Tax Risk Management Keeping Up with the Ever-Changing World of Corporate Tax March 27, 2007 Tax Services Bryan Slone March 27, 2007.

Tax Risk ManagementKeeping Up with the Ever-Changing World of Corporate Tax

March 27, 2007

Tax Services

Bryan SloneMarch 27, 2007

Copyright © 2005 Deloitte Development LLC. All rights reserved. 2

Heightened Tax Risk Pressures

More Risks

Financial accounting

Technical

Strategic

Compliance

Operational

Implementation

Law change

Reputation

More Stakeholders

Tax Director

Chief Financial Officer

Chief Executive Officer

Chief Risk Officer

Board and Audit Committee

Lenders

Investors

Customers

More Pressures

Enforcement

Regulatory Changes

Transparency

Corporate Governance

Media Attention to Tax

Political Pressures

Capital Markets Pressures

• Estimates indicate that only about 30% of tax risk are actually controlled by the tax department

• Deloitte survey of Tax Directors of FTSE 100, the majority believe tax is likely to become a future indicator that a company is trustworthy and socially responsible


Why Tax Risk Management?

•Tax Planning Savings– Establish company’s tax risk profile– Facilitate continued tax planning savings

•Enhanced Controls/Effectiveness/Transparency– Periodic Risk Identification & Prioritization– Documented framework and timeline for remediation– Enhanced management communications

•More Effective Change Management– Resource planning/budgeting– Addressing process, data, and people risks– Rethinking the concept of a “Tax Calendar”


Model TRM Approach

COSO – Enterprise Risk Management – Integrated Framework – 9/04

High-level goals, aligned with and supporting its mission

Effective and efficientuse of its resources

Compliance with applicable laws and regulations

Reliability of reporting – scope of 404


Internal Environment

•Encompasses the tone of an organization

•Sets the basis of how risk is viewed and addressed by an entity’s people

•Includes

– Risk management philosophy and risk tolerance

– Integrity and ethical values

– Environment in whichthey operate


Decision Web

Provides a policy for future decision makingbased on factors and risk tolerances establishedby your company.

Size Aggressiveness

ReportableTransaction

Tax Advisor'sOpinion

Impact onOtherTransaction

FinancialBenefit

ReputationEase of Implementation

2

3

4

5

1

2

3

4

5

12345 1 2 3 4 5

ConsiderationCompany

EstablishedThreshold

TransactionScore

Size 4 1

Aggressiveness 2 2

Impact on OtherTransaction

2 4

FinancialBenefit

4 2

Reputation 4 4

Ease ofImplementation

2 5

Tax Advisor'sOpinion

2 1

ReportableTransaction

4 5


Objective Setting

• Setting objectives that support and align with the entity’s mission and are consistent with its risk tolerance.


Event Identification

• Identifying internal and external eventsthat affect achievement of an entity’s objectives.

• Need to distinguish between risks and opportunities.


Risk Assessment

• Analyzing risks based on likelihood and impact to determine how risk should be managed.

• Assessed on an inherent and residual basis.


Tax Risk Map

1 2 3 4 5

1

2

3

4

5

Deferred Taxes

Tax Withholding

Process & Data

Foreign Taxes

Employee Benefits

Effective Tax Rate

Sales & Use Taxes

Report. Trans.FAS 5 Reserves

Transfer Pricing

Int'l Assignees

Property Taxes

State & Local Taxes

Record Retention

Preparedness

Impact

Colour: ValueSymbol type: Type

< 2.52.5 - 3.5>= 3.5

FAS 109Misc. TaxesFederal & State


Risk Response

• Developing a set of actions to align risks with entity’s risk tolerances and risk appetite.

• Potential responses:

–Avoiding, accepting, reducing, or sharing risk.


Mitigation Plan

• Tax Risk Category

• Potential Impact

• Likelihood

• Urgency

• Mitigation strategy

• Mitigation Benefit (ROI)

• Estimated Cost to Mitigate

• Resources


Control Activities

• Establishing and implementing policies and procedures to help ensure risk responses are effectively carried out.


Deliverable: Mitigation Timeline

600 Hours

725 Hours

200 Hours

500 Hours

1000 Hours

UK VAT

Reportable Transactions

Transfer Pricing

Rev Proc 98-25

Year One

SUT Compliance

Year Two

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr


Information and Communication

• Identifying, capturing, and communicating relevant information in a form and timeframe that enables people to carry out their responsibilities.

• Flows down, across, and up the entity.


Monitoring

• Monitoring entirety of enterprise risk management through ongoing management activities, separate evaluations, or both.

• Adjustments made as necessary.

Common Risk Areas


Financial Reporting Risk

• The risk that tax transactions are not reported appropriately on financial statements.

• Primary focus of SOX 404


Operational Risk

• The risk of inaccuracies in tax accounting caused by normal day-to-day operations and communications infrastructure.

• Examples:

–Complexities of globalization

–Lack of communication among parties

–Administrative inadequacies


Compliance Risk

• The risk of not complying with regulatory, judicial, and administrative requirements.

• Includes both the filing of returns and post-filing audits.


Transactional Risk

•The risk associated with applying current tax law to a particular set of facts.

•The risk that the company does not appropriately implement a transaction.

•Transactions will be closely scrutinized under the current environment.

–Schedule M-3

–Reportable Transaction disclosures

–Increased access to tax accrual workpapers


Strategic Risk

• The risks that planning is not adequate and/or actions are taken that are not within the company’s overall strategy.


Reputation Risk

•The risk that a company’s status will be harmed by a particular action/inaction.


Specific Examples

•Tax Provision Processes

•Tax Compliance Processes

•Tax Controversy Processes

•Tax Planning Processes

•Tax Risks Related to Non-Tax Operations

Questions?


Tax Risk Management Keeping Up with the Ever-Changing World of Corporate Tax March 27, 2007 Tax Services Bryan Slone March 27, 2007.

Documents

tax risk management

heightened tax risk

tax calendar slide

companys tax risk profile

deloitte development

risk tolerances

risk management philosophy

risk tolerance integrity