Leading the Way is a column written by PricewaterhouseCoopers professional staff. It appears in the Business section of the Bangkok Post twice each month. The column provides specialised advice to corporate decision-makers in Thailand on global and local business trends.
This article appeared in the May 23, 2006 issue of the Bangkok Post.
By Thavorn Rujivanarom and Peerapat Poshyanonda
Based on the 2006 survey ''Back to the Future'' conducted by PricewaterhouseCoopers, this is the second installment of a two-part article that will look at the risks and challenges of the tax function in the Asia Pacific Region. In Part I of this article on May 16, we examined the risks faced by the tax function, the most prominent of which is transfer pricing.
The growing need for communication with senior management is an area of increased focus for the tax function and where the need for implementing strategies is most important. In fact, 95% of respondents stated their companies now had partial to full strategies in place around communication of the tax bill to senior management, while all of the respondents had strategies to update senior management on tax matters.
This increase in communication to management, compared to a few years ago, has been brought about by the requirements of Sarbanes-Oxley, s404 reporting and similar regulations. As compliance is seen as the most important challenge for the tax function of many companies in 2006, it is not surprising that senior management are now taking a more active role in the tax function of their companies, as a result of more stringent regulatory requirements.
The majority of respondents have currently fully implemented processes in place to sign off on acquisitions and divestments, as well as changes to corporate structure. Most respondents stated that some process is in place to obtain early involvement of tax in tax-sensitive business transactions and have effectively controlled tax compliance, accounting and payment functions.
It is interesting to note that there are still a considerable number of companies that do not have any procedures in place for a tax sign off for changes to business systems and processes. Tax returns are generally based on the underlying accounting records. Changes to business systems and processes can result in changes to the data that is recorded in particular accounts or in the way that the information is made available for inclusion in a tax return.
An analysis conducted in 2005 indicated that many companies had a material weakness that related to tax. Some of the weaknesses that arose were:
- Weaknesses in internal controls over financial reporting due to lack of controls related to income tax accounting;
- Management review of tax related numbers was lacking;
- Inexperienced staff or lack of staff;
- Inadequate documentation to support tax positions; and
- Lack of controls over documentation of tax related information.
Effective management of the internal tax function is an important issue in most organisations. According to the survey, the top two challenges facing companies were managing relationships with fiscal authorities and finding experienced tax staff. The risk associated with ''getting the tax wrong'' is fuelling an increasing need for quality people with both technical and project-management skills to ensure compliance with the increasing array of tax rules.
On the positive side, respondents felt that the majority of these issues were effectively being managed, especially the relationship with their external service provider, which showed a significant improvement from 1997. As tax laws and regimes continue to increase in complexity, so the need to draw on the depth and experience of external service providers increases. Managing and preserving relationships is increasingly important to those with a tax responsibility.
