Tax and finance executives are concerned they don’t have enough resources at their disposal to navigate a risky tax environment, according to a new survey from Ernst & Young.
EY’s new report, “Managing operational tax risk,” is based on a global survey of 962 tax and finance executives from over 20 industry sectors and 26 countries. The report focuses on the people, technology and processes that companies utilize to manage risks.
EY found that among companies with more than $5 billion in global revenues, 75 percent of the executives surveyed said they lack sufficient resources to cover tax function activities. In addition, 64 percent said their internal communication is insufficient, and 57 percent of the survey respondents said they lack appropriate processes or technology.
"Operational risk has wide ramifications for businesses large and small; every company has to deal with it. Yet not enough companies do it well,” said Gary Paice, Americas director for tax performance advisory at EY, in a statement. “The operational side is the only one of the tax risk drivers that is fully within a business’s ability to control internally.”
The increase and complexity of legislation and regulation over the past two years was cited by the executives polled as contributing to increased levels of tax risk by 85 percent of U.S.-based respondents (79 percent globally). The survey data also indicated that as pressures continue to build, many companies may lack the appropriate resources to manage these areas effectively.
Nearly half (49 percent) of the survey respondents said their companies have increased the overall size of the tax function over the past three years, while only 8 percent of companies have decreased the tax function.
While U.S.-headquartered companies tend to be the largest and support the largest tax functions, more of them reported decreases of tax function resources (19 percent) than the global average of 7 percent.
In addition, executives at 79 percent of the U.S.-based companies that were polled (and 68 percent globally) blame insufficient resources to cover activities as the leading factor contributing to their companies’ operational tax risk.
A lack of dedicated roles may increase risk exposure, EY found, noting that 70 percent of the respondents indicated that their companies have an identifiable professional responsible for all tax risk, compared to 81 percent in 2011. While 54 percent of the survey respondents globally considered it to be a “dedicated” role (but only 30 percent of U.S.-based companies), the survey found that companies are spending more time managing tax risk and controversy.
While 28 percent of the respondents have a dedicated indirect tax director, and 13 percent have a dedicated withholding tax director, slightly more than half of companies assign both indirect taxes and withholding taxes to the tax function, with the rest assigning these areas to the finance or accounting departments.
On the technology side, 56 percent of the executives surveyed agreed that a lack of effective technology contributes to tax risk within their company, while 44 percent said they either use no technology at all to enable them to respond to tax authority enquiries and manage open disputes, or made it the sole responsibility of their local tax teams.
In terms of processes, 88 percent of the executives polled claim to have documented control processes, but only 25 percent do so in all jurisdictions, whether or not it is required.
In addition, 62 percent of the executives at the largest companies said their companies have either created or refreshed their tax risk policy during the course of the last two years. Sixty percent of the largest companies changed their approach to the documentation of transactions for tax purposes in the last two years, and the figure rises to 77 percent for companies resident in the so-called “BRIC” countries of Brazil, Russia, India and China.