Four ideas for keeping tax risk in check during challenging times
As the COVID-19 pandemic has swept the world with astonishing speed, business leaders are scrambling to ensure their employees are safe and their businesses are secure in a fast-changing and unpredictable environment as priority number one. As we speak with business leaders about the broader business impacts of this unprecedented situation, we see that tax and legal teams have important roles to play in helping to identify and manage the impacts on their organization’s people, operations and ongoing sustainability.
Indeed, it seems many companies are looking to their tax and legal functions to help during this time. When we informally polled more than 1,700 tax and business leaders during our recent webcast on the topic, nearly two-thirds of respondents said they are involved in business continuity planning. About one-third said their level of involvement is enhanced and that they are adding value as a key stakeholder for the business. Of course, tax leaders are also expected to manage risk rigorously and this becomes even more challenging in the current environment.
Increased risk potential
At a time when many companies are having their employees work from home and/or suspending aspects of their operations, it can be challenging to adhere to maintain normal tax risk management practices while operating in an unknown and high-pressure environment. In chaotic times, tax filing and payment deadlines are easily missed, and the usual review and escalation processes can fall by the wayside. The need for quick action can leave little time to assess the risks of business decisions in real time.
While most tax authorities will likely show forbearance for understandable tax lapses, at least for as long as the crisis continues. Nevertheless, the situation is evolving rapidly and it seems likely that most companies will need to accept a heightened level of tax risk for the near term.
What can business leaders do to mitigate risks? Here are four areas where business leaders will want to remain focused.
1. Leveraging technology for efficiency and accuracy
Tax technology can go a long way toward keeping tax risk in check for those companies that have invested in it. Technology offers not only ways to keep your team and stakeholders connected, but also assurance with automated tracking of deadlines, flagging of potential issues and streamlining of processes at a time when resources are strained and pulled in multiple directions. Even if you haven’t invested thoroughly in technology, now is the time to find creative ways to leverage the tools you do have at your disposal. Could a process be automated? Could something be outsourced?
2. Keep pace with the actions being taken by tax authorities and governments
Tax authorities in many jurisdictions have been quick to step up with measures to ease the tax burden on struggling taxpayers, offering a sweeping list of reliefs. Common responses include deferring tax payments, extending filing deadlines, easing advance tax payments and suspending tax audit activity. But while tax authorities are sharing and learning from each other, these actions are strictly local and there has been little multilateral coordination to date.
Tax authorities have yet to act on several important broader issues that businesses have raised concerns over, such as relief for bad debt and the indirect tax treatment of fees for cancellations and no-shows. How tax authorities and policy makers will behave post-crisis remains to be seen. Tapped-out governments will be hard-pressed for revenues, so less leniency can be expected. There are also already signs tax policy makers may target highly digitized businesses and other companies that are expected to emerge from crisis relatively unscathed. But for now, many tax authorities are focused on flowing out tax relief, social benefits and other measures to help their countries’ citizens and businesses stay afloat.
3. Maintain your relationships with policymakers
More broadly, tax and legal professionals can also lend their experience and advice to policy makers by offering insight on, for example, the design of economic stimulus measures and tax issues that are affecting financially distressed businesses. Tax and legal professionals can also dissuade ill-considered unilateral actions on the part of governments and encourage them to uphold their commitments to coordinated multilateral action, for example, by engaging in the Organisation for Economic Co-operation’s work on taxation of cross-border digital transactions.
4. Keep the emphasis on responsibility and accountability
At times like these, tax responsibility is more important than ever. Governments have had to assemble their current relief packages in a rush, giving less than usual attention to stopping chances for abuse. Tax and legal teams can support their company’s good tax governance by helping their organizations access the concessions that are intended for them and nothing more, and further mitigate the risk of severe penalties.
Clouds of uncertainty will no doubt linger over taxes and broader economic policy, but responses will eventually become clear. In the short-term, most business leaders are rightly focused on what’s most important: keeping their people safe and doing the right things to ensure their business and the wider economy are in the best shape possible when recovery begins.