ABS Ltd. Case Study Report Generated after the Tax Risk Management Strategy Workshop
ABS LTD. HAS exposure on tax in numerous areas. Tax issues have been identified as significant with an estimated worst-case exposure in excess of $300m (determined after assessing and quantifying the tax risk in the areas set out below) and if not speedily rectified will have both financial and reputational implications for ABS Ltd.
It is clear that the following key tax risk areas exist:
• transactional risk
• operational risk
• compliance risk
• financial accounting risk
• management risk
• reputational risk
The primary objectives of the project are as follows:
1. Immediately intercede with the IRS to take control of the process to resolve all tax issues and ensuring the development of an effective working relationship.
2. Conduct a full review of all areas of exposure of ABS Ltd. regarding tax risk, with the end output clarifying the probability of risks and the likelihood of occurrence and the impact on both financial and reputation areas of the exposure materializing.
3. Make recommendations to the audit committee of a plan to resolve these areas of exposure.
4. Ensure that a full and comprehensive plan is prepared for each risk item, irrespective of whether the audit committee decides to address them or not.
5. Following the tax steering committee recommendation, interacting with the IRS to ensure full and final settlement of the risks agreed upon.
The secondary objectives are as follows:
1. Ensure the establishment of an effective working relationship between the IRS and ABS Ltd.
2. Set up an effective and appropriate world-class tax department at ABS Ltd. under an appropriately selected tax manager.
3. Ensure that any tax issues arising at the ABS Ltd.’s SA are dealt with in this project period, as far as practically possible.
4. Review the appropriateness of the current accounting firm and tax advisors and recommend changes to the relationships and firms, if necessary.
BO/CFO, Tax Manager, Legal Team, and Existing Tax Advisors.
• Project brief agreed – Early June
• Tax team constituted – Early June
Internal Processes and Indicative Timing
Information gathering – June-July
Propose high-level process and early interaction with the IRS – End July
Evaluation of risks including follow-up investigations – July-August
Tax team meeting to evaluate risks and agree plan – End August
The IRS Interaction
Work teams with the IRS – July-February
Tax findings meetings – October-February
Prepare reasons – October-February
Detailed IRS presentations – October-February
Assessments issued – March-April
Objections – May-June
Settlement discussions with the IRS – March
Tax team meeting to agree settlement parameters – March
Finalization of plan settlements – End March
IN ADDITION TO the above, the report will include the estimated budget to execute the Tax Risk Management process. Usually an amount of approximately 1% of the quantified tax risk exposure is budgeted to fund the resources required to complete the initial implementation phase and leading up to the IRS sign-off of the on-the-radar screen issues and the successful shelving of the current off-the-radar screen issue.
Progress in the Tax Risk Management process is monitored through ongoing tax steering committee meetings held as frequently as required, with the appropriate agenda.
The conclusion of the initial implementation process sees the ongoing management process being carried forward through the Tax Risk Management Web into the future (refer to chapter 7 for full details of the system).