Legal & Finance: Special Guide to Combat Tax Risks

Publication Information: Article Title: Legal & Finance: Special Guide to Combat Tax Risks. Newspaper Title: The Birmingham Post. Publication Date: July 9, 2004. Page Number: 22. COPYRIGHT 2004 Birmingham Post & Mail Ltd; COPYRIGHT 2004 Gale Group

Legal & Finance: Special Guide to Combat Tax Risks.

Tax risk management must become a priority for businesses operating in today's economic climate, according to accountants PricewaterhouseCoopers. And to help companies understand the issues it has launched a special guide which takes a detailed look at the different types of threat and how to combat them.

Dave Moore, head of tax in the Midlands at PwC, said: 'Every company has a responsibility to pay the appropriate taxes, but this doesn't mean that tax is risk free - quite the opposite. 'The financial risks are often very considerable. For example, a multi-national group that cannot demonstrate to tax authorities around the world that its intra-group pricing is at arms length can be running a very large global financial exposure. Increasingly, there is also a danger that a company's public reputation may be damaged if its tax risks are not appropriately managed.'

A recent survey by the firm showed that while large companies are thinking seriously about tax risk, they still need to be more diligent about documenting procedures. Mr Moore said: 'Few tax functions actually have a documented tax risk management policy, though we are starting to see tax risk managers being appointed and this is something they will undoubtedly be addressing. 'Risk management has not historically been on the agenda for many tax functions.

While some of the tax risks will have been managed, we suspect few people will claim that they have all been managed in a systematic way. 'Even where it has, a lot of information about these issues is carried around in people's heads and if these people leave the organisation then the information leaves them. In today's post-Enron environment, companies leave themselves exposed if they do not properly identify and consider all areas of risk facing the business. 'Effective tax risk management means ensuring that tax risks are identified, regularly reviewed and monitored.

Many companies now insist that an internal or external tax specialist must be consulted on all transactions over a certain value. Companies should assess their overall portfolio of tax risk, and be confident that it is appropriate for them and their shareholders.'

The guide addresses a number of key issues, including the formation of a specific policy and approach, the provision of a management framework and the specific tools and techniques that can be employed. Mr Moore said: 'The board has to be the starting point for an effective tax risk management policy.

I would expect to see high level oversight and review of such policy. 'The audit committee should also ensure that appropriate control framework is in place as well as keeping a close eye on reputational risk. The CFO or head of tax would then carry out a more regular review, perhaps on a monthly basis, with significant involvement in setting objectives and monitoring controls.'