Tax risk management: a review of recent developments in tax risk management and an analysis of the impact of tax risk management on the tax function within a large corporation

Business decisions of a corporation include matters relating to taxation and are made by management whilst the financial impact of those business decisions, to a large extent, are borne by the shareholders. Corporate governance practices seek to provide a mechanism whereby the interests of management are aligned with those of the shareholders. Current expectations of good corporate governance now include tax risk management and this paper will outline the relevant obligations on a corporation such as Principle 7 of Australian Stock Exchange Principles of Good Corporate Governance and Sarbanes-Oxley Section 404 in the US. Tax risk management by large corporations has recently been the focus of the Australian Taxation Commissioner's statements on appropriate tax compliance policies. Other tax authorities around the world have also raised tax risk management as integral to a company's tax compliance strategy. This paper will look at pressures in Australia and around the world on large corporations to address tax risk as part of a corporate governance strategy and how corporate attitudes and practice towards managing tax risk have evolved. This paper also looks at the impact of the tax risk management through a review of surveys carried out by a number of organisations including international chartered accounting firms.