The right tax approach: why companies need a tax control framework

Thu 28 Mar 2024

An introduction to Mazars tax control framework approach

Across the globe, an increasing number of companies are developing tax control frameworks to help them stay on top of their taxation, compliance and risk management obligations and objectives.

These obligations are continually evolving, driven by a combination of both international standards, like the OECD guidelines on tax controls or the COSO Framework, alongside stricter national reporting and control regimes that an increasing number of countries are introducing.

At the same time, tax authorities are taking a more aggressive approach to reduce non-compliance, optimise revenues and punish tax evasion. This means the risks of getting things wrong are higher than ever, as are the penalties. And it’s not only the company that is at risk, but its senior management, too. If there are failures in compliance, the CEO or other member of the Executive Board can be held personally liable and face the risk of large fines or even a jail sentence.

So, what’s driving this increasingly onerous focus on compliance? There are several reasons.

The business environment itself is becoming more complex, driven at least in part by the digital revolution, which means taxation is also getting more complex. Tax authorities have limited budgets and limited resources. To help address this, they are transferring more of the burden of compliance onto businesses by encouraging or requiring them to be more proactive in their approach to tax compliance, thus making it easier and quicker for businesses of all sizes to be audited.

It also ties into the global growing ESG agenda. Complying with ESG standards and accurately reporting ESG metrics cannot be fulfilled if businesses are not transparent and complaint in their taxation matters. There is an expectation among the public, too, that businesses are transparent about their tax affairs and are fulfilling their responsibilities to wider society.

These pressures are felt most acutely by large multi-nationals operating in several jurisdictions, who need to comply with multiple taxation regimes. But they are equally relevant for small or medium-sized businesses operating in a single jurisdiction.

This is why we are seeing an increasing number of companies implementing tax control frameworks. Fully customisable and scalable for all types and sizes of company, tax control frameworks act as a roadmap for managing a company’s tax matters and tax risks efficiently and transparently at both the national and international level. They protect against significant penalties and associated reputational damage for the company. They protect senior management and the inhouse tax function against personal liability risks. And they protect shareholder value.

As national and international reporting and compliance obligations continue to evolve, it’s only a matter of time before tax compliance frameworks move from being discretionary to becoming a necessity, which is already common in some jurisdictions.

Discover more on how a tax control framework solution can benefit your business by visiting our dedicated TCF homepage, which has a collection of resources to support you on your tax journey.