KPMG says in-house tax departments facing increased scrutiny

Given the much expanded public deficit and tax authorities trying to maximise revenue, increased scrutiny from tax authorities seems likely in many countries.?? And this is a particularly major issue in the UK.?? UK based companies are expecting more attention from Her Majesty’s Revenue and Customs in the form of enquiries, investigations and even disputes than the global average.?? For example 20 percent of the 50 strong UK sample said they were experiencing more scrutiny of indirect taxes than a year ago (compared to 12 percent globally) and 22 percent of UK respondents reported more activity around income taxes now than a year ago (also compared to 12 percent globally).

In KPMG’s view, this attention is likely to be across all taxes, but with an increased focus on operational risks (e.g. indirect taxes such as VAT and customs duties) and greater scrutiny of Boards’ overall governance of tax through process and controls This increased focus means that it is all the more important that British companies engage fully with the tax authorities.

According to a survey of 890 companies from Europe, Asia Pacific, and the Americas, leading tax functions recognise that sustained performance is about synergies, not trade-offs. The data show that tax functions in the top tier of good practices are more likely to have highly standardised tax processes, structures, and reporting lines. Among the highest performing tax functions, 89 percent indicate they have global standards for their tax policies and procedures, compared with 25 percent of the lowest tier.

But even though not all tax functions are achieving high degrees of standardisation, this characteristic is highly valued across the board, with 67 percent of respondents noting that it significantly reduces or eliminates risks.

According to Sue Bonney, head of tax at KPMG Europe LLP “Getting the ‘basics’ right in the form of developing standardised processes to help deliver efficiency should enable tax departments to free up valuable time necessary for business support and effective tax planning. They also help facilitate a better and more accurate understanding of tax matters across global organisations, which in turn can add value by improving communications, timeliness and transparency – all key elements when engaging effectively with tax authorities.”

However, a large challenge for many survey respondents is how to do more with less. Half of respondents said that a shortage of staff is one of the biggest problems they face. Only 11 percent reported that their companies plan to invest in new hires over the next year.

In addition to staff shortages, 29 percent of respondents believe that their organisation does not have adequate operating or administrative budgets, and 26 percent believe that investment in process improvement and technology for the tax function is too low. Only 28 percent of respondents reported that their companies have ongoing initiatives to address resource and staff constraints.

According to Sue Bonney, “Tax departments are being asked to respond to the demand for better tax risk management, to provide more proactive and timely support to the business, and to prepare for greater scrutiny by tax authorities while dealing with the resource constraints affecting their companies in difficult economic times. These factors mean that organisations face some real challenges in the current climate: balancing cost constraints and fewer resources while ensuring they still manage important areas like tax where they can generate value but have real risks to contend with.”

To help achieve and maintain a balance, KPMG International highlights some of the building blocks that can be put in place:

-The strategic goals and objectives of the tax function need to be clearly aligned with those of the wider organisation so there is a common purpose.

-Tax functions need to understand the aspirations and constraints of relevant stakeholders and communicate with them effectively in order to help achieve their goals.

-Tax functions need to have the right people in place. Tax is complex and requires the careful judgment of trained professionals. Effective tax management needs the right people doing the right things. Those people need the right skills, the right resources, and the right rewards.