Companies should flexibly partner with external independent experts to achieve best practice

Companies should flexibly partner with external independent experts to achieve best practice in their tax departments and eliminate possible tax risk

The current business climate is one of constant change. As the tax functions of companies are being challenged to comply with the increasing rate of regulatory pronouncements, some have been caught short by internal control deficiencies and resource shortages, even compelled to restate financial and tax information.
 
Ine-Lize Terblanche, senior tax manager at PricewaterhouseCoopers SA, says that companies are now seeing merit in moving to flexible but thorough tax solutions that also address and relieve the pressure to add to existing resources. "Using the skills of an outside expert partner such as an independent advisory firm is one innovative solution they can adopt."
 
Terblanche says that the tax function not only has to comply and keep up with regulatory change, but ideally should also deliver optimal value to the business.  "The traditional approach is that a tax department's main focus is reporting, accounting and compliance. This means that staff have limited time and resources to allow the tax function to add value to a business.  A high-performing tax department should ideally participate in mitigating business risks and should be actively involved in strategic transactions as they occur, not after the fact. The tax function should be better positioned to support operational management."
 
Terblanche highlights there is now greater pressure on tax departments in emerging market countries to reach international standards. "Globalisation, foreign parent companies, international competition and cross-border requirements all contribute to a trend of tax departments having to raise their standards. International research has shown that taxation is an extremely high risk area fraught with deficiencies in its control environment. "
 
There are also local factors compelling companies to rethink the effective structuring of their tax departments. "Company audit committees share common members who require all companies they oversee to aspire to best practice in the country. Local tax legislation is far more complex and SARS is continually making greater efforts to increase collection revenues. So the pressures to improve the people, processes and technology of the tax department are enormous and one way of doing this by using an external independent party which can facilitate and strategise the tax function. Companies may believe they can achieve this on their own but the independent objective view can more effectively ensure that best practice is achieved."
 
Terblanche says there is growing interest in benchmarking the corporate tax function against a best practice standard. "Companies want to use new technologies, realise efficiencies and effectively manage risks. There is also a need to revisit processes to streamline tax operations and free up capacity, on the one hand to add value in terms of tax planning and strategic issues, and on the other hand to focus on broader value protection and enhancement through tax risk management."
 
Terblanche says that working with an independent professional advisory firm can significantly contribute to the enhanced performance of a company's internal tax department." An effective tax service provided by the expert partner would focus on several key areas such as tax function reviews, quality internal processes and controls, regulatory compliance and the use of optimal technology. Tax strategies and policies can be improved and an independent assessment and quantified measurement of potential tax risks can be undertaken. A 2007 PwC African Tax Survey shows that on the continent only 11% of respondents have a documented tax strategy agreed with senior management. 
 
"Internal control weaknesses are identified and the required remedial action taken. Documentation and operations manuals can be drafted and accurately and timeously maintained and updated. The PwC survey also indicates that one of the greatest challenges facing management is finding tax staff with the required experience and keeping them technically updated and trained. This challenge can be overcome by using the expert resources of the outside partner."
 
By leveraging off the leadership and guidance of an external independent adviser, Terblanche says the board of directors can provide better assurance to the audit committee as to the effectiveness and integrity of the tax function. "The entire tax operation benefits through improved processes, efficiencies, data quality and automation. This in turn contributes to an improved year-end administration and eliminates any surprises in tax accounting."