Tax services
Managing global tax risks
EY’s Global Tax Risk Tool provides businesses with visibility of
how tax risks are managed around the world
Ninety-four per cent of
the largest companies
think that global disclosure and transparency requirements will continue
to grow in the next two
years.1
Background
The management of tax risk in the face of ever increasing complexity, globalisation, internal
pressure on resources, more frequent tax authority audits and increased threat of penalties, is one of
the biggest challenges facing tax departments today. Multinationals are recognising the need for
greater visibility over tax risks globally. This is not just the risk that process and control failures lead
to tax being underpaid in jurisdictions, but also the risk that tax is overpaid because there are not
appropriate processes, controls and knowledge to identify all available reliefs and planning
opportunities. Increasingly, senior management require a process that describes key risks and how
they are being managed and monitored, together with details of any significant issues, remedial
actions, and who is accountable.
Sixty-eight per cent of the
largest companies reported Global Tax Risk Tool
that they feel tax audits have To address these issues we have developed a Global Tax Risk Tool ( GTRT) which uses a detailed risk
become more aggressive in and control diagnostic assessment to collate and report objective findings. This application helps
‘kick start’ the process of evaluating an organisation’s global compliance and risk management activitthe last two years .1
1. 2014 EY Tax risk and
controversy survey
ies across all major tax types, including corporate income taxes, payroll taxes and indirect taxes.
Without the investment of significant resources, it is designed to deliver;
►► A data collection platform to facilitate rapid collection, collation and analysis of data
►► An indicative assessment of inherent risk factors across the group
►► The identification and preliminary assessment of the key risks in each jurisdiction
► A standardised reporting dashboard in an easily updateable format for ease of classification
►► A prioritised plan of enhancement action
►► A blueprint for an ongoing tax risk management framework
►
Tax services
What we are seeing
Internal pressures
Issues
External pressures
►►Rapidly expanding global footprint
►►Increased risk environment
►►Increased tax complexity
►►Greater internal focus on risk
management and corporate governance
►►Inadequate visibility, control and
risk management
►►Focus on headcount/cost reduction
►►Fire fighting
►►Increased regulation (i.e., FIN48, SAO,
IRS uncertain tax positions reporting
requirements, etc.)
►►Focus on delivering more value with
less resource
►►Inability to match resource to risk
►►Information systems are not geared to
tax needs
►►Increased reputational risk
►►Tax authorities’ increasingly
rigorous approach:
►►Increased penalty exposure
►►More frequent audits
►►More intense audits
►►Financial loss from increased exposure to
risks materialising
►►Targets to reduce ETR
►►Frequent risk assessment
►►Inability to deliver consistent standards of
tax risk management
►►Focus on systems and governance
►►Inability to monitor performance
against standards
►►Greater sharing of information
and collaboration between tax
authorities
►►Increased penalty threat
►►Tax reliefs not claimed
Whilst organisations typically have ambitions to develop a global
tax risk framework to address these issues, such an exercise can
seem an enormous task, and difficulties can be experienced
for some of the following reasons:
►► Resource constraints
►► A lack of knowledge about current risks and processes within
the group
►► The group lacks a standard terminology to apply a common
tax risk ‘language’.
►► The group has difficulty in converting information gathered
into a prioritised remedial management action plan.
►► There is no template for future tax risk framework design and
ongoing risk management activities.
►► There is no means to obtain the required information quickly
and efficiently
Figure 1: an extract from a report illustrating the percentage of controls present across the organisation
Risk category
UK
US
France
Germany
Russia
Japan
Australia
India
China
Brazil
97
93
57
64
43
79
71
21
32
45
Data posting
91
98
57
57
29
86
71
29
45
52
Data collation
100
95
52
75
25
100
25
52
41
38
98
100
38
38
63
63
50
38
10
15
Tax compliance
VAT return accuracy (process)
Data set up
Data review
Specific risk areas (technical)
Transfer pricing
Transaction identification
Transaction pricing
Documentation
65
50
51
59
19
73
67
20
20
20
100
85
57
75
33
85
70
46
46
46
80
60
38
54
25
55
56
30
30
30
100
85
57
75
33
85
70
46
46
46
80
60
38
54
25
55
56
30
30
30
Payroll
90
80
60
80
20
80
40
60
82
72
Employee expenses
86
92
50
100
10
100
100
50
60
65
Employee benefits
78
80
60
80
60
60
80
20
35
50
Share schemes
95
100
57
71
43
86
57
57
20
35
Expatriates/short term visitors
80
60
38
54
25
55
56
30
30
30
Employee leaving/joining payments
96
100
90
95
90
90
100
75
80
85
Status of worker
65
72
62
72
55
68
68
52
50
45
Policy implementation
Change monitoring
Employment Tax
2
| Managing global tax risks
Tax services
Global Tax Risk Tool: how does it work?
Global Tax Risk Tool: the key advantages
The GTRT uses our client portal as a platform to issue tax risk
and control diagnostic assessments to the relevant responsible
contacts within the organisation. The GTRT is very flexible,
allowing the business to choose individual territories, entities and
specific risk areas to ensure a bespoke approach which addresses
any known concerns. It can also be customised to meet the very
specific requirements an organisation may have.
The GTRT is designed to provide the following key benefits;
The risk areas addressed by the GTRT cover three broad areas;
1. Strategic — the risks associated with the business and tax
strategy and their implementation.
2. Tax compliance — the risks related to the end-to-end process
for the relevant tax filings.
3. Operations and management — the risks around how tax
interacts with other parts of the business and how the tax
function is managed.
►► It provides a rapid insight of how effectively tax risks are
managed around the world
►► It facilitates a standardised approach with a common tax
risk language
►► It leverages a wealth of knowledge and experience throughout
EY to benchmark current state risk management practices
and controls
►► It helps promote a tax risk aware culture by highlighting the
areas where tax risk could arise across the group
►► It involves a relatively low investment to provide key insights
►► It is very flexible — the business can choose which territories to
review, which taxes to cover, and which risks to focus on
We collate the responses and analyse the results in a report. The
report provides a ‘traffic light’ summary across all territories and,
for the risk areas addressed, assesses the overall risk level. It also
produces an exception report of controls not present.
The GTRT assists businesses to quickly evaluate the status of
the tax risk framework of the organisation around the world and
assists in identifying where any actions should be focused to
improve controls.
Figure 2: a high level summary of controls across the organisation
Entity:
Turnover:
Profit:
Controls present:
G Ltd
$66,000,000
$30,000,000
40.80%
UK
Germany
Russia
Entity:
Turnover:
Profit:
Controls present:
C Ltd
$10,000,000
$3,000,000
35.00%
Entity:
Turnover:
Profit:
Controls present:
F Ltd
$141,000,000
$57,000,000
37.44%
China
Entity:
Turnover:
Profit:
Controls present:
US
Entity:
Turnover:
Profit:
Controls present:
D Ltd
$75,000,000
$50,000,000
49.32%
Japan
J Ltd
$110,000,000
$75,000,000
76.95%
Entity:
Turnover:
Profit:
Controls present:
E Ltd
$5,000,000
$1,000,000
75.60%
Australia
France
Brazil
Entity:
Turnover:
Profit:
Controls present:
I Ltd
$3,000,000
$500,000
55.70%
Entity:
Turnover:
Profit:
Controls present:
H Ltd
$17,000,000
$10,000,000
47.84%
India
Entity:
Turnover:
Profit:
Controls present:
B Ltd
$52,000,000
$40,000,000
29.00%
Entity:
Turnover:
Profit:
Controls present:
A Ltd
$100,000,000
$25,000,000
53.99%
Managing global tax risks |
3
Global Tax Risk Tool: a typical project
The findings of the GTRT can be delivered within weeks, providing
rapid insight into how risks are being managed across the
organisation. A typical project will involve the following activities.
Step 1
Step 2
Step 3
We meet with the
business to agree
the territories to
be included, select
the categories
from the GTRT
database to be
incorporated in the
assessments, and
identify the relevant
persons within
the organisation
to respond.
We provide online
access and support
to the relevant
individuals in
each jurisdiction
to complete
the assessment.
We report the
findings, setting
out a ‘traffic light’
report of controls
present across
the organisation,
an exceptions list
detailing missing
controls, and
providing suggested
remedial actions
where required.
EY | Assurance | Tax | Transactions | Advisory
About EY
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Why EY?
© 2013 Ernst & Young LLP. Published in the UK.
All Rights Reserved.
The GTRT is provided by the Tax Controversy and Risk
Management practice within EY, a global team focused
on the management of tax risks around the world
with designated specialists in all major jurisdictions.
The combination of our data collection technology and
our tax risk methodology with local specialist knowledge
enables us to deliver real insight for our global clients
into how they are managing tax risk around the world.
ED None
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ey.com/uk
Further information
Please contact one of the following UK-based specialists for
further information who would be happy to illustrate to you
the benefits of the GTRT.
Andrew Hinsley
+ 44 20 7951 1932
ahinsley@uk.ey.com
Charles Brayne
+ 44 20 7951 6337
cbrayne@uk.ey.com
Paul Dennis
+ 44 121 535 2611
pdennis@uk.ey.com
Rakhim Mirzayev
+ 44 20 7951 6213
rmirzayev@uk.ey.com