Tax risk and the audit committee

Audit committees need to consider the impact of all three issues as part of their risk assessment. Members have to understand the reputational dangers and be aware of the sometimes contradictory forces affecting the company. They should be checking that the company is prepared for this, and can answer the detailed questions.

Committees should also consider whether the company has a robust and transparent relationship with relevant tax authorities. This can create more certainty about tax treatment and, when problems do arise, allow for a faster dispute resolution given greater understanding of the background. It is particularly important in the home country as, in the new environment, that tax authority may be required to argue its position in disputes with other jurisdictions.

Resources are certainly a factor. With companies expected to gather increasing amounts of data and to implement more nuanced tax policies, there could be a requirement for additional skilled staff in the tax department, more sophisticated systems and the creation of cross-functional teams (including representatives from the public relations department). These issues have to be discussed when determining budgets – and it is critical that the audit committee is aware of these decisions.

Corporate taxes are, of course, only one element of the discussion. For most companies, payroll taxes and VAT payments will be more significant, and the penalties for getting these wrong can be severe. So audit committees should make certain they focus on all aspects of taxation.

Demands for greater transparency aren’t going away. Audit committees should assume that tax will continue to be a reputational, as well as a financial, issue. Additional public disclosure is inevitable, with greater demands placed on the tax department. It will require significant oversight from the audit committee and should remain at the top of their agenda