TaxCorporate TaxTax directors become more risk-averse

Tax directors become more risk-averse

Legislative and regulatory changes post-Enron are causing companies to take a more cautious approach to their tax affairs, a worldwide study of tax directors has revealed.

Link: Corporate reporting changes delayed

Almost 75% of directors surveyed said managing their tax risk has become more important over the past two years because of increased disclosure rules affecting corporate tax planning, according to the study of 350 tax directors by Ernst Young.

But Aidan O’Carroll, E&Y’s UK head of tax, said: ‘What we’re seeing is not a knee-jerk reaction to a new regulatory environment, but rather a significant shift towards moving tax risk well beyond technical compliance and more into the realm of protecting the reputation on the company.’

Dealing with the reputational impact of tax has now become a more important performance measurement than cash tax impact, effective tax rate or even timeliness of compliance, the study found.

Richard Law, partner at E&Y tax risk management practice, added: ‘This overall focus on transparency and disclosure means that the role of the tax director is rapidly changing. There is a trend towards giving them increasingly more responsibility to manage potential tax risks. The tax function needs to be very closely integrated into how the company mange its overall risk. This is certainly a challenging and critical time to be a tax director.’

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