Businesses aren’t managing tax risks: survey

Tax controversies between companies and the Canadian tax authorities are increasing, says Ernst & Young’s latest Canadian tax governance survey.

“As many tax administrations adopt more aggressive audit approaches toward large multinationals, it’s critical that companies with global operations stay informed of ongoing tax developments at home and abroad, and bring leaders up-to-speed,” says Fred O’Riordan, national advisor of Tax Services at Ernst & Young.

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He adds: “While Canadian companies are…paying more attention to tax risk management, many still fall short when it comes to increasing the awareness of tax risk in non-tax business units, [as well as in] managing foreign tax risk and improving reporting protocols to boards of directors, audit committees and the C-suite.”

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Main highlights of the survey include:

• Tax leaders still hold primary responsibility for executing tax risk management.
• 95% of tax groups, 91% of finance departments, 79% of the C-suite and 60% of risk management committees are involved in managing tax risks in their organizations
• More than half (56%) of non-tax business unit leaders are unfamiliar with tax risk management policies
• Half of the survey respondents only report tax risks as needed
• 38% of respondents reveal a moderate to significant increase in boardroom discussions concerning tax risk transparency and reporting in 2012
• 54% of participants plan to improve existing tax risk policies and procedures within their organizations Cross-border and intercompany transactions, business reorganizations as well as mergers and acquisitions are the top business activities adding to the tax risk profile
• The tax function only spends an average of 7% of its time on tax risk management and reporting

That said, the survey found there’s variation amongst tax software tools and that such programs are starting to develop a footprint in automating the tax provision process. It also revealed that cash tax savings, timely and accurate tax compliance, and managing tax authority audits are the top three priorities of businesses for 2013.

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