Insight

The future of tax policy is shaped now – is your board taking lead?

It is time for  leaders to take a proactive approach to tax policy. Engagement with tax policy makers can help gauge where tax policy may be headed.

These days, lots of changes in tax policy are taking place around the world. These changes present great opportunities for corporate leaders to take a more proactive approach to tax policy decisions.

The future of tax policy is shaped now – is your board taking lead?

Since the global financial crisis in 2008, extensive tax changes have been introduced by the Organisation for Economic Cooperation and Development. The OECD has introduced several actions guided by the principles of coherence, substance and transparency, which has led to unprecedented legislative tax changes – and recent years’ media reports of tax fraud has increased the awareness on this topic further.

As a result, tax has become a high-priority topic for both the C-suite and the board in many companies – and with good reason: These changes present great opportunities for leaders, including the board, to take a more proactive approach to tax policy discussions.

Policy makers generally seek business leaders’ input and certainly considers it. As a board you are positioned to help policy makers visualise what would and would not work from a practical business and industry perspective, and it is a great help to both policy makers and those who must comply with new legislation to share those perspectives in the early stages of policy development. Active engagement with tax policy makers can help gauge where tax policy may be headed.

Tax strategy for the long term

Additionally, it is just as important for the board to take the lead internally on the tax strategy of the company. Deloitte research suggests that changes in tax policy affect organisations significantly. In our annual survey of the evolving tax landscape, half of the 447 participants agree that country tax authorities are becoming increasingly aggressive in tax examinations. Only 21 per cent expect consistency in interpretations of new transfer pricing guidelines by tax authorities in various countries, and 91 per cent believe that additional transfer pricing reporting requirements will substantially increase their corporate tax compliance burden in the coming years. 

As in many areas that were once seen as relatively static, tax strategy and the related technology-, administrative-, and risk management infrastructure must be reviewed more frequently, in greater detail and at higher levels of the organisation than in the past. As a board, it is your job to confirm that the management is actively assessing potential legislative developments and their likely impact.

Questions for directors to ask include:

  • How is our organisation’s tax strategy aligned with our business strategy?
  • What financial, reporting, and reputational risks does management associate with our tax strategies?
  • What tax-related expertise is available on the audit committee and board?
  • How can we keep abreast of changes in the government’s tax policy and their potential short- and long-term impact on our organisation and its operational and financial performance?
  • How is management preparing our organisation to address the operational and financial impacts of proposed changes to government tax policy?
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