Ideal Tax Operational Environment: Inevitable Changes to Global Reporting
Companies have been made to suffer huge tax liabilities as a result of major business transactions that were undertaken without obtaining a tax expert opinion.
The manner in which daily business transactions are directed and supervised plays a great role in determining an organization’s exposure to tax risks. While the tax department should have overall responsibility for ensuring adherence to tax compliance requirements, management should put up standardized tax processes and technologies with adequate controls to ensure that both the tax team and the shadow tax team manage tax efficiently from the outset. Standardization is an aspect of good tax governance that should be adopted in the Head Office tax department, and replicated in subsidiaries and branch level offices. This helps to streamline complex data management processes, promote uniformity in the performance of routine tasks and increase the accuracy of tax returns.
Cross-border transactions (Tax Risk Considerations)
Cross-border transactions are on the rise and here to stay. The Tax Risk Management survey conducted by KPMG Nigeria shows a majority (79%) indicating that the Head office is responsible for supervision and sign-off of major tax matters in subsidiaries. This suggests that there is a lot of interface among group entities. Sadly, the sign-off often does not cover tax risk considerations despite the level of tax risk exposures in inter-company transactions.
African countries tend to lose significant tax revenue due to inadequate transfer pricing rules. Hence, the reason for the introduction of recent transfer pricing rules. There are also moves by other global stakeholders to introduce more transparency around taxation through the adoption of Country By Country (CBC) reporting. CBC reporting requirement will require Multinational Entities (MNE) to provide aggregate information annually in each jurisdiction where they do business, relating to the global allocation of income and taxes paid together with other indicators of the location of economic activity within the MNE group. Based on the foregoing, a lot of effort has to be made in integrating transactions among related entities especially with the emergence of Base Erosion Profit Shifting (BEPS) project in the OECD countries. This is particularly important as Nigeria has joined the list of African countries negotiating a multilateral tax treaty to more rapidly implement the BEPS measures.
Companies have been made to suffer huge tax liabilities, which have created setbacks in the overall tax objectives, as a result of unplanned tax audit exposures. Some of these liabilities have been shown to arise from flaws in major business transactions that were undertaken without obtaining tax expert opinion. Although the tax tail should not wag the economic dog, companies should seek to have a more holistic view on the bottom-line effect of business transactions.
The above is an excerpt from KPMG Nigeria’s Tax Risk Management Survey 2015. Please feel free to download.