Managing the Speed and Risk of Non-Regulatory Tax Scrutiny

  • November 07, 2014

The regulatory drive for greater tax transparency has been intensifying, but what’s new is the rapidly increasing influence and speed of non-regulatory criticism of corporate tax management decisions and practices. 

Detailed tax information is now immediately available to almost anyone at the click of a mouse or the swipe of a smart phone screen. Those doing all of this clicking and swiping -- non-regulatory groups and individuals – have emerged as influential critics of tax management practices. Just look at how non-regulatory criticism of “tax inversion” practices attracted the attention of U.S. legislators.  

This demonstrates that companies and their tax functions have entered an era of extreme transparency. While there is no going back, there are several useful ways to respond to non-regulatory scrutiny, including the following:

  1. Recognize the Risk: Some forms of non-regulatory scrutiny, regardless of “factual” information, can exert major reputational risks. These impacts can potentially rival the impact of product recalls or regulatory enforcement actions. 
  2. Consider and Collaborate: Tax executives should examine and consider the potential impact of non-regulatory scrutiny when devising their tax planning strategies and practices. Tax executives should also discuss these implications with their senior management colleagues, as well as the board of directors (often the audit committee). These discussions should focus on the tax risk profile the company is willing to take on and could include an optional communications plan to refute claims by non-governmental organizations (NGOs) and the media.
  3. Be Prepared: It pays to have quick and convenient access to tax data and information when countering non-regulatory scrutiny. The most effective way to achieve this access is through data management and business intelligence tools that can collect, consolidate and disseminate an enterprise’s global tax data. 

Preparation is crucial because public interest in companies' tax practices has never been higher.

Non-regulatory scrutiny can strike at any moment, swiftly sparking major reputational risks. How swiftly? A recent Internet search of the term “tax inversion” yielded 3.4 million results in less than a half-second.

Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.

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