The world is increasingly a global village, with interconnected financial systems and massive data sharing among various governments and jurisdictions. In recent times, new tax reporting requirements and the increasing need for tax information exchange between nations have led to the disclosure of key details on the tax affairs of multinational companies. Boards of Directors, CEOs, CFOs and other leaders in multinational organizations are aware of the increasing reputational risk related to international tax. According to an EY report, over half of all top executives from major corporations who were included in a study said that oversight of controversy and task risks had increased over the last two years.
Indeed, over 80% of tax executives who were interviewed said that they regularly briefed the company’s CEO and CFO on risks related to taxation. Nearly half of tax professionals in large companies also regularly briefed audit committees. This is an interesting piece of information especially at a time when firms are creating more structured approaches to managing their public tax profile. Below are some of the top strategies that companies are using to promote transparency readiness and manage reputational task risks.
- Monitoring the Changing Landscape – this involves actively studying and understanding the likelihood of increasing tax disclosure requirements. For instance, there might be an expansion of existing financial services reporting based on policy. Companies leverage their communications and PR departments to monitor interest in their tax profiles.
- Assessing Readiness to Respond to Risk Threats – more international firms are developing board-agreed strategies and plans of action regarding readiness This involves regular evaluations to determine that the tax function has a clear input into the business strategy and that it’s consistently in the scope of all major transactions.
- Enhancing Communication – establishing an effective communication strategy and approaches for reaching both internal and external stakeholders. At the internal level, the firm’s tax function should validate the approach to oversight functions such as risk officers, audit committees, public affairs, general counsels, and board of directors. The company’s leadership should be informed whenever there are any concerns related to taxation so that they can weigh them in among other risk factors.
- Creating Comprehensive Tax Reports – there’s a smooth flow when tax and accounting merge to help assess business motivations behind existing tax structures in each area where the firm operates. These reports should create a total tax picture that scopes how the firm contributes to the economy and much money it pays in taxes. These reports are a great way to trigger discussions on global risk management, audit functions, tax resolution processes, tax performance processes, etc.
- Embedding Reputational Tax Risks in Core Business Strategy – this is all about starting a dialog in order to allow the tax function to properly the reputational task risks related to ongoing business activities such acquisitions and mergers.
Proper tax management has always been an important part of doing business for large companies. Firms are looking to avoid tax scandals and lawsuits that have the likelihood to negatively impact their brand. The measures highlighted above are just a few of the many steps that international firms are taking to make sure that their tax affairs are in order!