With increased regulation, a heavy state and local tax burden, and election uncertainty, today’s corporate boards are increasingly focused on tax risk management.
Ultimately, it is the board with oversight of the company’s tax policies and actions.
As a result, boards are adding skilled tax resources to its seats.
Because tax issues have material impacts on earnings and cash flows, today’s board agendas include topics such as:
- Tax function resources and adequacy of skills, data and software to support the function;
- Tax risk and corporate governance;
- Expiring attributes and tax provisions;
- Cross-jurisdiction taxing authority enforcement and audits;
- Uncertain tax position management and disclosure;
- The legislative landscape and tax reform; and
- Information reporting and withholding
Senior tax executives have regular seats in the audit committee meetings where they should be prepared to address:
- How is management keeping current on tax issues and the potential for changes in tax policy?
- How does the company monitor changes in tax legislation and tax policy (domestic and foreign)?
- Does the company have adequate resources (funding and skills) to address responsibilities and opportunities related to the changing tax policy and legislative landscape?
- How can legislative changes and tax policy affect the company’s effective tax rate and financial reporting?
- Are the company’s tax disclosures in its financial reporting accurate, understandable and complete?
- When is tax consulted by operations — before or after proposed transactions?
- What are the company’s most significant tax risks related to process and technical issues?
- What were the results of recent audit activity?
- What do the results say about the tax function?
- What assumptions are embedded in transfer pricing, UTP, and establishing reserves?
In addition, organizations with a sound tax risk management structure share some or all of these characteristics:
- An internal audit function which includes tax audit plans
- A deep integration of organizational IT resources and risk management policies with tax software
- Organizational level process optimization which doesn’t stop before it reaches tax
- Appropriate training and skill redundancy in tax personnel
- Tax personnel performance measurements that are aligned with tax risk management policies
The tone at the top that a tax savvy board directs to properly address tax risk will maximize stakeholder value in many ways and it critical to sustaining compliant, yet minimized tax expenditures. Does tax have a seat in your boardroom?
To hear what other progressive tax departments are doing, read the entire article “CFOs Warm to More Frequent Tax Talk.”