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Managing Tax Risk – Canada’s Current State 

Canadian companies appear to be behind other countries in developing and implementing  documented, company-wide tax risk management policies. KPMG has surveyed 890 companies worldwide, including 40 Canadian companies, and the findings are reported in Good Better Best: The Race to Set Global Standards in Tax Management (see sidebar). Among other findings, the survey reveals that:

  • Only 58 percent of Canadian tax departments have a documented tax risk management strategy, compared to 66 percent worldwide.
  • Only 30 percent of Canadian companies have a formal tax risk management policy that has been adopted by the board, compared to 48 percent worldwide.

 

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Biggest tax risk? Canadian tax directors feel that their biggest tax risk is the risk of audit by tax authorities, while the shortage of qualified tax professionals ranked as the biggest tax risk globally.


Compared to other countries, Canadian tax directors feel more at risk of audit in the areas of:

 

  • Federal corporate income tax (45 percent of Canadian respondents vs. 33 percent globally)
  • Transfer pricing (35 percent of Canadians vs. 18 percent globally)
  • Indirect tax (43 percent of Canadians vs. 31 percent globally).

 

Over the past 2 years, Canadian companies have been more likely to use their external auditors for tax services (88 percent of Canadians vs. 77 percent worldwide).


Priorities? The top priorities of Canadian tax departments are accurate financial reporting and tax return compliance. Managing tax risk is given the same importance as cash tax savings/deferrals and minimizing the effective tax rate; however, over twice as many Canadian tax directors believe that cash tax savings (33 percent) became more important over the last year than believe that tax risk management has become more important (15 percent). Tax process improvement and technology use are the lowest priorities.


Key findings. These results show that Canadian companies are trailing other countries in focusing on and systematically managing tax risk. Given the global trend toward increased enforcement, transparency and cooperation among tax authorities, and mounting pressures for companies and governments to raise revenues, we expect that boards and CEOs/CFOs will take a greater interest in managing tax risk. As a result, tax departments are likely to find that tax risk management, tax process improvement, and technology use will become much bigger priorities.

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