So how can tax leaders put an effective tax governance framework in place?
Wherever you are in your journey, it’s essential to understand the tax risks affecting your organisation and how they’re changing in this new landscape. This will help you to future-proof your framework so that it remains fit for purpose.
That in itself is a major task, so it’s worth breaking them down into four key areas:
1. Strategic risks
Transitioning to Net Zero, and making your supply chain more sustainable, may trigger major changes in:
- the business’s underlying economics and value drivers
- how and where operations are carried out, and work is done.
Transformations like these will have far-reaching tax implications. They can upend your transfer-pricing model, and dramatically alter your indirect tax profile. You’ll need to be alert to these changes: a tax value-chain analysis on your new model will help.
2. Operational risks
The biggest tax governance challenges can arise when day-to-day processes and vital data lie outside of the finance function.
Governments around the world are introducing new tax incentives and reliefs (‘carrots’), and green taxes (‘sticks’), to shift behaviour towards decarbonisation and accelerate the transition to Net Zero. The number, and complexity, of taxes operationally embedded in the business is growing as a result.
Gathering data on your exposure to these taxes can be problematic – especially if your ERP system isn’t configured to provide ready access to this data, in the format required by tax authorities.
3. Compliance risks
The tax compliance burden has been on the rise for some time now. More tax filings must be prepared, more frequently, covering an ever-broadening range of taxes. And increasingly, they must be submitted in real time, and be right first time.
In this context, you’ll need to identify the optimal tax operating model for your organisation, now and in the future. And you’ll need to identify the technology and skills it will require.
4. Reporting risks
There’s a growing demand from governments and consumers for tax transparency. As such, organisations are having to share more about their tax contribution in the societies in which they operate.
Voluntary sustainability standards such as the GRI and the Dow Jones Sustainability Index, include tax governance requirements. You’ll need to consider how your current governance measures stack up against these. And you should assess how tax disclosures can be made, to provide evidence that you’re walking the walk.