http://www.washingtonpost.com/wp-dyn/content/article/2008/07/04/AR2008070402771.html
Can there be a more disgusting abuse of power? Not today at least. Shame to all who have helped him stay in power both in Zimbabwe and around its borders.
Monday, July 7, 2008
Wednesday, July 2, 2008
Legitimate Expectations extract from Vague Concepts and uncertainty in tax law
Legitimate Expectations
Legitimate expectations are about the respect for rights that are clearly established and consolidated by statute or judicial precedents over the years. They should include only basic constitutional rights such as the right to be taxed by law.
The right to receive from the tax authority the same treatment regarding other taxpayers that are in a similar situation is also to be considered.
It is a legitimate expectation of both taxpayers and the Treasury that the courts decide cases in a way to make the outcomes of the next similar cases as predictable as possible. And by using vague legal concepts, they are certainly not contributing to it.
If courts go on naming different concepts that in the end mean mostly the same thing, uncertainty will rise at a faster pace.99 In tax judicial review, legitimate expectation is not a right to a certain court decision on the merits, but rather an expectation that the courts will review the Treasury’s behaviour to see if the principles of natural justice, as English law knows it, have been respected, if the basic values of democracy were not violated and so on.100 If, for example, the IRS has interpreted one same statute the same way for many years, it cannot change its interpretation without previous due notice to the taxpayers because they had a legitimate expectation to be treated the old way. And according to that expectation, they planned their business, as well as their social and economic life.
Consequently, if the taxpayer, who had previously consulted the tax authority for some reason, has been notified by the Treasury of a change of policy, he must have the opportunity to argue that the new policy is not applicable to him. It is a continuous conflict between the need for legal certainty and the how precise they become in each case they decide.
F.A. Hayek says that "The judge ... is not concerned with what any authority wants done in a particular instance, but with what private persons have 'legitimate' reasons to expect". See Hayek, LAW, LEGISLATION AND LIBERTY; v. 1, RULES AND ORDER 98 (Routledge et Kegan Paul, 1973).
P.P. Craig makes the same point although not in a tax law context. See Craig, Legitimate Expectation: A Conceptual Analysis, 108 L. Q. Rev. 85 (1992). John Rawls explains legitimate expectations by saying that “In a well-ordered society individuals acquire claims to a share of the social product by doing certain things encouraged by the existing arrangements. The legitimate expectations that arise are the other side, so to speak, of the principle of fairness and natural duty of justice. For in the way one has a duty to uphold just arrangements, and an obligation to do one’s part when one has accepted a position in them, so a person who has complied with the scheme and done his share has a principle of legality, which in tax law (as in public law in general) means that the Treasury has to conform to its authorized powers.
Even if cases where the courts recognize binding effects to ultra vires statements become very common, there is no danger that this jurisprudence might serve as an incentive to the tax authorities making statements beyond its powers. The reasoning is simple: if it becomes clear that the IRS rulings are repeatedly going beyond its legal powers, then a broader solution should be the punishment of those who are responsible for the ultra vires rulings.
The courts should not stop protecting those who relied on those rulings because their duty is to judge the breach of people’s rights, not to let rights be violated because protecting them could lead to more frequent illegal behaviours by the Tax authorities.
Allan holds a very interesting point of view by arguing that legitimate expectation is about justice. On the other hand, he also says that to find out what justice is, F.A. Hayek’s theory should be followed and applied to public law. In other words, what he is saying is that because positivism had succeeded in demonstrating that there is no positive criterion to define justice, a negative one should be adopted.
Therefore, in Allan’s view, it is easier to say what is not justice rather than what is justice. He also states that “Rules of just conduct were determined by a persistent effort to bring consistency into the system of rules inherited by each generation”. They are bound to meet his legitimate expectations”. See John Rawls, A THEORY OF JUSTICE 275 (Revised ed., Oxford University Press 1999).
In R. v. Board of Inland Revenue, ex p. M.F.K. Underwriting Agencies Ltd, [1990] 1 All E.R. 91, the English court decided that the Inland Revenue rulings are binding where directly applicable but in circumstances less formal a deeper investigation is required.
There is an important academic discussion about whether there is also a substantive legitimate expectation that differs from a procedural one. As explained above, if it is possible to have legitimate expectations for substantive basic rights, there is nothing wrong in saying that these rights are an example of substantive legitimate expectations. As a result, rights consolidated by settled practice, or included in rulings, in general or specific representations by the IRS107, are considered substantive legitimate expectations.
Legitimate expectations are about the respect for rights that are clearly established and consolidated by statute or judicial precedents over the years. They should include only basic constitutional rights such as the right to be taxed by law.
The right to receive from the tax authority the same treatment regarding other taxpayers that are in a similar situation is also to be considered.
It is a legitimate expectation of both taxpayers and the Treasury that the courts decide cases in a way to make the outcomes of the next similar cases as predictable as possible. And by using vague legal concepts, they are certainly not contributing to it.
If courts go on naming different concepts that in the end mean mostly the same thing, uncertainty will rise at a faster pace.99 In tax judicial review, legitimate expectation is not a right to a certain court decision on the merits, but rather an expectation that the courts will review the Treasury’s behaviour to see if the principles of natural justice, as English law knows it, have been respected, if the basic values of democracy were not violated and so on.100 If, for example, the IRS has interpreted one same statute the same way for many years, it cannot change its interpretation without previous due notice to the taxpayers because they had a legitimate expectation to be treated the old way. And according to that expectation, they planned their business, as well as their social and economic life.
Consequently, if the taxpayer, who had previously consulted the tax authority for some reason, has been notified by the Treasury of a change of policy, he must have the opportunity to argue that the new policy is not applicable to him. It is a continuous conflict between the need for legal certainty and the how precise they become in each case they decide.
F.A. Hayek says that "The judge ... is not concerned with what any authority wants done in a particular instance, but with what private persons have 'legitimate' reasons to expect". See Hayek, LAW, LEGISLATION AND LIBERTY; v. 1, RULES AND ORDER 98 (Routledge et Kegan Paul, 1973).
P.P. Craig makes the same point although not in a tax law context. See Craig, Legitimate Expectation: A Conceptual Analysis, 108 L. Q. Rev. 85 (1992). John Rawls explains legitimate expectations by saying that “In a well-ordered society individuals acquire claims to a share of the social product by doing certain things encouraged by the existing arrangements. The legitimate expectations that arise are the other side, so to speak, of the principle of fairness and natural duty of justice. For in the way one has a duty to uphold just arrangements, and an obligation to do one’s part when one has accepted a position in them, so a person who has complied with the scheme and done his share has a principle of legality, which in tax law (as in public law in general) means that the Treasury has to conform to its authorized powers.
Even if cases where the courts recognize binding effects to ultra vires statements become very common, there is no danger that this jurisprudence might serve as an incentive to the tax authorities making statements beyond its powers. The reasoning is simple: if it becomes clear that the IRS rulings are repeatedly going beyond its legal powers, then a broader solution should be the punishment of those who are responsible for the ultra vires rulings.
The courts should not stop protecting those who relied on those rulings because their duty is to judge the breach of people’s rights, not to let rights be violated because protecting them could lead to more frequent illegal behaviours by the Tax authorities.
Allan holds a very interesting point of view by arguing that legitimate expectation is about justice. On the other hand, he also says that to find out what justice is, F.A. Hayek’s theory should be followed and applied to public law. In other words, what he is saying is that because positivism had succeeded in demonstrating that there is no positive criterion to define justice, a negative one should be adopted.
Therefore, in Allan’s view, it is easier to say what is not justice rather than what is justice. He also states that “Rules of just conduct were determined by a persistent effort to bring consistency into the system of rules inherited by each generation”. They are bound to meet his legitimate expectations”. See John Rawls, A THEORY OF JUSTICE 275 (Revised ed., Oxford University Press 1999).
In R. v. Board of Inland Revenue, ex p. M.F.K. Underwriting Agencies Ltd, [1990] 1 All E.R. 91, the English court decided that the Inland Revenue rulings are binding where directly applicable but in circumstances less formal a deeper investigation is required.
There is an important academic discussion about whether there is also a substantive legitimate expectation that differs from a procedural one. As explained above, if it is possible to have legitimate expectations for substantive basic rights, there is nothing wrong in saying that these rights are an example of substantive legitimate expectations. As a result, rights consolidated by settled practice, or included in rulings, in general or specific representations by the IRS107, are considered substantive legitimate expectations.
Residency and tax - functional and central management integration, enjoying economies of scale between companies in a group
These few words may have significance in the international tax question of where the residency of a business is situated, especially where there is close co-operation between connected persons - Lexis and Mead were not unitary because they were not functionally integrated or centrally managed and enjoyed no economies of scale.
MEADWESTVACO CORP., SUCCESSOR IN INTEREST TO MEAD CORP. v. ILLINOIS DEPARTMENT OF REVENUE ET AL. CERTIORARI TO THE APPELLATE COURT OF ILLINOIS, FIRST DISTRICT No. 06–1413. Argued January 16, 2008—Decided April 15, 2008 A State may tax an apportioned share of the value generated by a multistate enterprise’s intrastate and extrastate activities that form part of a “ ‘unitary business.’ ” Hunt-Wesson, Inc. v. Franchise Tax Bd. of Cal., 528 U. S. 458, 460.
Illinois taxed a capital gain realized by Mead, an Ohio corporation that is a wholly owned subsidiary of petitioner, when Mead sold its Lexis business division. Mead paid the tax and sued in state court. The trial court found that Lexis and Mead were not unitary because they were not functionally integrated or centrally managed and enjoyed no economies of scale. It nevertheless concluded that Illinois could tax an apportioned share of Mead’s capital gain because Lexis served an operational purpose in Mead’s business.
Affirming, the State Appellate Court found that Lexis served an operational function in Mead’s business and thus did not address whether Mead and Lexis formed a unitary business.
Held: 1. The state courts erred in considering whether Lexis served an “operational purpose” in Mead’s business after determining that Lexis and Mead were not unitary. Pp. 6–13. (a) The Commerce and Due Process Clauses impose distinct but parallel limitations on a State’s power to tax out-of-state activities, and each subsumes the “broad inquiry” “ ‘whether the taxing power exerted by the state bears fiscal relation to protection, opportunities and benefits given by the state,’ ” ASARCO Inc. v. Idaho Tax Comm’n, 458 U. S. 307, 315.
Because the taxpayer here did business in the taxing State, the inquiry shifts from whether the State may 2 MEADWESTVACO CORP. v. ILLINOIS DEPT. OF REVENUE Syllabus tax to what it may tax. Under the unitary business principle developed to answer that question, a State need not “isolate the intrastate income-producing activities from the rest of the business” but “may tax an apportioned sum of the corporation’s multistate business if the business is unitary.”
Allied-Signal, Inc. v. Director, Div. of Taxation, 504 U. S. 768, 772. Pp. 6–8. (b) To address the problem arising from the emergence of multistate business enterprises such as railroad and telegraph companies— namely, that a State could not tax its fair share of such a business’ value by simply taxing the capital within its borders—the unitary business principle shifted the constitutional inquiry from the niceties of geographic accounting to the determination of a taxpayer’s business unit. If the value the State wished to tax derived from a “unitary business” operated within and without the State, the State could tax an apportioned share of that business’ value instead of isolating the value attributable to the intrastate operation. E.g., Exxon Corp. v. Department of Revenue of Wis., 447 U. S. 207, 223. But if the value derived from a “discrete business enterprise,” Mobil Oil Corp. v. Commissioner of Taxes of Vt., 445 U. S. 425, 439, the State could not tax even an apportioned share. E.g., Container Corp. of America v. Franchise Tax Bd., 463 U. S. 159, 165–166.
This principle was extended to a multistate business that lacked the “physical unity” of wires or rails but exhibited the “same unity in the use of the entire property for the specific purpose,” with “the same elements of value arising from such use,” Adams Express Co. v. Ohio, 165 U. S. 194, 221; and it has justified apportioned taxation of net income, dividends, capital gain, and other intangibles.
Confronting the problem of how to determine exactly when a business is unitary, this Court found in Allied-Signal that the “principle is not so inflexible that as new [finance] methods . . . and new [business] forms . . . evolve it cannot be modified or supplemented where appropriate,” 504 U. S., at 786, and explained that situations could occur in which apportionment might be constitutional even though “the payee and the payor [were] not . . . engaged in the same unitary business,” id., at 787.
In that context, the Court observed that an asset could form part of a taxpayer’s unitary business if it served an “operational rather than an investment function” in the business, ibid.; and noted that Container Corp., supra, at 180, n. 19, made the same point. Pp. 8–11. (c)
Thus, the “operational function” references in Container Corp. and Allied-Signal were not intended to modify the unitary business principle by adding a new apportionment ground. The operational function concept simply recognizes that an asset can be a part of a taxpayer’s unitary business even without a “unitary relationship” between the “payor and payee.” In Allied-Signal and in Corn Products Cite as: 553 U. S. ____ (2008) 3 Syllabus Co. v. Commissioner, 350 U. S. 46, the conclusion that an asset served an operational function was merely instrumental to the constitutionally relevant conclusion that the asset was a unitary part of the business conducted in the taxing State rather than a discrete asset to which the State had no claim.
Container Corp. and Allied- Signal did not announce a new ground for constitutional apportionment, and the Illinois Appellate Court erred in concluding otherwise. Here, where the asset is another business, a unitary relationship’s “hallmarks” are functional integration, centralized management, and economies of scale. See Mobil Oil Corp., supra, at 438.
The trial court found each hallmark lacking in finding that Lexis was not a unitary part of Mead’s business. However, the appellate court made no such determination. Relying on its operational function test, it reserved the unitary business question, which it may take up on remand. Pp. 11–13. 2. Because the alternative ground for affirmance urged by the State and its amici—that the record amply demonstrates that Lexis did substantial business in Illinois and that Lexis’ own contacts with the State suffice to justify the apportionment of Mead’s capital gain— was neither raised nor passed upon in the state courts, it will not be addressed here.
The case for restraint is particularly compelling here, since the question may impact other jurisdictions’ laws. Pp. 13–14. 371 Ill. App. 3d 108, 861 N. E. 2d 1131, vacated and remanded. ALITO, J., delivered the opinion for a unanimous Court. THOMAS, J., filed a concurring opinion.
MEADWESTVACO CORP., SUCCESSOR IN INTEREST TO MEAD CORP. v. ILLINOIS DEPARTMENT OF REVENUE ET AL. CERTIORARI TO THE APPELLATE COURT OF ILLINOIS, FIRST DISTRICT No. 06–1413. Argued January 16, 2008—Decided April 15, 2008 A State may tax an apportioned share of the value generated by a multistate enterprise’s intrastate and extrastate activities that form part of a “ ‘unitary business.’ ” Hunt-Wesson, Inc. v. Franchise Tax Bd. of Cal., 528 U. S. 458, 460.
Illinois taxed a capital gain realized by Mead, an Ohio corporation that is a wholly owned subsidiary of petitioner, when Mead sold its Lexis business division. Mead paid the tax and sued in state court. The trial court found that Lexis and Mead were not unitary because they were not functionally integrated or centrally managed and enjoyed no economies of scale. It nevertheless concluded that Illinois could tax an apportioned share of Mead’s capital gain because Lexis served an operational purpose in Mead’s business.
Affirming, the State Appellate Court found that Lexis served an operational function in Mead’s business and thus did not address whether Mead and Lexis formed a unitary business.
Held: 1. The state courts erred in considering whether Lexis served an “operational purpose” in Mead’s business after determining that Lexis and Mead were not unitary. Pp. 6–13. (a) The Commerce and Due Process Clauses impose distinct but parallel limitations on a State’s power to tax out-of-state activities, and each subsumes the “broad inquiry” “ ‘whether the taxing power exerted by the state bears fiscal relation to protection, opportunities and benefits given by the state,’ ” ASARCO Inc. v. Idaho Tax Comm’n, 458 U. S. 307, 315.
Because the taxpayer here did business in the taxing State, the inquiry shifts from whether the State may 2 MEADWESTVACO CORP. v. ILLINOIS DEPT. OF REVENUE Syllabus tax to what it may tax. Under the unitary business principle developed to answer that question, a State need not “isolate the intrastate income-producing activities from the rest of the business” but “may tax an apportioned sum of the corporation’s multistate business if the business is unitary.”
Allied-Signal, Inc. v. Director, Div. of Taxation, 504 U. S. 768, 772. Pp. 6–8. (b) To address the problem arising from the emergence of multistate business enterprises such as railroad and telegraph companies— namely, that a State could not tax its fair share of such a business’ value by simply taxing the capital within its borders—the unitary business principle shifted the constitutional inquiry from the niceties of geographic accounting to the determination of a taxpayer’s business unit. If the value the State wished to tax derived from a “unitary business” operated within and without the State, the State could tax an apportioned share of that business’ value instead of isolating the value attributable to the intrastate operation. E.g., Exxon Corp. v. Department of Revenue of Wis., 447 U. S. 207, 223. But if the value derived from a “discrete business enterprise,” Mobil Oil Corp. v. Commissioner of Taxes of Vt., 445 U. S. 425, 439, the State could not tax even an apportioned share. E.g., Container Corp. of America v. Franchise Tax Bd., 463 U. S. 159, 165–166.
This principle was extended to a multistate business that lacked the “physical unity” of wires or rails but exhibited the “same unity in the use of the entire property for the specific purpose,” with “the same elements of value arising from such use,” Adams Express Co. v. Ohio, 165 U. S. 194, 221; and it has justified apportioned taxation of net income, dividends, capital gain, and other intangibles.
Confronting the problem of how to determine exactly when a business is unitary, this Court found in Allied-Signal that the “principle is not so inflexible that as new [finance] methods . . . and new [business] forms . . . evolve it cannot be modified or supplemented where appropriate,” 504 U. S., at 786, and explained that situations could occur in which apportionment might be constitutional even though “the payee and the payor [were] not . . . engaged in the same unitary business,” id., at 787.
In that context, the Court observed that an asset could form part of a taxpayer’s unitary business if it served an “operational rather than an investment function” in the business, ibid.; and noted that Container Corp., supra, at 180, n. 19, made the same point. Pp. 8–11. (c)
Thus, the “operational function” references in Container Corp. and Allied-Signal were not intended to modify the unitary business principle by adding a new apportionment ground. The operational function concept simply recognizes that an asset can be a part of a taxpayer’s unitary business even without a “unitary relationship” between the “payor and payee.” In Allied-Signal and in Corn Products Cite as: 553 U. S. ____ (2008) 3 Syllabus Co. v. Commissioner, 350 U. S. 46, the conclusion that an asset served an operational function was merely instrumental to the constitutionally relevant conclusion that the asset was a unitary part of the business conducted in the taxing State rather than a discrete asset to which the State had no claim.
Container Corp. and Allied- Signal did not announce a new ground for constitutional apportionment, and the Illinois Appellate Court erred in concluding otherwise. Here, where the asset is another business, a unitary relationship’s “hallmarks” are functional integration, centralized management, and economies of scale. See Mobil Oil Corp., supra, at 438.
The trial court found each hallmark lacking in finding that Lexis was not a unitary part of Mead’s business. However, the appellate court made no such determination. Relying on its operational function test, it reserved the unitary business question, which it may take up on remand. Pp. 11–13. 2. Because the alternative ground for affirmance urged by the State and its amici—that the record amply demonstrates that Lexis did substantial business in Illinois and that Lexis’ own contacts with the State suffice to justify the apportionment of Mead’s capital gain— was neither raised nor passed upon in the state courts, it will not be addressed here.
The case for restraint is particularly compelling here, since the question may impact other jurisdictions’ laws. Pp. 13–14. 371 Ill. App. 3d 108, 861 N. E. 2d 1131, vacated and remanded. ALITO, J., delivered the opinion for a unanimous Court. THOMAS, J., filed a concurring opinion.
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 http://www.7taxrisks.com/ and http://www.dnerasmus.com/.
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 http://www.7taxrisks.com/ and http://www.dnerasmus.com/.
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
http://www.rmmag.com/MGTemplate.cfm?Section=RMMagazine&template=Magazine/DisplayMagazines.cfm&AID=3686&ShowArticle=1
"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
http://www.rmmag.com/MGTemplate.cfm?Section=RMMagazine&template=Magazine/DisplayMagazines.cfm&AID=3686&ShowArticle=1
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