Tax Risk Management Keeping Up with the Ever-Changing World of Corporate Tax March 27, 2007 Tax Services Bryan Slone March 27, 2007
Jan 03, 2016
Tax Risk ManagementKeeping Up with the Ever-Changing World of Corporate Tax
March 27, 2007
Tax Services
Bryan SloneMarch 27, 2007
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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
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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”
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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
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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
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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
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Objective Setting
• Setting objectives that support and align with the entity’s mission and are consistent with its risk tolerance.
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Event Identification
• Identifying internal and external eventsthat affect achievement of an entity’s objectives.
• Need to distinguish between risks and opportunities.
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Risk Assessment
• Analyzing risks based on likelihood and impact to determine how risk should be managed.
• Assessed on an inherent and residual basis.
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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
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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.
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Mitigation Plan
• Tax Risk Category
• Potential Impact
• Likelihood
• Urgency
• Mitigation strategy
• Mitigation Benefit (ROI)
• Estimated Cost to Mitigate
• Resources
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Control Activities
• Establishing and implementing policies and procedures to help ensure risk responses are effectively carried out.
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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
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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.
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Monitoring
• Monitoring entirety of enterprise risk management through ongoing management activities, separate evaluations, or both.
• Adjustments made as necessary.
Common Risk Areas
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Financial Reporting Risk
• The risk that tax transactions are not reported appropriately on financial statements.
• Primary focus of SOX 404
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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
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Compliance Risk
• The risk of not complying with regulatory, judicial, and administrative requirements.
• Includes both the filing of returns and post-filing audits.
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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
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Strategic Risk
• The risks that planning is not adequate and/or actions are taken that are not within the company’s overall strategy.
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Reputation Risk
•The risk that a company’s status will be harmed by a particular action/inaction.
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Specific Examples
•Tax Provision Processes
•Tax Compliance Processes
•Tax Controversy Processes
•Tax Planning Processes
•Tax Risks Related to Non-Tax Operations
Questions?
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