King IV recognises importance of Tax Governance, but does it go far enough?

Devon Duffield, Managing Partner for KPMG’s Tax and Legal practice.

Hardly a week goes by in the local and international press without the spotlight being thrown on a corporate or an individual’s tax affairs. Particularly in tougher economic times, the range of interest in an entity’s tax affairs is reaching far beyond the taxpayer and the Revenue Authority. These days shareholders, employees, customers and members of the public at large, want to know that an entity’s tax affairs are not only ‘compliant’ but also that they meet a standard which is ‘beyond reproach’.

Tough as it is to meet these ‘undefined’ standards, taxpayers are having to think more broadly about how they arrange their tax affairs. And boards of companies, are having to think about how they can discharge their responsibilities to govern the entities tax affairs.

It is against this backdrop, that the draft King IV report has included Tax Governance as one of its foundational concepts. The report places responsibility on the governing body and audit committee in leading a compliant tax strategy and policy that also aligns itself to corporate citizenship and wider stakeholder relations.

Devon Duffield, Managing Partner for KPMG’s Tax and Legal practice, has welcomed this inclusion in the draft King IV report, but warns that it might not go far enough to fully enable those charged with governance on how to carry out these responsibilities.

“Organisations that want to be able to adopt a position of responsible tax will have to be able to demonstrate to the board not just a strategy and policy around this, but also all the other aspects of control and assurance that a board will need. This includes an organisation’s systems, processes, internal controls and the increasing use of data analytics to prove compliance with laws and stakeholder sentiments across multiple jurisdictions,” says Duffield.

He continues, “We have started to see some progress in this space, but we need to see a formalised and comprehensive approach to how an organisation manages and controls its tax affairs across the globe, as well as how the board gains its assurance on these affairs. Only in this way can boards of companies be comfortable that they are discharging their governance responsibilities around this new, many faceted challenge.”

Given the Automatic Exchange of Information that will occur between revenue authorities in the near future, the increased public interest in an entity’s tax affairs and the ever increasing costs of non-compliance, forward thinking companies are not only building improved governance and control over their tax affairs, but they are taking the bull by the horns. They are proactively engaging with their stakeholders about how they govern this complex area of taxation, and demonstrating what economic contribution they make to the various jurisdictions in which they operate - both through the variety of taxes levied but also through their contribution to economies more widely.