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Managing tax controversy, minimising tax uncertainty

AS businesses look forward to recovering post the Covid-19 pandemic, having more certainty and managing issues upfront will be key in any business agenda.

Managing tax risks and disputes with the relevant authorities has become a priority in the business agenda.

According to the 2021 EY tax risk and controversy survey conducted on 1,265 tax and finance leaders across 60 jurisdictions and 20 industry sectors, 53% of the responding business tax leaders expect greater tax enforcement in the next three years especially due to the need of governments to look for increased revenue to stimulate the economies during the pandemic.

Tax administration digitalisation

Digital tax administration and transformation will help tax administrators provide timely, effective, transparent and smoother delivery to taxpayers and support greater accountability.

As the tax authorities move towards digitalisation, expectation is also there for businesses to embrace digitalisation and technology.

Businesses should be able to retrieve information quickly and accurately and be able to submit this to the tax authorities.

This will go a long way to manage the tax controversy and potential tax liability due to the unavailability of information or documentation.

Below are some pointers to consider in managing tax controversies during this era of technology:

> Availability of the current data or trend analysis on tax position adopted or tax profile of the business

> Does the technology allow the business to capture data around tax risks or open issues?

> Are we able to use technology to understand the business better and the corresponding tax treatment?

> Can we use technology and data to manage risks upfront and avoid any potential disputes with the tax authorities?

Internal procedures to manage questions

To manage any query from the tax authorities, businesses should have tax processes and approaches in compliance and planning. This should be done as part of the overall business process, linking up the various departments with the finance and tax team who will eventually document the tax treatment.

It must be integrated and not an afterthought as the position adopted should be backed by the substance of the transaction and the availability of documentation to support the tax treatment.

Businesses also need to be aware of the latest tax developments, changes to the rules and regulations as well as operational and administrative requirements to meet their tax obligations.

In recent times, the speed of change is also more rigorous and keeping up-to-date is even more important.

It has to be done on a timely manner as any delay in conforming to the rules and regulations may result in unwanted tax exposure.

The right people with the right capability to manage

Having the right people and the right capability is important in managing a tax controversy.

The team needs to be on top of the controversy and articulate the issues during a query by the tax authorities.

This means that the tax function needs to be efficient and respond to the tax environment and current issues.

The team needs to be connected with the business issues and able to see the link between the business and tax treatment adopted.

In addition, keeping abreast with the new tax development and having an understanding of how this impacts the business will be key in managing the tax affairs. This will also mean a better tax governance process and the ability to manage any issues upfront and not after the issues or findings are raised by the tax authorities.

Dealing with tax controversy

Tax authorities around the world and the Organisation for Economic Co-operation and Development have introduced various measures to ensure organisations are paying the right amount of tax.

As authorities are more focused on transparency measures, real time reporting, audits and investigations, there is a real need for the businesses and taxpayers to be future-ready in this ever-changing landscape.

It is crucial for businesses to ensure a healthy tax profile and position and that tax burdens are being managed upfront.

This should not impact the growth of the organisation.

In managing tax controversies well, businesses will be able to steer away from unwanted tax bills, avoid reputational damage and also be able to manage the issues upfront which in turn will improve efficiency.

As a result of managing the tax issues upfront, businesses will be able to develop a stronger relationship with the tax authorities.

Conclusion

The tax landscape is volatile and ever-changing.

As a result, tax controversy is becoming a common feature.

Businesses need to have measures in place to be able to deal with tax controversy.

As such, businesses should have a strategic approach to tax controversy management and adopt practices to manage controversy to achieve the best outcome.

After all, one needs to pay the right amount of taxes, not too much and not lower than one should.

As quoted by Plato: “When there is an income tax, the just man will pay the right amount of tax and the unjust, less on the same amount of income.”

Farah Rosley is the president of the Chartered Tax Institute of Malaysia and Malaysia Tax Markets Leader at Ernst & Young Tax Consultants. The views expressed here are the writer’s own.



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