Promoting the Tax Agenda to Key Stakeholders and Executives of the Company
You're listening to another episode of PwC's Tax Tracks at www.pwc/ca/taxtracks. This series looks at the most pressing technical and management issues affecting today's busiest tax directors.
This segment forms a part of our series on Tax Management. Today, we'll look at how you can effectively communicate the importance of the tax function to your organization's stakeholders and decision makers, and how to make tax a greater part of the corporate governance agenda.
Tax issues are too often brought late into company decisions, or are not high enough on the corporate agenda overall. That's why executives, the board, and other stakeholders need to understand the full value of the tax function. Getting them to appreciate and think about tax issues early can help manage tax risks, reporting requirements, and compliance processes more effectively.
With that said, how do you bring tax into the greater picture? Let's look at the strategies you'll need to improve communication with stakeholders and executives.
Begin with your stakeholders. They need to fully understand how tax impacts each of them individually and how it influences significant company decisions. Tax directors should openly discuss the actions they've taken to improve the company's tax position. Keep in mind stakeholder groups, such as investors. All have different interests, agendas, and information needs. That's why it's necessary to anticipate their information requirements.
Designing the appropriate communication method facilitates more success and greater acceptance of your message. For instance:
- Express the impact of tax in terms of earnings per share and total tax contribution;
- Focus on the key drivers behind the effective tax rate and the cash tax rate stressing how the management of cash also involves understanding and managing tax and tax installments;
- Educate stakeholders on the process around tax compliance, the importance of integrating accounting, finance and tax information systems and the costs associated with compliance;
- Provide regular updates on tax return filings, due dates, and other compliance and audit information including information on international operations;
- Work closely with treasury and finance executives, particularly if there are international financing and other structures that may involve managing cash in particular jurisdictions; and
- Most importantly, benchmark your effective tax rates against those of other industry leaders and use comparative analysis of rates to educate Board members and executives on the importance of tax.
Let's focus on the decision makers.
Regular and widespread communication with the CFO and CEO should increase so that company leadership is aware of, and consulted on, major tax issues.
This means fully understanding how decision makers communicate to external analysts, shareholders, and other key stakeholders.
Tax directors also must get involved upfront with any discussions around business changes and enhancements, such as:
- Mergers, acquisitions, and divestitures;
- Major asset acquisitions;
- Major accounting changes; and
- Major changes in how the business is conducted (including new strategies and development of new markets).
If not properly managed, operational change can create tax exposure, risk, or added costs. Tax must be involved early in the decision-making process — and not treated as an afterthought.
Open dialogue, building relationships and networking with key executives and operational leaders is another important part of promoting tax. Dialogue with the heads of research and development, operations, manufacturing, legal counsel, business development and sales will be critical to understanding and identifying operational change as it happens.
It's important to educate these leaders on the importance of tax and how it ties into their areas of expertise. Keep them in the loop on new developments and other triggering events that will have a tax impact. Support them within their own constituencies by providing them with general tax updates relevant to their area so they can communicate with their own people more quickly and efficiently.
Our first inclination is to withhold tax information for fear that its complexities may not be well received by our corporate colleagues. However, promoting tax and gaining greater buy-in from the organization is truly a matter of education. It ensures that, in times of communicating difficult tax results, you're in a stronger position to weather the storm with a better-informed executive.
With better rapport, senior financial executives and ultimately the audit committee can understand the accounting, financial statement, compliance, and risk implications associated with tax decisions as well as the status of any audits and assessments. This will give them the ability to make better informed decisions in evaluating alternative tax planning strategies.
With that said, coordinating tax and corporate governance takes clear, strategic oversight at the executive and Board level. This means identifying a Board member who knows what the tax function is, how it operates, and what it takes to maintain it. Your Board "sponsor" will need to understand the need to incorporate tax into broader technology and risk management strategies. These strategies must address and respond to a wide range of technical, financial, commercial, and reputational issues. It's also critical to encourage more dialogue about how tax risks are managed and which transactions require the utmost attention.
In the end, transparency is the key. Being transparent with your executive colleagues and Board sponsors ensures that you have continued support in promoting the tax agenda and most importantly, that tax is not seen as a "black hole."
To sum up:
Promote the tax agenda to executives, Board members, and other stakeholders through frequent communication. Collective understanding helps to ensure that tax becomes a vital part of company decisions.
Amid growing pressures of tax regulation, companies cannot afford to take a passive approach in managing their tax risks. To better defend your tax filing positions, make the tax function an integral part of the corporate governance agenda. This involves talking about the wider impact of tax on the company and the importance of compliance.
Establish strong relationships with other business leaders to encourage greater buy-in for tax and to better identify tax risks.
Need to better understand your tax obligations? PwC's Total Tax Contribution process provides data and benchmarking analysis on the amount of taxes you're paying. It also offers insight into the taxes collected by the government as well as tax compliance costs.
For more information, please contact your PricewaterhouseCoopers advisor.
Thank you for tuning into Tax Tracks at www.pwc.com/ca/taxtracks.
The information in this podcast is provided with the understanding that the authors and publishers are not herein engaged in rendering legal, accounting, tax or other professional advice or services. The audience should discuss with professional advisors how the information may apply to their specific situation.
Copyright 2009 PricewaterhouseCoopers LLP. All rights reserved. PricewaterhouseCoopers refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity. For full copyright details, please visit our website at pwc.com/ca.
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