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Tax is a Boardroom issue – Now and in the future


Globally, tax risk management is now a boardroom issue and fast becoming a discipline in itself. This is the result of the unprecedented level of scrutiny of tax by regulators, tax authorities, investors/analysts, the media, other stakeholders, and internally from the board.

Globally, tax risk management is now a boardroom issue and fast becoming a discipline in itself. This is the result of the unprecedented level of scrutiny of tax by regulators, tax authorities, investors/analysts, the media, other stakeholders, and internally from the board.

It would appear that the South African Revenue Service (SARS) is adopting the same approach as many other global tax authorities by conducting risk-based audits and establishing a large business centre to focus on large corporate taxpayers.  Tracking these developments in South Africa, Deloitte has conducted a local survey among 48 listed companies, 26 multinationals and other large organisations, to probe how South African corporate taxpayers are responding to a changing tax environment and the increased emphasis on corporate governance. 147 responses were received from financial directors/chief financial officers, audit committee representatives, tax managers and risk managers.

According to Annemarie Schroeder, Director Tax at Deloitte, the findings showed that, while tax risk is considered important among South African companies, it is currently being managed intuitively, rather than through formal risk processes.  Yet, she says, even intuitively, half of respondents do not understand the tax challenges they face.

“We also found that tax compliance is well managed but it is questionable whether other areas of tax risk outside tax compliance are being properly addressed,” she says.  “In addition, tax resources may not be allocated to key risk areas.  For example, our international experience suggests that as much as 80% of tax risk comes from the day-to-day activities of an organisation, leaving only 20% being managed by the tax function in the form of compliance.”

It was also found that there is a correlation between a lack of formality around tax risk management and a conservative approach to tax planning.  This frequently occurs when there are no clearly defined roles and responsibilities in place, no process to ensure the completeness of tax risk identification and no clear understanding of the parameters of tax risk tolerance.

“A well-managed and well-communicated tax risk management process can help ensure that tax opportunities and plans are more successfully implemented and that tax exposures are reduced,” says Schroeder.

Furthermore, it was found that internal audit appears reluctant to monitor tax risks perhaps because tax is considered to be specialised.  However, a formal process would enable internal audit to monitor the process rather than the detailed tax risks themselves.

A question often posed is whether a formal documented process of tax risk management might attract increased scrutiny from the tax authorities.

“On the basis of our extensive global experience, it is our view that proactive tax risk management will prevent rather than encourage increased scrutiny,” comments Alan MacPherson, Deloitte Global Head of Tax Risk Management, based in the United Kingdom.  MacPherson is visiting South Africa to share his relevant global experience in tax risk management and to facilitate the fast-tracking of the implementation of processes in South Africa.

“If tax risk is not effectively managed, it can depress earnings per share and damage shareholder value.  It can also reduce investor and analyst confidence and damage reputation and relationships with stakeholders.  It can also result in cash tax outflows,” concludes MacPherson.

Issued on behalf of:
Deloitte
Contact: Annemarie Schroeder, Director Tax
Tel No.: (012) 482 0128
Mobile: 082 566 0240

For further information please contact:
Corporate Communications Consultants
Contact:  Sue Brewitt
Tel:  (011) 783-8926 or 082-491-0365

ABOUT DELOITTE
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member firms, and their respective subsidiaries and affiliates. Deloitte Touche Tohmatsu is an organisation of member firms around the world devoted to excellence in providing professional services and advice, focused on client service through a global strategy executed locally in nearly 140 countries. With access to the deep intellectual capital of 135,000 people worldwide, Deloitte delivers services in four professional areas – audit, tax, consulting, and financial advisory services – and serves more than 80 percent of the world’s largest companies, as well as large national enterprises, public institutions, locally important clients, and successful, fast-growing global growth companies. Services are not provided by the Deloitte Touche Tohmatsu Verein, and, for regulatory and other reasons, certain member firms do not provide services in all four professional areas.

As a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor any of its member firms has any liability for each other’s acts or omissions. Each of the member firms is a separate and independent legal entity operating under the names “Deloitte”, “Deloitte & Touche”, “Deloitte Touche Tohmatsu” or other related names.

In Southern Africa, Deloitte & Touche is the member firm of Deloitte Touche Tohmatsu, and services are provided by Deloitte & Touche and its subsidiaries. Deloitte & Touche is among the region’s leading professional services firms, providing audit, tax, consulting, and financial advisory services through nearly 3600 partners/directors and staff in more than 16 offices in Southern Africa. Known as an employer of choice for its innovative human resources programme, it is dedicated to helping its clients and its people excel. For more information, please visit the Southern Africa website at www.deloitte.com/za.
2007 Deloitte Touche Tohmatsu. All rights reserved.


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