Effective tax risk management for businesses

The business world today is faced with a number of risks, some of these risks include credit risk, operational risks, strategic risks, foreign exchange risks ,tax risks to mention but a few. Authorities that perform the regulatory role for Governments around the world will often insist on strict compliance to existing rules and regulations. Businesses must show that they are doing so in a transparent and accountable manner.

A few years ago the role of managing tax issues was usually delegated to junior staff who would take on the role as part of additional assignments it was a job that they usually did casually submitting tax returns on or just before deadlines, as transaction volumes have increased and larger sums of money are now involved the role of tax risk management has gained special attention in corporations worldwide. Today chief executive officers can be held responsible for tax risk management failures if they do not effectively supervise those responsible for tax risk management. The management of tax risks by businesses involves a series of steps that have financial implications. In the lines that follow below we shall look at some of the methods to be used.

Assign one person within the organization to be responsible for Tax Returns management:

Over the last few years organizations have resorted to employing in house tax managers. These are technical people in the area of tax who provide advice and guidance to management on tax issues ranging from compliance to tax planning measures. Whereas this could be possible with Multi National Enterprises, medium and small entities can appoint an individual from their finance team who will always liaise with external tax advisors but most importantly, will handle the day to day tax issues and ensure that tax payment deadlines are met without fail.

Provide training:

Once persons have been assigned, there is need to train them and equip them with tax knowledge. This training should also extend to constant updates of the changes in the tax laws and regulation. For organizations that can afford the costs, it is important that the entire finance team, Human resource team and all other relevant departments receive regular tax trainings. This is meant to ensure that at all times the staff responsible for various transactions in the organization, like procurement, employment, mergers and acquisitions, are always aware of the tax implications of the transactions entered into.

Develop and document a tax risk management strategy:

This could be done as part of your overall compliance risk management. Most Multinational Enterprises` have of recent developed Tax codes of conduct focusing on key areas like integrity in tax compliance and reporting, controlling and managing tax risk and of course influencing tax policy. At a medium and smaller level, companies can document a simpler strategy to target due dates for filling returns and payment of tax, documentation process, assessment of tax, documentation process, assessment of tax risks for various transactions and of course an effective communication protocol with the relevant revenue authorities. Develop a process and schedule of periodic review to identify central tax issues: This can be done internally as long as you have the technical capacity to assess the tax risks.However, it is recommended that an independent tax advisor be engaged to carry out a tax review and give an independent observation and recommendation. Such an evaluation helps to understand whether all consequences of non-compliance have been identified, documented and quantified. At this point, if there are any tax arrears, an arrangement should be made with the tax authorities to clear them.

Consider tax risks and their consequences in every decision:

Most organizations will make decisions and implement them without considering if there are any tax implications. This can be extremely dangerous where figures involved are huge and tax was not accounted for. As such, decision makers in organizations should consider tax risks and implications in every decision or every transaction they are entering into. Such transactions may include but not limited to mergers and acquisitions, contracting, procurement, recruitment and disposal of assets.

It is important that when managing tax risks, individual tax issues should be handled separately. For example, if you have identified a compliance tax risk, such should be attended to directly as a distinct issue. This helps the person attending to tax risks in the organization to prioritize them and deal with the most urgent ones.

Develop a checklist for communicating with the external tax advisors:

Many organizations tend to relax once they have engaged the services of an external advisor this is a dangerous practice.However, it is important to know and understand that the responsibility of ensuring compliance lies with the directors of the organization. As such, it is advisable that an organization develops a tax checklist that can be used to ensure that all areas have been picked up by the external tax advisors.Remember; the external tax advisors cannot know the organization better than you do.

Ensure there is a communications protocol to govern how the company corresponds with tax revenue authorities:

The management of information is of utmost importance, information has the potential to either bring positive or negative consequences to the organization. Not everyone in the organization can respond to tax questions this role must be left to trained and authorized persons only.Harp hazard release of information to tax authorities however innocent can trigger tax audits that could have been avoided.

Make use of tax management software:

The management of tax especially in multinational corporations where huge financial transactions are made can be daunting; there are deadlines to be met and sometimes just having manual systems in place may not be efficient, management can procure software to aid the finance team for tax reporting purposes. Such a system would also benefit other departments involved in financial transactions as they are able to see the tax implications of their transactions to the organization. Such software may be of a generic nature however, it may be customized to suit the particular needs of the organization.

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