I have the privilege of offering our readers information on a diverse range of important topics that few people really want to talk about, like tax risk.
My handy copy of Finance & Accounting PolicyPro tells me, “Income taxes present considerable potential risk to an organization.” Complex legal requirements and the magnitude of income tax expense cause uncertainty as to the application of the law. And that means risk.
But wait: tax risk isn’t just one type of risk; it’s at least six: operational risk, compliance risk, reporting risk, documentation risk, reputational risk and international subsidiaries!
Ana Sainz of tax consultancy The Claret Partners offers a clear outline of the issues, including items you should include in any tax risk management plan you prepare, and a list of “The Top Ten Tax Controls“. (You may have to fill out a form to access the latter.)
These so-called top controls range from obvious—”Ensure source information gathered from the accounting and other external departments is accurate” and “Ensure the accuracy of the tax calculations”—to involved—”Ensure the book-to-actual adjustment has been made” and “Ensure that the income tax balances are recorded according to generally accepted accounting principles”. And this list is no replacement for a strong policy and procedure, but “By proving these internal tax controls are reliable, a company should be able to argue that less testing is required by its external auditors, thereby reducing audit fees.”
And let’s not forget about intentionally dubious practices. Last spring, The Globe and Mail reported on Quebec becoming, “Canada’s first jurisdiction to take up the call to arms against aggressive tax planning”, meaning organizations that “arrange their affairs to minimize tax”, while remaining safely “within the limits of the law”, of course. Quebec calls it “a tax avoidance transaction that complies with the letter of the law while abusing its spirit.”
The Globe seems to think the aggressive tax planning police will be coming to the rest of the provinces. I don’t think our readers are involved in any such questionable tax schemes, but the message is clear: don’t do it!
See the finance volume of Finance & Accounting PolicyPro for more information on tax risk, especially section FN 7.07 – Income Taxes.
First Reference Human Resources and Compliance Editor
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