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The South African Insurance Industry Survey 2016 | 29
We are also seeing legislation aimed at “testing and Challenging environment pending ratings downgrade linked to increased revenue
evaluating” certain aspects of an organisation’s Tax Risk Organisations, CFO’s and tax departments may feel that targets and a stagnant South African Revenue Services
Management, in particular, the recent amendments they are in a proverbial tag-team wrestling match: headcount.
to the Tax Administration Act relating to legal privilege,
prescription and documentation gathering. In some In the one corner: So is Tax Risk Management important?
cases one could go so far as to say that this Act may It is not only important, but necessary. The implementation
inadvertently punish inadequate Tax Risk Management. –– The board and investors require assurance that the of a Tax Risk Management framework should not only
appropriate Tax Risk Management framework is promote governance and address as well as reduce tax
In the HMRC document entitled Improving Large Business implemented and shareholder value is enhanced. risks, but may also create value, for example:
Tax Compliance, it is highlighted that the public, investors
and stakeholders now expect higher standards of tax In the other corner: –– Providing the organisation the ability to proactively
compliance and more transparency from large businesses evaluate legislative changes and the potential impact on
about their approach to taxation. The Australian Tax Office –– The tax authorities are looking for more taxes from the business.
commented that managing tax risk adequately is core to taxpayers and the public is increasingly looking towards
good corporate governance. Emer Mulligan and Lynne companies to pay the “morally” correct amount of tax. –– Providing a level of comfort to all stakeholders that risk is
Oates explains in Tax Risk Management: Evidence from maintained at an acceptable level.
the US, that the need to address risk management in a It is clear that the above are ingredients for the perfect
tax context arises due to uncertainty in the interpretation storm with a demand for increased shareholder value and –– Ensuring that tax strategies, policies and processes
of tax laws. Where there is uncertainty there is always a reduced taxes on the one hand, and the payment of a “fair are standardised and integrated within the wider
risk that needs to be identified, quantified and importantly share” and “morally” correct amount of tax on the other. organisation. The test is however going to be whether
managed, and if possible avoided. your board would be happy to have the organisation’s
In recent years, organisations have been exposed to tax strategy described, in full, in the Annual Finance
Based on the above, it is clear that tax management and more legislative changes than ever before. The legislative Statements.
tax governance are high on the agendas of regulators changes are complex and appear to be more towards
and tax authorities. The consequences of not paying the protecting the tax base than necessarily promoting growth Based on the above, to list a few, Tax Risk Management
necessary attention to Tax Risk Management can result and business. Organisations are experiencing more and is not just a “nice-to-have” but an essential must have
in additional taxes, costly fines, missed opportunities, more tax queries which ultimately results in more disputes in any organisation. Quite simply, Tax Risk Management
reputational damage and negative impact on market with the tax authorities. is the right thing to do. The ultimate challenge for the
capitalisation. tax executive is, however, to be able to provide comfort
From a South African perspective, the above changes that the Tax Risk Management framework is indeed
and observations could be explained if one looks at the implemented, tested for compliance and adhered to
contracting economy, the low-growth outlooks and the throughout the organisation.
