Clifford Chance
Tax is increasingly a critical boardroom risk. Rapidly changing tax laws, wide-ranging corporate criminal offences and increasingly assertive tax authorities mean unprepared companies and executives face severe reputational and financial consequences.
The tax landscape has changed dramatically for corporate taxpayers in recent years. Successive governments have strengthened the power of tax authorities, arming them with increasingly onerous reporting requirements and the new threat of criminal sanctions against companies and their staff. At the same time, tax authorities have been emboldened by successful challenges against aggressive tax avoidance and evasion.
The combined effect is that tax authorities are now ever more assertive against corporates, and authorities have been willing to pursue a range of increasingly questionable technical arguments, including in relation to ordinary tax planning. This has created a range of new and unprecedented board-level risks.
When should a company accept a tax authority's arguments; and when and how should it push back? How can a business minimise its risk of exposure to corporate criminal tax offences resulting from unsanctioned acts of its employees or agents? And what procedures should it adopt to ensure it has a robust defence, should the worst happen? And how should a taxpayer deal with an unannounced "dawn raid" by a tax authority?
Our tax team can help you to identify key risks, deal with tax authorities in a manner which minimises reputational and financial risk, and ensure that you are prepared against the unexpected.
Be clear on tax risk
5 questions to ask yourself
How will new laws impact us?
What worked before may no longer work today. What might have been considered routine tax planning a decade ago may now be labelled unacceptable tax "avoidance" or even "evasion" by tax authorities, and businesses face both changes to tax laws and new criminal law obligations.
Tax authorities continue to curtail tax driven arrangements and to allocate taxable profits to jurisdictions where customer-facing business activities take place. High profile examples include more aggressive approaches towards transfer pricing, new legislation in relation to the OECD's BEPS initiatives and the implementation of new digital services taxes.
These developments mean multinationals must continue to reconsider their historic arrangements to ensure they remain compliant. Our tax team are experienced in helping taxpayers through this process.
New criminal legislation also imposes criminal liability on corporations, including unlimited fines, for the tax-related actions of their staff and associated persons. The only defence is to ensure that the business has reasonable procedures in place to prevent a tax offence from being committed.
Our tax risk management team has advised banks, football clubs, financial institutions and major corporates to carry out risk assessments, train their staff and establish processes in order to ensure that, if the worst case should unexpectedly happen, they have a defence against criminal liability.
How will you deal with requests and investigations from tax authorities?
Dealing with tax authorities in a manner that minimises reputational and financial risk has become a priority. Businesses need to identify key risks that impact their organisation, be prepared for investigations and have the right people on hand to assess and escalate risk events when they occur.
Our tax disputes and investigations team are experienced in guiding clients through the process of dealing with difficult requests from tax authorities, and in advising businesses on how and when to push back against tax authorities in order to remain fully compliant and maintain their relationship with the authorities, while avoiding wasted time dealing with broad and overly onerous requests.
Are you prepared for new corporate criminal offences which apply globally?
Tax authorities are increasingly relying on criminal powers against taxpayers.
In jurisdictions such as Italy, Spain and Germany, senior individuals regularly face criminal sanctions, including prison sentences, as a result of investigations into their company's tax affairs.
In other jurisdictions such as the UK, corporate taxpayers may face criminal liability including unlimited fines for failing to put procedures in place to prevent their staff and associated persons from facilitating a tax evasion offence, anywhere in the world, with or without the taxpayer's knowledge.
Has your business carried out a risk assessment, trained its staff, and implemented procedures to deal with these risks? Our tax risk management team has helped a range of taxpayers to put processes in place to prepare and provide a defence against potential criminal liability.
Has your board set appropriate policies to deal with tax risks?
Tax is now a boardroom issue.
Tax authorities, armed with enhanced legal powers, are now more assertive against corporates than ever. In our experience, authorities are increasingly willing to pursue a range of questionable technical arguments against taxpayers.
This creates new Board level risks.
One risk is that tax authorities may pursue historic taxes, penalties and interest, even in relation to ordinary tax planning. If they do so, the tax authority will seek to ascertain the motives of the company in entering into the particular transaction, by requesting an exceptionally wide range of documents and information from the taxpayer. Does your company have processes to ensure that your motives are properly recorded, in a way which cannot be misconstrued by tax authorities years later?
An even more significant Board risk arises when criminal investigations are pursued against businesses which have not done enough to prevent their staff from facilitating tax fraud. Such businesses face significant reputational risks and a potentially unlimited fine.
Our tax risk management team has helped a range of taxpayers to deal with aggressive investigations by tax authorities; and has significant experience advising on policies, procedures and staff training to provide corporate taxpayers a defence against criminal liability.
What is your response plan in the event of an incident?
Aggressive action by tax authorities is becoming more prevalent including unannounced "dawn raids" against corporate taxpayers. Such raids are often reported by the media, whether or not tax laws have been fully complied with.
Does your company have specific procedures in place should these raids happen? Would your staff know how to manage the situation? Do you have an effective response ready?
Our tax risk management team have helped our clients to prepare, including equipping clients with our "Dawn Raids" app, to provide practical on-the-spot guidance on how to react.
