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Tax Risk Management

Keeping Up with the Ever-Changing World of Corporate Tax. March 27, 2007. Tax Services. Tax Risk Management. Bryan Slone March 27, 2007. Heightened Tax Risk Pressures. Estimates indicate that only about 30% of tax risk are actually controlled by the tax department

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Tax Risk Management

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  1. Keeping Up with the Ever-Changing World of Corporate Tax March 27, 2007 Tax Services Tax Risk Management Bryan SloneMarch 27, 2007

  2. Heightened Tax Risk Pressures • Estimates indicate that only about 30% of tax risk are actually controlled by the tax department • Deloitte survey of Tax Directors of FTSE 100, the majority believe tax is likely to become a future indicator that a company is trustworthy and socially responsible

  3. Why Tax Risk Management? • Tax Planning Savings • Establish company’s tax risk profile • Facilitate continued tax planning savings • Enhanced Controls/Effectiveness/Transparency • Periodic Risk Identification & Prioritization • Documented framework and timeline for remediation • Enhanced management communications • More Effective Change Management • Resource planning/budgeting • Addressing process, data, and people risks • Rethinking the concept of a “Tax Calendar”

  4. Model TRM Approach Reliability of reporting – scope of 404 Effective and efficientuse of its resources Compliance with applicable laws and regulations High-level goals, aligned with and supporting its mission COSO – Enterprise Risk Management – Integrated Framework – 9/04

  5. Encompasses the tone of an organization Sets the basis of how risk is viewed and addressed by an entity’s people Includes Risk management philosophy and risk tolerance Integrity and ethical values Environment in whichthey operate Internal Environment

  6. Size Aggressiveness Impact onOtherTransaction 5 4 3 2 1 ReportableTransaction FinancialBenefit 5 4 3 2 1 1 2 3 4 5 2 3 4 5 Tax Advisor'sOpinion Ease of Implementation Reputation Decision Web • Provides a policy for future decision makingbased on factors and risk tolerances establishedby your company.

  7. Objective Setting • Setting objectives that support and align with the entity’s mission and are consistent with its risk tolerance.

  8. Event Identification • Identifying internal and external eventsthat affect achievement of an entity’s objectives. • Need to distinguish between risks and opportunities.

  9. Risk Assessment • Analyzing risks based on likelihood and impact to determine how risk should be managed. • Assessed on an inherent and residual basis.

  10. Tax Risk Map

  11. Risk Response • Developing a set of actions to align risks with entity’s risk tolerances and risk appetite. • Potential responses: • Avoiding, accepting, reducing, or sharing risk.

  12. Mitigation Plan • Tax Risk Category • Potential Impact • Likelihood • Urgency • Mitigation strategy • Mitigation Benefit (ROI) • Estimated Cost to Mitigate • Resources

  13. Control Activities • Establishing and implementing policies and procedures to help ensure risk responses are effectively carried out.

  14. Deliverable: Mitigation Timeline Year One Year Two 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Reportable Transactions 600 Hours 725 Hours Transfer Pricing 200 Hours SUT Compliance 500 Hours UK VAT 1000 Hours Rev Proc 98 - 25

  15. Information and Communication • Identifying, capturing, and communicating relevant information in a form and timeframe that enables people to carry out their responsibilities. • Flows down, across, and up the entity.

  16. Monitoring • Monitoring entirety of enterprise risk management through ongoing management activities, separate evaluations, or both. • Adjustments made as necessary.

  17. Common Risk Areas

  18. Financial Reporting Risk • The risk that tax transactions are not reported appropriately on financial statements. • Primary focus of SOX 404

  19. Operational Risk • The risk of inaccuracies in tax accounting caused by normal day-to-day operations and communications infrastructure. • Examples: • Complexities of globalization • Lack of communication among parties • Administrative inadequacies

  20. Compliance Risk • The risk of not complying with regulatory, judicial, and administrative requirements. • Includes both the filing of returns and post-filing audits.

  21. Transactional Risk • The risk associated with applying current tax law to a particular set of facts. • The risk that the company does not appropriately implement a transaction. • Transactions will be closely scrutinized under the current environment. • Schedule M-3 • Reportable Transaction disclosures • Increased access to tax accrual workpapers

  22. Strategic Risk • The risks that planning is not adequate and/or actions are taken that are not within the company’s overall strategy.

  23. Reputation Risk • The risk that a company’s status will be harmed by a particular action/inaction.

  24. Specific Examples • Tax Provision Processes • Tax Compliance Processes • Tax Controversy Processes • Tax Planning Processes • Tax Risks Related to Non-Tax Operations

  25. Questions?

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