THOMSON REUTERS TAX SURVEY: COMPANIES ILL-PREPARED IN FACE OF DIRECTOR LIABILITY
Breakdown in communication and understanding leading to increased reputational risk at board level
26 September 2012, Melbourne, Australia - Companies are failing to adequately prepare themselves for potential liability and reputational risk in light of the strengthened power of the Australian Tax Office (ATO) on tax avoidance according to a study by Thomson Reuters, the world’s leading source of intelligent information for businesses and professionals.
The Thomson Reuters 2012 Tax Survey, which surveyed the heads of tax at more than 250 of Australia and New Zealand’s largest companies, found that reputational risk and impact on shareholder value are the key concerns for over half of Australian tax directors (56%). However despite these concerns, almost half of respondents (47%) don’t have a formal risk management plan in place specifically related to tax and close to half of respondents fail to regularly meet their Board of Directors (41%).
Commenting on the study, Paul Brindle, managing director for the Tax & Accounting business of Thomson Reuters, said: “There is an unprecedented level of uncertainty and risk in the current business environment. The increased focus on large business by the ATO has furthermore brought the conversation to board level and illustrated the importance of transparency and accountability across the organisation.
“However we’re finding there is a lack of communication between the tax function and the Board of Directors, consequently exposing directors to significant risk as a result of a lack of awareness of the issues at hand,” continues Brindle. “Company directors must play an integral role in devising a tax risk management program - as the buck stops with them.”
Whilst 55% of respondents believe the Board of Directors understand liability, over half (52%) don’t know whether their Board was concerned in light of proposed increased personal liability on board members for tax arrears under the new Director Penalty laws.
Brindle warns: “If companies don’t adapt to the changing environment, their poor tax governance could result in significant monetary penalties, serious legal ramifications and subsequent impact on share value.
“The setting of objective, measureable and attainable goals that are aligned to the business strategy is critical as part of a formal tax risk management plan,” continues Brindle.
Other key findings to come out of the Thomson Reuters 2012 Tax Survey include:
- 61% of respondents have modified their systems in light of compliance scrutiny by the ATO, with 9% making ‘significant’ changes
- The biggest concerns regarding annual financial reports and statements are: • Lodging on time (65%)
- 60% of corporations are concerned with the ATO’s review of transfer pricing rules. • The biggest concerns for corporations are associated costs incurred with increased documentation (31%) and retrospective application or rules (30%)
- 46% of corporations feel they don’t spend enough time adding value to management over and beyond compliance
- 44% of respondents believe advanced technology is imperative to an efficient and compliant tax function. Despite this, there is still a low uptake in the use of technology for data warehouse and workflow software (14%), Transfer Pricing documentation software (2%) and financial reporting/statement software (25%)
- There is also a prolific use of Excel amongst respondents, with 94% of respondents using Excel in some capacity for data collection and reporting
- The challenges facing organisations when using excel are: • Lack of audit control (58%)
• Reputation risk if you need to re-issue reports (40%)
• Compliance with the most up-to-date disclosure requirements (40%)
• Control, accuracy and consistency of financial statements across the group (36%)
• Limited security of information (42%)
• Required to manually update with legislative change (74%)
• Version control (59%)
• Quality of data (44%)
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