Canadian Tax Adviser
December 6, 2011
CRA’s Risk-Based Audits of Large Corporations — New
Phase of CFO Interviews Begins
Ottawa, National Tax Centre
The CRA will begin interviewing senior executives in January 2012
to understand the types of tax governance structures that large corporations
have for their tax function. The results of these executive interviews,
which are a new phase of the CRA’s risk-based audit approach of large
corporations, will be factored into these corporations’ risk assessment
grades. Up until now, the CRA has graded large corporations using mainly
The CRA announced a new risk-based audit process to determine risk
categorizations for large taxpayers (defined as groups with more than $250
million in annual revenues) in the spring of 2010. Under this program, large
taxpayer groups will generally be graded as low, medium or high risk. The
CRA grade is intended to reflect the tax filing and compliance history and
tax governance structure of large corporations. The CRA grade depends on
several factors and the rating can change over time.
Among other things, organizations that have a strong tax governance
structure and a history of cooperation with the CRA may be assigned a lower
risk grade, and will experience limited audit coverage and a faster
disposition of issues. Higher risk groups will undergo more rigorous audits
and additional demands for information.
CRA scheduling interviews
We understand that the CRA is currently contacting approximately 50
corporations about interviews, which will be held by March 2012. CRA
officials will meet with senior corporate officials who are, or should be,
responsible for overseeing tax matters to discuss tax risk management and
corporate governance. Over the next several years, all large
corporations in Canada will go through this process.
The results of these discussions with audit committees and senior
executives, along with other criteria the CRA determines, will result in
a low-, medium- or high-risk grade for the company. The CRA
has determined preliminary risk grades for all large Canadian corporations,
based on its own internal information, but is seeking information that it
may not be aware of on tax
risk management policies or other tax governance matters. Strong tax governance can reduce a corporation’s overall risk
grade and therefore reduce its tax compliance burden.
Prepping for the CRA interview
Tax risk includes tax positions that may create
uncertain or unplanned outcomes involving tax responsibilities. Exposure to tax risks involves all
business operations. Audit committees and senior executives should be
prepared to answer the CRA’s questions about:
- Who is responsible for issues
that generate tax risk
- How tax risks are identified,
assessed, evaluated, controlled and monitored
- How tax risks are reported and
who they are reported to
- How tax risks interact with
reputational and financial risks and corporate social responsibility.
The CRA will assess a range of corporate governance principles related to
tax decision-making and discuss them with the taxpayer to ensure that all
tax risks are properly identified and addressed on a timely basis. The CRA
will be probing for the following kinds of information in the interview:
- Is there a sound framework to
manage tax risks and comply with tax obligations?
- Is there a strong in-house tax
- Are tax positions determined
inside or outside the business?
- Are significant tax risks
elevated to decision-makers such as the CFO, Chief
Executive Officer, the Board or its Audit Committee?
- Are there appropriate review and
sign off procedures for material transactions?
- Is there an effective tax risk
mitigation capability including the corporation’s relationship with the
applicable tax jurisdictions?
- Is there capacity to regularly
evaluate the effectiveness of tax governance systems?
For more information, contact your KPMG adviser.