Tax risk management is becoming increasingly important in corporate governance with regard to the financial and reputational consequences of tax noncompliance. A Tax Control Framework (TCF) is an internal tax risk control system that enables a company to systematically monitor, control and evaluate tax risk.
The tax risk management approach is a key aspect of correct tax determination and now comprises part of the ESG indicators, and tax risk management is becoming a key element in corporate governance. Taxation transparency has become an important part of ESG and non-financial reporting, based on the related EU Sustainability Communication Directive.
The tax authorities are paying greater attention to larger taxpayers, especially those who pose a significant tax risk and have not demonstrated cooperative and transparent behaviour. TCF allows companies to enter into a collaborative compliance process and a pre-emptive dialogue with the tax authority regarding uncertain or disputed tax positions.
Tax risk management is a key issue for entities that have adopted International Accounting Standards (IAS), under which if an uncertain tax position is recorded, the tax burden (IFRIC 23) must be shown. Under customs legislation, it is essential to demonstrate the existence of adequate measures in the import/export processes to qualify as an approved economic operator. The use of tax management procedures under the TCF framework enables these budgetary and customs requirements to be met.
Under EU Directive 2017/1371, tax offences have become part of predicate offences. Penalties may include the suspension of activities, prohibition from contracting with public authorities and prohibition from advertising goods and services. Companies must update their organisational models to reflect the tax risks associated with these offences. We recommend companies implement a TCF control system focused on tax risks, including mapping of tax fraud cases. For companies that have implemented TCF to monitor other tax risks, it is advisable to integrate a risk map into the tax area, taking into consideration reporting on tax fraud cases and working with the tax authority to evaluate the effectiveness of the model exception.
Digital services developed by PwC to manage tax risks
PwC offers digital services based on the latest technologies, including data analytics, robotic process automation and artificial intelligence, to improve the efficiency of the tax function. The provided solutions include risk analysis and controls, interpretation of tax risks, assessment of risks associated with third parties, processing of corporate income taxes, and transfer pricing.
Advanced digital services based on tax process automation
PwC provides advanced digital services to analyse and present data within tax processes and automate the operational activities of the tax function. This includes anti-fraud analytics, data processing and visual analytics, as well as robotic process automation and artificial intelligence technologies.
By applying these digital solutions, PwC helps clients identify and implement the most appropriate technologies to manage their tax risks.
PricewaterhouseCoopers Tax k.s.
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