Friday, June 20, 2008

Tax Guru's New Book Explores Corportae Tax Mistakes

Tax compliance in most businesses only covers about 40 percent of the total tax risk in those businesses. The other 60 percent is hidden.

That quote is just one of the eye-opening observations in a new book about corporate tax risk management titled, Managing 7 Habitual Tax Mistakes (A Tax Risk Management Handbook), written by noted tax attorney and author, Daniel Erasmus.

"In some respects, many corporate taxpayers are their own worst enemies because they tend to be reactive to tax problems and tax risks. This inevitably results in additional and unforeseen taxes, sometimes totaling millions of dollars," notes Erasmus. He adds that he wrote the book for a broad audience, including CEO's, CFO's, boards of directors, corporate operations managers and, of course, tax advisors.

"I hope this book will communicate to today's corporate leaders the extraordinary importance of a proper tax risk management (TRM) process," he says. "When an effective TRM program, such as I've developed, is in place, these individuals can be certain their companies will enjoy minimal tax exposure while being fully regulatory compliant."

Erasmus explains that because many corporations have internal tax departments that deal with compliance issues, senior management sometimes is lulled into the false impression that their tax risks are well understood and under control.

"This is a dangerous and often costly mistake that numerous senior executives and board members make, many times with disastrous results. However, a properly structured prevention strategy that is an integral part of a proven tax risk management process can help prevent this catastrophe from occurring, and my book is a guide to doing just that," Erasmus asserted.

Erasmus is a pioneer in the area of the constitutional rights of taxpayers and is at the forefront of tax research in this area. Prior to founding the law firm of Daniel Erasmus & Partners, he held positions at several law firms and with Deloitte & Touche. A popular author, teacher, lecturer and talk show host, Erasmus has written numerous articles and books, including two textbooks for lawyers. He currently is working on a PhD and his thesis, "Tax and the Constitution," examines the power of tax collection agencies to obtain information from taxpayers in order to conduct audits.

Managing 7 Habitual Tax Mistakes is published by LexisNexis. To learn more about the book and its author, including how to purchase it, visit and

Seven Sins of Tax Risk Management

A 2007 KPMG tax risk management survey of U.S. corporate tax managers highlighted the reasons that companies should maintain a qualified corporate tax risk manager on staff.

"Increasingly, tax risk management is becoming a heightened priority to those outside the tax function-especially senior management and the board," concludes the study. "Although the e-survey shows that many organizations do not have a formal tax risk management strategy in place, many of them likely will take steps to establish such a strategy, given the enhanced regulatory pressures for greater transparency."

Yet a surprising 60% of the tax managers responded that they had no documented tax risk management strategy, while 31% of respondents did not even consider a tax risk management strategy a top priority.

Given this, companies should prioritize hiring a competent tax risk manager now and put a vigilant audit committee in place. Without such initiatives, many companies will fall victim to the Seven Habitual Tax Mistakes.

Habitual Tax Mistake #1: Taxpayers tend to be reactive to tax risks. This often translates into additional tax exposure through the imposition of tax penalties and interest, and can lead to a poor relationship with the IRS. Proactive tax risk management can eliminate additional exposure, improve IRS relationships and place control of the process back in the hands of the corporation, where it belongs.

Habitual Tax Mistake #2: Tax compliance departments in businesses try to cover their tax risks without outside professional assistance, except on a reactive basis. This contributes to mistake #1 and tax risk management becomes reactive. By creating a tax team that participates proactively in the process, a business can potentially expand its tax risk cover from 40% to 100%.

Habitual Tax Mistake #3: Most businesses do not have a road map indicating where they are going with their tax risk management, other than blindly ensuring that they are "fully tax compliant." Without a properly formulated strategy in place, the objectives to minimize tax risk cannot be achieved.

Habitual Tax Mistake #4: Insular tax compliance from an ivory tower can only mean that corporate tax compliance is probably at its lowest, despite attempts to ensure. All key stakeholders must be involved, including the CEO, CFO, board members, the audit committee, the outside legal team and tax advisors.

Habitual Tax Mistake #5: Maybe the leading cause of bad tax compliance and unnecessary mistakes that could have been avoided is a lack of facts, facts and more facts. Getting to the bottom of a stack of facts takes time and effort, and is the most important starting point in any implementation strategy.

Habitual Tax Mistake #6: Financial accounting supplies the numbers on which tax compliance is based. Simply relying on these numbers-as is usually the case with most tax managers-is not enough. Internal audit procedures must be expanded to self-audit the higher tax risk areas in a business, in order to "self expose" any mistakes and noncompliance before the IRS does.

Habitual Tax Mistake #7: The lack of communication between the tax manager and the rest of the company, and an over-reliance on number processing to compile tax returns are the major reasons why tax compliance in most businesses only covers 40% of the total tax risk in those businesses. The other 60% of tax risk is hidden and can only be exposed through a systematic process of people-to-people communication. Naturally, one must verify the other and this calls for new communication systems in many companies to put an end to the bad habit of limited people communication.

Daniel Erasmus is the founder of DE Professional Consultants. He is also author of Seven Habitual Tax Mistakes, founding editor of the magazine TAX Talk and host of the TV show Tax Issues

Wednesday, June 18, 2008

What is Tax Risk? Extracts from the book 7 Habitual Tax Mistakes

“Tax risk” includes the meaning of “risk”. Risk means “expose to hazard; endanger; to expose to the chance of injury or loss; to take the chances of” in accordance with the meaning ascribed to it in the compact edition of the Oxford English Dictionary.

For the purposes of this book it means identifying those areas in the business that give rise to potential financial loss when tax principles are applied to them, which must be quantified and managed to minimize that financial loss as any person would in the case of medical insurance, life insurance, trauma insurance and property insurance.

Most people are willing to pay for “insurance” to help minimize any financial loss that may emanate from the previously mentioned risks. For some unknown reason, businesses do not budget or make allowance for spending funds on buying “insurance” in planning and implementing a {TRM} process in order to manage and minimize any financial loss that may flow from tax risk. Tax risk is the concept that must be recognized by business organizations in response to internal and external stakeholder demands, whilst continuing to meet business objectives and goals.

Primarily it is a cautionary measure to avoid possibly serious adverse financial consequences. It can be divided into two broad areas: internal and external tax risk.

External tax risk occurs through on-going legislative and regulatory changes and new case law, giving rise to changes in application and interpretation of tax laws. Often businesses fail to keep abreast of these changes.

Internal tax risk can be classified as follows: -transactional tax risk; -operational tax risk; -compliance tax risk; -financial accounting tax risk; -management tax risk; and -reputational tax risk. By failing to effectively and efficiently manage transactional, operational, compliance and financial accounting tax risk, management and reputational tax risk is also created.

De Klerk: Critical test ahead for SA's rule of law - Mail & Guardian

South Africa's commitment to the rule of law faces a critical test in the coming months, former president FW De Klerk told the British South African Law Association on Wednesday night.

This includes its handling of the trial of African National Congress (ANC) president Jacob Zuma and the issue of the Scorpions. Speaking in London, De Klerk questioned whether the ANC's brand of economic, political and social transformation will take precedence over its commitment to the Constitution, which states unequivocally that the new South Africa is founded on the "supremacy of the Constitution and the rule of law". This will play an important role in determining whether the country will "stay on the high road of constitutionalism and the rule of law", or "stray into the minefields of unrestrained executive power", which characterised the apartheid regime.

Also tested will be the ability of the country's newly transformed judiciary to make the hard, principled decisions it needs to, at the risk of displeasing the masses or the government that appointed it. "The next 18 months will be critical in determining whether South Africa will abide by its liberal Constitution and the rule of law, or whether it will deviate from the principles that have thus far served it so well," said De Klerk.

A litmus test for the country's commitment to the rule of law will be whether Zuma's trial will proceed freely, fairly and without interference, he said. Another will be whether the police unit intended to replace the Scorpions will operate with the same independence, zeal and success in probing crime and corruption in government and political circles. "In particular, will it continue with the investigation and prosecution of Jackie Selebi, the commissioner of police, and with investigations into allegations of corruption related to arms procurement?" Also at issue is whether the government will adopt the Expropriation Bill, which has "disturbing implications", and whether it will reintroduce a much-criticised plan to reform the judiciary.

"Finally, and perhaps most importantly, will the government be able to curb violent crime and the type of mindless xenophobic violence that we have witnessed in recent weeks?" De Klerk asked. "The statistics seem to indicate that the government is very slowly beginning to reduce crime. However, the experience and perceptions of all sections of the population point in the opposite direction." De Klerk pointed out that the ANC has shown a keen awareness of the importance of practical success and of adhering to the global consensus, even when this involves deviations from its ideological programme.

He said the ANC's new leadership has on numerous occasions reiterated its respect for the rule of law and for the Constitution. "It has reiterated its long-standing commitment to 'the fundamental provisions of the basic law of the land', which, it says 'accord with its own vision of a democratic and just society'." The ANC insists, too, that it aims to implement "the letter and the spirit" of the Constitution, through multiparty democracy, separation of powers, fundamental human rights, respect for the rights of linguistic, religious and cultural communities and social equity.

De Klerk asked that the international community continues to take a "benign" interest in the country's affairs and supports the maintenance of the rule of law "with the same vigour as they criticised its absence in the past". It is on the supremacy of the Constitution and the rule of law that the "great national accord" South Africans reached between 1990 and 1996 rests. "Upon it depends the continuation of the South African miracle and the future happiness, prosperity and success of our country and all its people," said De Klerk. -- Sapa Goto for the complete article...

Thursday, June 5, 2008

The psychology of emigration

How does the soil upon which we take our first steps define the core of our being? Do we bond with our early surroundings the way we bond to significant others? Does our cultural worldview emanate from our interactions with kinsfolk or from our direct experience with our environment? What genetic material and what kind of learnt behavior facilitate adaptation to a new environment beyond the borders of our birthplace?

These are merely a sample of questions with which I have grappled over the past twenty four months. My personal experience of immigration into South Africa as a twelve year old and immigration to the USA as an adult in my forties, have afforded me a plethora of experiences to inform my work in this field. In addition I naturally draw on the theoretical framework that accompanies me in my daily work as a clinical psychologist.

The angst that accompanies the first thoughts of international relocation finds its source in the primeval need for self preservation. The very core of our being fights against what we instinctively know to be a very threatening experience. We intuitively sense that to leave all that is familiar and start over in a place that feels foreign in every way is tantamount to self annihilation. We may be brave enough to explore foreign places that appeal to us in terms of relocation, with the thought at the back of our mind, that we are simply having a ‘look see’. Most of us hide behind the option that if we do not like what we see, we can nestle back into the familiar, possibly strengthening our defense mechanism of denial, ignoring the very factors in our familiar environment that alerted us to the need for exploring alternative environments in the first place. The power of denial cannot be underestimated. As children we draw on numerous coping mechanisms in order to deal with stressors that threaten and overwhelm us. Ideally, adults would cope with stressors in increasingly mature ways, such as resolving conflict constructively and solving problems by carefully and realistically assessing possible solutions and reaching well researched and deliberated decisions. Sadly, even as adults it is all too tempting to resort to early learnt mechanisms such as denial and projection to ‘wish away’ uncomfortable situations that are placing undue demand on our psyche.

Exploring new environments for the purpose of holidays is ever so appealing. Doing so for the purpose of assessing new environments in the event of relocation brings with it a totally different fear factor. We are acutely aware of differences and wonder how we will ever assimilate into this strangeness. Words spoken with a different accent pierce our eardrum and we anger when we are misunderstood. Processes of every kind are a challenge since we don’t have all the answers required line upon line of countless forms that need to be completed. We are daunted by the unfamiliarity of almost every aspect of life. So much so, that we are blinded to the similarity of people and environments all over the world. As we learn to reach out bravely to our new surroundings we are encouraged by small accomplishments that allow us to feel a sense of control over the environment. Much like the experience of toddlers bravely leaving their mother’s side, to explore and master the world that is opening up to them. Great is the sense of achievement as we stretch ourselves in every way to conquer and claim our stake in this new place that we choose to call home. The family unit is strengthened as members rely on each other for comfort and support. The personal growth that emanates from the process of relocation is immeasurable, and could be likened to climbing Mount Everest, a feat that begins with fear and trepidation, is interspersed with moments of excitement and exhilaration, encounters numerous trials and unexpected problems, draws on gratitude for the safety ropes that allow us to take the next step, demands courage, family support and a strong sense of self, and culminates with an indescribable euphoria that no money or drug could possibly provide.

Emigration out of South Africa is further complicated by the socio historic and political factors that necessitate high functioning South Africans to face the reality that a long term future in their country of origin may well not be a reality. As the factors of a long history of oppression are redressed, many non black South Africans are questioning their future in a political climate that voids and negates the talents and aptitudes of persons on the basis of race. Ironic, in the face of a long and brave struggle against oppression, to remove all but one color of the rainbow, paying no credence to the phrase coined at the birth of democracy ‘there shall be richness in diversity’. Such displacement comes with a great deal of anger and hurt. It is this anger that interests me rather than the political faux pas bringing a beautiful country to its knees. White South Africans have benefited from Apartheid whether they wanted to or not. There is a responsibility to address the wrongs of yesterday. The question is whether it is appropriate or beneficial to make co existence impossible due to a severely unmanaged climate of violent crime coupled with a gross lack of opportunities for young South Africans on the basis of race. How do these feelings of anger and hurt impact on the process of immigration and assimilation?
Unresolved anger around the ‘loss of our country of birth’ can only complicate assimilation into the host country. Such anger may be projected onto citizens in the host culture, manifested by hostile behavior toward such citizens who have not experienced the upheaval of ‘forced relocation’. It is extremely important to process and resolve emotions and feelings associated with the loss of the country of origin in order to embrace our new surroundings.

It is helpful to realize that the world is indeed a global village, we are no longer confined to a life within our borders, advanced technology has closed the chiasm between cultures and languages; we are just people wherever we are born, with very similar goals, dreams and aspirations. In the end it is a choice to assimilate and pursue a meaningful existence in a country gracious enough to welcome newcomers or to hold onto senseless grudges borne of a time that was fraught with struggle for more South Africans, black and white, than just you or me.

Jutta Morris
MA Psych (Natal) Practice No:0123692