Change Is Coming - Is Your Tax Function Ready ?
30 January 2011
Posted by: Author: Ine-lize Terblanche And Marcus Botha
Change Is Coming - Is Your Tax Function Ready ?
The days when a tax professional was responsible only for tax technical and tax compliance responsibilities are numbered. There are a number of significant trends that are emerging in the world of tax. Each of these has a major impact on the way in which organisations govern their tax obligations and the role of the tax professional.
Transparency beyond numbers
In the recent past, we have seen a widespread and legitimate interest growing amongst various stakeholders in how much tax companies pay, and a definite trend towards greater tax transparency by leading global organisations. In a recent publication by PwC, it is reported that many companies see the benefits of more transparent reporting, disclosing different aspects of their tax affairs. They are talking about their tax strategies and policies, their tax governance framework, their tax numbers and total tax contribution. This is known as the Tax Transparency Framework. Leaders in tax transparency believe that such practices have potential benefits, including an increased awareness of the tax and economic contribution of business, a demonstration of board involvement in tax governance and long term reputational benefits, to name but a few.
Worldwide, there are examples of participation by NGOs, the press and the public voicing their protest against large companies which are perceived not to pay their fair share of taxes; and these groups are putting pressure on politicians and regulators to enforce change.
Adapting revenue collection practices
At the same time, revenue authorities are becoming serious about monitoring and identifying risk in the large business sector and are adapting their administration practices to enable greater and more focussed revenue collection, as this is the lifeblood of a country’s quest for financial recovery and growth.Their modus operandi is to tackle aggressive tax planning through improved transparency and disclosure on a real-time basis.
It would appear that revenue authorities globally are looking for evidence to confirm that tax is on the board’s agenda and that the board has active involvement in setting the risk appetite in relation to managing tax.This includes appropriate oversight; sound systems; clear accountabilities; strong controls; ethical behaviours; highly skilled people supported by robust processes and procedures; and the capacity to identify, assess and mitigate tax risks.There is an expectation to see both strong corporate governance structures, and effective accounting and control mechanisms to meet day-to-day compliance and reporting obligations. In some jurisdictions, the chief executives may now be held personally accountable for failures in the tax risk management of their companies.
Closer to home is our own government’s deficit, forcing the fiscus to look at ways to increase the tax base and clamp down on corporate taxpayers from a tax morality perspective. SARS commissioner, Oupa Magashula has emphasised this and made it clear that tax morality is here to stay and that taxpayers should pay the right amount of tax and be tax compliant. The SARS banking accord signed with the Banking Association in 2009 was one such initiative to promote the concept of being a good corporate citizen and not to employ aggressive tax structures that will erode the tax base.
Tax professionals who are seeing the bigger picture
The message is quite clear: in the wake of the financial crisis and the loss of public trust in business, companies have to become more sophisticated in their approach, allocating greater resources for the governance and management of tax and you have to wonder if this is the start of a new breed of tax professionals in commerce and industry.
This new landscape for tax professionals requires operating in business environments where improved governance, adequate risk management practices, improved transparency and disclosure to the board, audit committee and stakeholders are expected.These needs and responsibilities have been fulfilled by specialists in risk, compliance and governance; and with tax not part of their expertise, it is understandable that the impact of tax is not always assessed and taken into account. With that being said, tax professionals don’t generally have a risk, governance and compliance proficiency and the gap between tax, enterprise risk management and corporate governance might leave organisations exposed.
Recent results published by PwC in the non-executive director report indicated a 7% decline from 2010 in the number of nonexecutive directors available to serve boards and committees.This was as a result of the increased personal risk exposure and reduced fees earned in relation to the risks that the directors accept.This places further emphasis on risk management and the need for internal assurance, as boards and audit committee members will start raising questions and looking to management teams across the organisation to provide comfort.
Tax risk, which includes all tax types and tax liabilities, is considered to be one of the top 10 risks in any organisation. With increased awareness and tax risk maturity in the market place, management will be under increased pressure over the next three to five years to provide assurance in response to the concerns of the board, audit committee and external stakeholders, like SARS on tax risk, and the tax control environment.
Governance, enterprise risk management and the concepts of risks, controls and combined assurance frameworks will soon form part of a tax professional’s lexicon. In order to meet the demands and requirements of stakeholders, various functions across an organisation will look to the companies’ tax professionals in order to assist with integration of tax risk into the organisations’ risk frameworks and governance structures with a view to satisfy stakeholders and demonstrate that good corporate citizenship, that risk management requirements are met and an adequate and effective tax control environment exists.
This increased need for risk information and internal assurance on tax risk, which is an area of specialism, will require the market to respond to a need for skills and expertise from tax professionals that will satisfy enterprise risk management, governance and assurance needs and responsibilities.
Having an effective tax function alone will not achieve the value required by stakeholders. Integration and synergies with co-assurance providers will not only be an enabler for the tax function, but will ensure that the board, audit committee and stakeholders can rely on the tax risk control environment.
The PwC Tax Management and Accounting Services group will be addressing some of these new trends in tax management and its impact on the African continent in more detail at the African Tax and Business Symposium, hosted in Nairobi in September 2011 contributing to the theme of the symposium: ‘African winds of change’.
Source: By Ine-lize Terblanche And Marcus Botha ( TaxTALK)