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EMEA TMC client conference Tax policy, governance and transparency. The Crystal, London 9-10 June PDF
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1 EMEA TMC client conference Tax policy, governance and transparency The Crystal, London 9-10 June
2 Agenda Increasing focus on tax governance and risk The components of effective tax governance Case studies part 1: setting the tax policy Case studies part 2 : embedding tax policy framework Case studies part 3 : communicating the tax policy/position Conclusions 2
3 Increasing focus on tax governance and risk Tax is now a strategic concern Regulators are more demanding Unilateral and multi-lateral legislative change Effective tax rate (ETR) and cash tax impact uncertain Broader stakeholder focus Board engagement, oversight Attention to controls, systems Proactive review, disclosure and action More is being promised Mechanisms needed for delivering outcomes Those responsible need to get comfortable Expectations to comply and explain approach 3
4 The components of effective tax governance Financial Reporting Council (FRC) UK Corporate Governance Code: The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver long-term success of the company Tax Policy Framework Tax component often looks like: Compliance Sustainable minimisation of tax Manage reputation Efficient tax operating model Tax vision, goals and strategy KPIs/KRIs Report Tax Risk Management People and organisation Processes Risks Culture and ethics Risk appetite Tax outputs and communication Effective tax governance should facilitate these goals Oversight Test Systems Controls Decision making KPI Key performance indicator KRI Key risk indicator Accountabilities Control standards 4
5 The components of effective tax governance FRC UK Corporate This breakout Governance session Code: will The focus purpose of corporate governance is to facilitate effective, on challenges entrepreneurial and real-life and prudent management that can deliver long-term success examples of the company of: Setting tax policy Embedding the tax policy Tax Policy Framework framework Communicating the tax KPIs/KRIs Tax Risk Management policy/position Tax component often looks like: Compliance Report Sustainable minimisation of tax Tax vision, goals People and Processes organisation and strategy Manage reputation Efficient tax operating model Risks Culture and ethics Risk appetite Tax outputs and communication Effective tax governance should facilitate these goals Oversight Test Systems Controls Decision making Accountabilities Control standards 5
6 The components of effective tax governance FRC UK Corporate Governance Code: The purpose of corporate governance is to facilitate effective, Other entrepreneurial sessions will and focus prudent on: management that can deliver long-term success of the Tax company risk management Tax people and organisation Tax processes Tax Policy Framework Tax systems Tax component often looks like: Compliance Sustainable minimisation of tax Manage reputation Efficient tax operating model Tax vision, goals and strategy KPIs/KRIs Report Tax Risk Management People and organisation Processes Risks Culture and ethics Risk appetite Tax outputs and communication Effective tax governance should facilitate these goals Oversight Test Systems Controls Decision making Accountabilities Control standards 6
7 Case studies - part 1 Setting the tax policy Planning Draft key principles and accountabilities Test with stakeholders Finalise and seek endorsement Define aims and examples of issues to fix Understand existing framework and policies Understand external requirements Establish structure for policy documentation Example Contents: 1.Scope 2.Objectives 3.Delegation of accountability and escalation 4.Key tax principles 5.Tax compliance and reporting 6.Tax advisory and reporting 7.Tax audits and enquiries 8.Tax lobbying 9.Use of advisors 10.Tax systems Agree principles within tax leadership team Understand peer group and best practice examples Identify areas requiring specific review/approval Document initial split of roles and understand definitions Group Tax accountable for: Corporate Tax Europe VAT UK Managing tax authorities Group Tax responsible for: Tax reporting Tax advice to the business Group Tax supports: Employment taxes Operational taxes Identify key stakeholders (e.g. Finance, Legal, Investor Relations) Share draft policy and define agenda Agree principles and accountabilities through real-life scenarios Scenario Tax is made aware of a development opportunity and a number of options are available which have differing affects on the available tax reliefs and deductions. Key principles Precedence is given to business strategy over tax strategy In making tax planning decisions, we apply the principles set out in Tax Risk Guidance Accountabilities Tax accountable for providing tax planning strategies Business Areas accountable for implementation Refine policy based on stakeholder discussions Identify appropriate body to approve in this case framework suggested Executive Management Committee Present policy and seek endorsement Outcomes The outcome of this process should be a policy that: Is aligned with organisation s broader goals and standards Meets the requirements of regulators Facilitates embedding policy within the organisation, not just group tax but also wider finance and other functions Supports provision of external assurance where appropriate 7
8 Case studies - part 2 Embedding tax policy framework Oversight Global bank had informal tax committee but limited mandate to enforce decisions as not considered full committee of the bank At same time as refreshing tax policies, committee brought in non-tax members, established programme of external input and is now a formal part of governance framework Currently agreeing accountability for VAT and operational taxes through committee activity Oil and gas major uses the decision web to formalise strategic tax decision making Projects are mapped against policy and approved/escalated/ declined based on scores Decision making Multinational engineering business uses an annual questionnaire to seek sign-off re. compliance with policy standards Looking to implement rolling internal audit process Attestations Annual declaration: I have reviewed compliance with tax policy standards for [X] and confirm: Controls operated effectively Material exceptions reported Resources appropriate Key performance indicators Global commodities trader performed exercise to set KPIs for tax team as a whole and for individuals Used tax vision and policy as basis, referencing Deloitte s Four Faces of the Tax Function as a benchmark Example KPIs: Returns filed on time Audit resolution ETR target Feedback from business 8
9 Case studies - part 3 Communicating the tax policy/ position Issue: Investor relations team keen to publish tax governance arrangements and regional tax payment information to meet Dow Jones Sustainability Index criteria. Tax and CFO hesitant as limited impact assessment had been performed. FTSE 100 benchmarks Activity performed: 1. Workshop hosted by Tax but involving Finance and Investor Relations. Agenda: Understand objectives for further tax transparency as well as future obligations (e.g. country-by-country reporting) Review peer group practice and potential options for nature and method of disclosure Perform initial benchmarking of tax payment information Establish plan for further assessment and initial decision re. disclosure 2. Dry run of data collection and disclosure 3. Detailed analysis of data and disclosure 4. Presentation to senior leadership with recommendations 5. Decision re. publication and implementation 9
10 Conclusions Refresh tax policy Implement tax policy Formalise tax standards and accountabilities Engage with stakeholders Seek endorsement and mandate for implementation Ensure an appropriate infrastructure for tax policy implementation Create appropriate oversight, decision making protocols, attestations and KPIs Communicate to provide confidence Understand objectives for greater tax transparency Assess options and benchmark Balance stakeholder needs 10
11 Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. Please see for a more detailed description of DTTL and its member firms. Deloitte provides audit, consulting, financial advisory, risk management, tax and related services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries and territories, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte s more than 210,000 professionals are committed to becoming the standard of excellence. This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the Deloitte Network ) is, by means of this communication, rendering professional advice or services. No entity in the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication For information, contact Deloitte Touche Tohmatsu Limited. 11
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