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Transparency matters

Transparency matters

Transparency matters

Tax risk management: Transparency matters

Financial. Legal. Operational. Reputational. Risks can come from anywhere and everywhere. In fact, executives describe the nature of tax risk in business today as “the butterfly effect” come to life. For example, an error on a routine statutory filing in a small city in India can morph into a major regulatory action affecting the entire Asia Pacific region.

In this high-stakes environment, it is imperative that tax executives have the knowledge, skills, tools and perspectives to quickly assess risk and adapt the tax function’s strategies and processes to manage and mitigate it.

Success requires tax executives take on an increased role in risk management. Every CTO approaches this new calling slightly differently, but most agree transparency — with employees, business
stakeholders, tax authorities and the media — is critical.

Consider one of the major areas of concern for tax leaders in today’s alwaysconnected age: managing internal risks, such as information leaks. When it only takes a split second for information to spread virally across a 24/7 news cycle, the stakes for managing such internal risks are sky-high. Although internal controls — such as subjecting tax decisions to multiple reviews — are an important element of tax risk management, they can only do so much. Once information gets outside the company walls, it can quickly escalate out of control. In fact, some CTOs believe audits and other disputes are even more difficult on their companies due to what tax officials read in the press.

In response, some tax executives are taking steps to keep employees better informed of the company’s overall tax strategy, how it aligns with the overall business strategy and the reasoning behind significant tax decisions. When even the tax professionals at the very bottom rung of the organization have a good view of the big picture and open lines of communication with senior leaders, there should be fewer concerns and mistakes all around. When an issue does arise, tax leaders who address it openly and directly, rather than hoping it will just resolve on its own, can typically lessen the impact.

In the event a damaging leak does occur, many tax leaders are seeking closer collaboration and involvement with the company’s public relations teams than they have been in the past. Some see a close relationship between the CTO and the head of PR as the new norm, rather than the exception to the rule — a necessary step to protect the company’s reputation.

Questions to consider

— What is your tax department’s role in managing business risk? Does your team have a larger role to play?
— What are the most significant tax risks your organization faces? If you are not aware, how can you get a better handle on them?
— How does your organization manage the risks associated with the information age? Is doing the same old thing enough anymore?