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Tag Archive for Tax Risk Management

7 Habitual Mistakes Companies Make – Chapter 7 (6)

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Communication to Eliminate Tax Risk –
Breakdown of Communication

PERSONNEL OFTEN MISUNDERSTAND instructions or make mistakes due to overwork, carelessness, or distraction. Temporary or new personnel may also not be adequately trained on new processes they have been introduced to. All of which contributes to the creation of additional unnecessary risks.

Breakdown can be avoided by careful and consistent communication, especially to new and temporary personnel.

Innermetrix © Read more

7 Habitual Mistakes Companies Make – Chapter 7 (5)

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Communication to Eliminate Tax Risk

HUMAN JUDGMENT, ESPECIALLY when subjected to pressure, is imperfect. Unless checks and balances are introduced, and encouragement exists to communicate pressurized decisions that may have a negative tax implication, improper human judgment will lead to additional tax risk. For instance, it often happens in a merger acquisition scenario that parties to the transaction are placed under great pressure. Deadlines are created, and parties from all sides do their absolute best to ensure that the deadline is met, for fear of reprisals that may stem from causing the merger or acquisition to flounder. Read more

7 Habitual Mistakes Companies Make – Chapter 7 (4)

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Communication to Eliminate Tax Risk –
Numbers Get You into Trouble

TAKE THE CASE of Equinox Ltd. (a fictitious name for the real company). It had garnered up thousands of VAT input tax credit invoices, with which it had claimed millions of dollars worth of input tax credits. The VAT legislation required Equinox Ltd. to ensure that the VAT number of suppliers was on all tax invoices. This also meant that the VAT number had to be correct.

After a while, the IRS conducted a VAT audit and reviewed a batch of tax invoices for a specified period. It became obvious quite quickly that all the tax invoices from one Read more

7 Habitual Mistakes Companies Make – Chapter 7 (3)

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Communication to Eliminate Tax Risk –
Missed Communication –

THE LEADING CHARACTERS in this special report have been business owners, the BO/CFO, the tax manager, and the legal team. Much has been written about the formation of the tax team and the interaction with the outside advisors and other key participants. Hell, even communication with the CEO, the board, and the audit committee has been suggested.

Why then a chapter dedicated to communication to eliminate operations tax risk?

The fact is that historically in-house tax compliance departments have formed part of an Read more

7 Habitual Mistakes Companies Make – Chapter 7 (2)

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Communication to Eliminate Tax Risk –
Introduction –

THIS IS THE last, but not least important, Tax Risk Management Step 7. The previous six chapters flowing from proactive tax risk management, with the tax team, compiling a Tax Risk Management strategy, getting to a point of embracing transparency and outside assistance, to obtaining more facts, and then ensuring internal audits verify the correctness of tax compliance, brings the TRM™ process finally to the common golden thread that binds all these chapters and their processes together—communication!

Lack of communication between the tax manager and the rest of the business, and only Read more

7 Habitual Mistakes Companies Make – Chapter 7 (1)

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Communication to Eliminate Tax Risk –

The SEC in USA’s chief accountant said, “Sunlight is said to be one of the best disinfectants, and the area of income tax accounting could use more sunlight”.

Executive Summary

COMMUNICATION IS VITAL to the entire tax risk management process. Effective communication channels must be opened up and maintained on a regular basis, especially with the operations divisions of a business where there is often the least amount of transparent communication with the tax manager. Internal meetings between the various departments and the tax team must be encouraged on a more regular basis Read more

7 Habitual Mistakes Companies Make – Chapter 6 (9)

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Internal Audits Fix Financial Accounting Problems –
Provisions and Tax –

WHEN BUSINESSES ACQUIRE database management and tracking systems such as SAP- or Oracle-based systems, closing balances from the previous systems used are transferred as opening balances to the new system.

After a number of years, and a change of guard at management level, the understanding and specific knowledge required to determine how those opening balances were made up. The old closing balance records are destroyed or get lost.  If a specific inquiry is directed at these opening balances, many businesses have problems in providing the Read more

7 Habitual Mistakes Companies Make – Chapter 6 (8)

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Internal Audits Fix Financial Accounting Problems –
Compiling the Tax Pack –

THE TAX MANAGER will usually receive the basic components of the tax pack from the various financial managers in the various divisions of the business. The purpose behind this step is for each financial manager to review the financial accounting treatment of various accruals for accounting purposes and deductions for accounting purposes, so as to determine what accrual and deduction adjustments must be made for tax purposes in compiling the tax return for that year of assessment. Simple enough?

A tax manager of a major international consumer product multinational decided to review Read more

7 Habitual Mistakes Companies Make – Chapter 6 (7)

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Internal Audits Fix Financial Accounting Problems –
Management Override of Controls –

MANAGEMENT MAY FROM time to time override controls put into place to ensure proper corporate governance. This usually happens with nonrecurring or nonstandard transactions or events. But this in turn leads to an override of established policies and procedures, usually with the intention of enhancing the business’s financial situation. Any such transgressions must be prohibited, unless with the approval of the board of directors, who should be made aware of the potential consequences.

This type of transgression in tax compliance takes place every month in most businesses Read more

7 Habitual Mistakes Companies Make – Chapter 6 (5)

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Internal Audits Fix Financial Accounting Problems –
Internal Auditors Revisited –

HISTORICALLY THE PRESENCE of internal auditors in any business has made a significant contribution toward deterring the incidence of fraud in that business. Internal auditors should play a pivotal role in the Tax Risk Management process by providing the much-needed support and expertise to continuously monitor the controls that are in place in order to pick up on any emerging tax risks. They are also skilled and experienced in identifying potential risk issues and have the know-how to properly investigate these risk issues. Read more

7 Habitual Mistakes Companies Make – Chapter 6 (4)

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Internal Audits Fix Financial Accounting Problems –
Have You Read the Rest of This Special Report?

IF YOU FIND yourself at this point not knowing what the answer is, you have either turned directly to this page without reading the rest of the special report, or you have missed the point of this special report—be proactive, get internal audit to double-check the main tax risk areas, get help through a tax team to identify the tax risk areas, work according to a tax strategy document which is continuously revisited, avoid being insular and get out of the ivory tower, go and chase down all the facts to get an accurate picture of any tax problems around any major transaction. Communicate, communicate, and communicate again, get to know the business and all its facets, get internal audit involved to check again, and Read more

7 Habitual Mistakes Companies Make – Chapter 6 (3)

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Internal Audits Fix Financial Accounting Problems –
Internal Auditors

QUESTION: “WHAT ARE they doing, and what are they focusing on?” Tax is usually not high on the agenda. “Why not?” Because this area of risk is not being emphasized enough. “Why not?” The board of directors has not given it priority. The audit committee is not pushing for tax transparency, and so the BO/CFO does not have a pressure point to deal with and will cover it when it becomes a priority, usually as part of crisis management. The tax problems are what they are. If they are serious enough, they will emerge in good time, and the business can deal with the consequences at that point in time. Other priorities have been placed on the internal auditors ‘ plates such as fraud in its Read more

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