As worldwide legislative and regulatory changes make tax risk planning a top priority, many companies are aligning their tax strategies with their organization's overall enterprise risk profile, according to a survey of corporate tax directors by Ernst & Young.
Nearly half (44 percent) of tax directors said that their tax function's influence on executive-level business decisions has increased in the past year, and 41 percent expect that influence to increase next year, according to E&Y's report, "Tax Risk Management: The Evolving Role of Tax Directors." In addition, almost two-thirds of tax directors said that they're receiving more direction on tax risk matters than they were two years ago, and more than 75 percent said that they're now receiving active direction from three or more different areas within their organizations.
"Tax departments are playing a much more important, immediate and visible role as organizations wrestle with the increasing demands of corporate governance and regulatory compliance," said Mark A. Weinberger, E&Y's Americas vice chair of tax. "As a result, we're seeing significantly increased alignment between tax risk and overall enterprise risk management, and with it, a tax director with increased responsibilities and far more constituents to satisfy."
Nearly all respondents (95 percent) acknowledged the importance of planning a tax strategy that is consistent with overall enterprise risk profiles, and 45 percent already are actively doing that, E&Y said. Half of the 354 tax directors surveyed said that their tax department is represented on their company's overall enterprise risk management team, and 60 percent of those who said it wasn't believe that it should be. According to 70 percent of tax directors polled, "Tax risk management is considered critical to preserving the organization's overall reputation."
While tax departments still get most of their direction from the chief financial officer, the role of CEOs and other key influencers in tax is increasing, the report showed. Half of tax directors in Europe, 55 percent in the U.S. and Canada, and 60 percent in Asia are seeing increased direction from the chief executive. While 62 percent of directors said that the CFO is responsible for tax decisions, 31 percent said that final policy and procedure approval now rests with the CEO or board of directors.
Nearly 75 percent of tax directors said that tax risk management has become more important as a measure of their performance over the past two years. According to E&Y, tax risk management has become a more important performance measurement than cash impact, effective tax rate or timeliness of compliance. What's more, 45 percent said that tax risk management is also a key performance measure for those they report to.
