Corporate governance

"In accordance with the general trends described above, within the context of enhanced cooperation, the OECD papers place considerable reliance upon corporate boards understanding more about tax issues and integrating tax policy into their general approach to corporate governance. In their Working Paper on Risk Management [40] the study team comments that:

(...) the boards of an increasing number of corporate taxpayers are articulating a tax strategy that aligns with wider corporate governance and that has regard for the spirit of the law. This signal from the most senior level means that these corporate taxpayers’ interpretation of the law is more likely to be aligned with the revenue body’s interpretation of the law. By virtue of this, such corporate taxpayers are less likely to enter into costly disputes with revenue authorities than their competitors who, by contrast, choose to place reliance on fine distinctions of black-letter law, especially those who couple this with a high determination to minimize tax liabilities through the use of creative transactions and structures, regardless of the commerciality of those transactions or structures.

The objective of the study team is that corporate taxpayers will adopt a policy that reduces the tax risk of the company by abstaining from engagement with artificial tax schemes which, even if they might work technically, will be challenged by the revenue authorities and/or might cause reputational damage if exposed in the media. The concern of companies with reputation is undoubted, although it is less obvious that engaging in tax avoidance affects reputations badly."