Risk Management

Risk Management is Now the Key Performance Measure for Tax Functions

PwC

Corporate tax departments are now measured primarily on how well they manage risk, as companies recognise the potential reputational and wider risks that tax can pose to a business.

According to PwC’s Tax Function of the Future survey of over 100 tax departments, risk management is the most important measure of tax function performance.

Surprisingly, less than two thirds of companies, 58%, have board or senior level sign off of their tax strategies. Companies which do are more likely to publish the strategy and review it frequently.

Mark Schofield, tax partner at PwC, said:

"The costs of poor risk management can easily outweigh incremental changes in the effective tax rate. Public and political scrutiny on tax behaviour, resulting reforms to tax rules, and changing attitudes of tax authorities and governments are among the issues contributing to a higher risk environment. It’s not just about the risk of paying too little tax, but equally the risk of being taxed twice. Businesses want stability and certainty on tax, so it’s no surprise that having a sustainable tax rate is also seen as important. “

As a result of this new tax environment, the skills required in tax professionals are changing. 73% of respondents say the need for good communication skills has increased, and is likely to increase again in the next five years. There is also increased emphasis on attracting individuals with risk management and technical skills, with demand outstripping supply in the market.

Mark Schofield added:

“Tax today is attracting a different type of person than, say, 20 years ago. You can't get away with just having an analytical mind - making sure your stakeholders understand what the business is doing on tax, and why, demands sound communication skills, especially given the complex nature of both the tax system and business models today. Technology is also transforming tax functions, enabling businesses to respond to the increasing demands for data, with transparency front of mind.”

The Tax Function of the Future survey interviewed 107 heads of tax and tax advisers, predominantly multinationals, across a range of sectors.

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