Elevate your tax governance: Navigating rising expectations in the financial sector

The regulatory landscape for financial services institutions continues to evolve rapidly, with tax governance emerging as a top strategic priority. As transparency requirements and regulatory scrutiny increase, the need for robust tax governance frameworks has never been greater. What was once seen as a technical back-office matter is now a boardroom concern and strategic priority – critical to regulatory compliance, operational resilience, and stakeholder trust.

In recent years, the Luxembourg tax environment has become increasingly complex. Financial services professionals are now tasked with navigating a complex landscape of evolving obligations, including but not limited to DAC6 (mandatory disclosure rules), FATCA/CRS (automatic exchange of information), QI (Qualified Intermediary rules), Pillar 2 (global minimum taxation), and transfer pricing requirements. Additionally, guidance from the Commission de Surveillance du Secteur Financier ("CSSF") through Circulars 17/650 and 20/744 on the fight against predicate offences of laundering of aggravated tax fraud and tax evasion, as well as oversight by the Commissariat aux Assurances ("CAA"), add further regulatory layers. At the same time, indirect taxes such as VAT and subscription tax continue to present ongoing challenges.

Luxembourg regulators and tax authorities are becoming more assertive: the CSSF and CAA have ramped up their on-site inspections, while the Luxembourg tax administration has enhanced its technical capabilities and enforcement strategies. The CSSF’s 2022 thematic review served as a wake-up call – institutions must not only comply but also manage their tax risks by documenting, monitoring, and ensuring oversight of all tax-related activities, particularly when functions are outsourced.

Tax is no longer just a compliance function – it is a strategic pillar of corporate governance. Robust tax governance enables financial institutions to build investor trust, satisfy regulators, and strengthen internal controls by efficiently managing tax risks. Financial services professionals must establish clear procedures, assign defined responsibilities, and implement effective oversight mechanisms. Increasingly, boards and senior executives are expected to take ownership of a holistic tax strategy, ensuring it aligns with the organization’s overall risk appetite, ESG commitments, and long-term business goals.

This shift is also being driven by stakeholders who demand greater accountability and transparency. Investors, regulators, and the public expect taxes to be not only legally compliant, but also sustainable and “appropriate” within a broader ESG framework. As a result, tax governance must evolve to include meaningful stakeholder engagement and demonstrate that tax risks are actively managed within the organization’s overarching control environment.

A strong tax governance framework enshrines the guiding principles for how tax matters are managed across the group. It should clearly define who is accountable for the development, implementation, and oversight of all tax-related policies, procedures, and activities within the organization. An effective framework will ensure that tax issues are monitored and reviewed by senior leadership, including the CFO, CEO, board of directors, audit and risk committees, and other key executives. It provides essential support to global heads of tax in navigating an increasingly complex and fast-evolving tax landscape. Additionally, it engages tax professionals at all levels by giving them the tools and authority to shape and enhance the governance of tax within their organization.

A mature tax governance model requires the integration of compliance and strategy across four dimensions:

1.  Identification of tax obligations: Conducting a comprehensive review of all applicable tax rules relevant to the business and the customers at stake to identify potential tax risks, including compliance with local and international regulations.
   
   
2. Impact assessment: Evaluating how tax obligations interact with the entity’s business model, delegated functions, and service providers. This includes understanding where roles and responsibilities sit across the value chain – internally and externally.
   
   
3. Implementation of procedures: Establishing tailored, pragmatic procedures and documentation that reflect the company’s operating model. These must cover everything from oversight of delegated responsibilities to internal escalation protocols.
   
   
4. Monitoring and controls: Ensuring there are ongoing checks, regular reviews, and documented audit trails in place. This not only supports regulatory compliance but prepares the organization for potential inspections or queries from tax authorities or auditors.

At KPMG, we help financial institutions take a proactive and structured approach to tax governance. Our services are designed to both meet regulatory expectations and support long-term business efficiency:

• Health Check: A thorough as-is analysis of your current tax governance setup. We assess roles, responsibilities, and compliance processes to identify any deficiencies or inefficiencies, ensuring you have a clear understanding of your tax risk landscape.
  
  
• Tax Governance Report​: Following the Health Check, we compile our findings into a comprehensive document, including a principle-based allocation matrix that outlines roles and responsibilities tailored to your specific tax obligations.
  
  
• Remediation: KPMG’s Remediation service focuses on implementing our recommendations to enhance your tax governance. We assist in drafting compliance checklists and procedures that streamline your processes, ensuring that your organization is well-equipped to meet its tax obligations effectively and efficiently.
  
  
• KPMG's Tax Governance Dashboard​: Our innovative Tax Governance Dashboard is a user-friendly tool designed for regular compliance reviews. It allows you to monitor your tax obligations, document compliance activities, and generate reports, providing you with the insights needed to maintain robust tax governance and make informed decisions.
  
  
• Tax Governance Mock Exercise: A simulated regulatory review replicating CSSF and tax authority conditions. This exercise helps asset managers identify gaps, test control frameworks, and enhance readiness for real inspections.

Tax governance is no longer a box-ticking exercise – it’s a cornerstone of investor confidence and regulatory resilience. With growing scrutiny on internal tax procedures and delegation oversight, financial institutions must ensure their frameworks are not only compliant but also transparent and future-proof.

At KPMG Luxembourg, we bring together technical tax expertise and deep financial services insight to help you implement fit-for-purpose tax governance. Whether you are looking to strengthen your processes, train your teams, or prepare for a CSSF/ CAA inspection, we are here to guide your business toward future readiness.

This article was co-written by Marius Schoonbroodt, Senior Tax Advisor.