Few people like surprises, least of all boards and CFOs. In order to avoid nasty tax surprises and reduce risk, a growing number of tax leaders are now putting renewed focus in to developing, evolving and measuring their tax strategies.
But according to our session panel, few tax directors have developed a full tax strategy; fewer still communicate that strategy outside of the finance function. Indeed, the panel represented an interesting cross-section of approaches: one panelist had a tax strategy but had not formally documented it, another had a fully documented tax strategy, while the third had developed Ten Golden Rules rather than a specific tax strategy.
The panel, which included Egbert Jansen, John Neill and Arjan Dobber, noted that creating a tax strategy in the face of unprecedented complexity had become a difficult task. It would be important, therefore, to ensure that tax strategies are ‘living documents’ that can adapt and flex based on a range of internal and external factors. For decentralized tax departments, the overriding challenge is in developing a strategy that defines a consistent global approach, yet allows for local adaptation to reflect the differences between jurisdictions. The Ten Golden Rules approach, it was noted, allowed for wide local adaptation, but it could also subject to subjective interpretation.
There was general agreement that tax strategies must be developed based on the needs and objectives of the business rather than on tax reduction considerations alone. To achieve this, tax directors will need to work closely with the business to understand not only their priorities but also the risks they face that may impact the organization’s tax position.
In turn, it is critical for the tax department to articulate their strategy back to the business to ensure that there is no misalignment between the tax department and the rest of the enterprise.
The panel also agreed that tax strategies should be revisited at least once a year and – in particularly turbulent times – after each major event or transaction. In this manner, tax directors can ensure that they are meeting the goals of their tax strategy while simultaneously monitoring their progress and identifying new potential risks.
It was also noted that tax strategies should likely not be shared with the general public as – given the complex nature of tax planning – they can often be subject to misinterpretation and may, in fact, provide valuable intelligence to the organization’s competitors.