (who makes decisions over what tax matters and how tax risk is managed across the business) and tax assurance over tax risk, systems, controls and processes to reduce and manage risk.
Moreover, more organisations are looking to embed tax governance and tax risk frameworks, monitor these proactively and integrate these with business processes as tax leaders aspire to move from a support function to take on a more strategic and advisory role and add greater value to the business.
BDO has recently launched a set of tools for clients at GLOBAL TAX ASSURANCE & RISK MANAGEMENT. Clients are asking for practical ways to improve tax performance and better manage their tax risk. Senior management want a culture of ‘no surprises’ when it comes to managing tax on a global basis. On top of that, there is an increasing need to demonstrate tax assurance and efficiencies in terms of how tax operates across the business. For all organisations, there are tax challenges from increasingly complex tax compliance and regulatory requirements, magnified often by overly manual and disjointed processes that create tax risk.
The approach we adopt starts with a Tax Control Framework Roadmap - to help our clients navigate the path to a world class tax function. The framework looks in turn at
- Vision and Tax Strategy
- Tax Policy and Standards of Conduct
- Tax Governance – Accountabilities and Responsibilities
- Policies and Procedures
- Risk Management
- Monitoring and Review
1-2. A Vision for Tax through the development of Tax Strategy and Tax Policy:
The Tax Control Framework (‘TCF’) roadmap provides the framework for the effective management of tax within an organisation. It is a path that all our clients follow, with the key starting point being the development of a clearly articulated Tax Strategy and Tax Policy that should be communicated to key stakeholders.
To develop a successful tax control and operating framework, it is first important to articulate your tax vision – determining where you are now, and where you want to be in the future. We define a Tax Strategy as providing the vision for your current and future operations; the Tax Policy is more detailed and will set out expected standards of conduct in how tax is carried out in your business. In essence, it is your ‘Tax Handbook’ for your TCF. Many of our clients are also seeking to publish their Tax Strategy and Global Tax footprint as part of their ESG and Responsible Tax agenda.
Strong tax governance is all about effective management of tax risk in the business, setting up tax escalation mechanisms and defining clear tax accountabilities and responsibilities (eg using a RACI matrix).
For larger organisations, questions will also include how you develop your tax organisational model in terms of a centralised versus decentralised model.
4. Policies and procedures:
Clarity to your tax team over their everyday responsibilities is important. Many of our clients have asked us to develop tax control policies and procedures including process maps and flow charts related to specific and high-risk processes such as VAT compliance and Transfer Pricing.
For the latter, we have provided assurance to our clients over their Transfer Pricing processes to provide evidence that they have a robust transfer pricing charging framework, and clarity over their operational charging processes that can be shared with tax authorities and other stakeholders as needed.
5. Risk Management:
Effective tax risk management does not have to be complex. We believe a simple, but structured approach to managing tax risk can demonstrably improve an organisation’s identification, assessment and management of tax risk and create an environment of ‘no surprises’ around the delivery of tax on a global basis. Our approach has three elements: (1) Carrying out a global tax risk review to identify any immediate risk areas (‘burning platforms’) and to undertake an assessment of the strength of your tax risk and control framework. (2) Remediation of identified high risk areas. From our experience of other global risk reviews, this typically includes specific tax areas such as Transfer Pricing, contractor status, mobile employees, commercial substance of corporate structure as well as areas where tax optimisation exist such as R&D and tax depreciation. (3) Building blocks to strengthening your tax risk and control framework. Depending on the results of the above, this may involve the implementation of processes, tools and technologies to improve your tax risk and control framework across the business. Contact us for more information about our online risk assessment tools.
All effective Tax Control Frameworks are supported by the effective use of technology. Our work always considers opportunities for the enhanced use of technology, data analytics, and tax optimisation.
Read more about the role of Tax Technology in the planning and implementation of effective tax processes in the US and UK.
7. Monitoring and Review:
Develop practical reporting tools to provide senior management with confidence that tax compliance requirements and tax risks are adequately tracked and actioned. Develop a third line of defence internal control monitoring programme over higher risk tax processes.
For more information go to GLOBAL TAX ASSURANCE & RISK MANAGEMENT.
If you would like to discuss more on how to optimise your tax function and tax risk management, please get in touch via the contact form below and a member of the BDO team will personally reach out to you for a tailored discussion.