Complexity and change continue to make corporate taxes a top agenda item for business leaders and boards. Is your board ready for the challenge?
Global tax is an area of fast-paced change, uncertain outcomes, and complex judgments. It’s a challenging area for audit committees to oversee. But understanding the company’s position, risk profile, and risk management approach in the evolving global tax landscape is critical to your oversight role as a director.
Today’s environment is a much more difficult and dynamic one in which to operate. While tax planning is still completely appropriate, including taking advantage of legitimate tax incentives, this must be done with an understanding of the environment in which companies are operating, including the changing global tax landscape.
Similar to other areas of board oversight, you don't have to be a subject matter expert on taxes in order to oversee it. But you do need to ensure that the organization has the right skills, understands the risks, reviews its relationships, and considers the disclosures. Having foundational knowledge to be able to interpret tax information and ask insightful questions is a must-have skill for audit committees.
Oversight of corporate income taxes begins with the basics: understanding how the tax group is organized, to whom it functionally reports, and how it interacts with other parts of the business.
Beyond these questions, the audit committee should understand how tax addresses the following:
These typically include tax accounting for financial statement purposes, compliance, planning, and business advice. Competing priorities can create talent and skill set challenges of how to best deploy resources to meet the enterprise and stakeholder needs and create value.
Strong forward-looking analysis and planning can be valuable to the company. At the same time, the group needs to be effective in responding to the operational needs and day-to-day tactical issues and questions. The changing tax landscape requires close collaboration on the strategic and tactical levels across the company.
Many companies have been transforming their finance organizations to reduce costs and enhance internal and external reporting. And the digital journey many companies are taking can have a big impact on the data that tax uses. It is important to understand the proactive steps the tax function is taking.
The tax group needs to ensure that it has access to the requisite talent to meet its needs. This includes hiring people with tax technical acumen but also data and analytics skills. Many companies co-source certain tax compliance, accounting, or planning activities to address resource or bandwidth limitations.
It is helpful to know how the tax group uses third-party resources for specialized knowledge or when resources are insufficient. This foundational knowledge will come into play when considering the various projects and risks the tax group manages.
One way audit committees can get a better grasp on the tax function is to take a “deep dive” at least once a year. A deep dive usually includes an in-depth update from the head of tax, as well as an education session on important developments or proposals.
Audit committees could schedule this session for the same quarter every year and provide an opportunity for updates at subsequent meetings.
Given the changing tax environment and resulting increases in risk and uncertainty, a strong relationship between the audit committee and the company’s tax leader can improve the committee’s oversight. One way to develop this relationship is to periodically include the tax leader in a private session with the audit committee. Even if just once per year, a private meeting can build the relationship and help the committee gain more insights into the tax function.
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