This is increasing pressure on boards as they seek to balance their caution against the need to find ways to create shareholder value.

This conclusion comes in “The Governance of Tax”, a new KPMG International study of trends in tax management. It goes on to argue that over-cautious boards may risk losing value to competitors who treat tax as a source of competitive advantage.

“In the two years since we published “Tax in the Boardroom”, our first global discussion paper on the subject, tax has generally found its way on to the board agenda,” said the head of KPMG’s global tax practice, Loughlin Hickey, “but for many it has since moved down the list of priorities. “This new discussion paper concludes that tax may often be regarded as too complex and too time consuming for directors to deal with, and that the uncertainties created by the attention of some many different stakeholders increase the complexity. This can discourage directors from fully exploring their options when deciding how tax should be managed.”

But KPMG International argues that tax is now on the list of corporate governance issues that investors, the media and regulators can use to work out how well a company is being run. It follows that companies which are fully in control of their tax affairs, know what is possible within the organization’s particular constraints and communicate this information effectively to these stakeholders, are likely to be better regarded in the market than their competitors.

Typically, says KPMG International, a leading company in the tax field should:

• have a clear, defendable position on how tax and risk are managed
• have a well-documented, board approved tax strategy
• have an enterprise resource planning system able to provide useful tax information
• present tax information in a clear, meaningful way to both internal and external stakeholders
• seek influence in the tax debate between taxpayers and the tax authority.
  

“The number of companies that actively acknowledge the strategic significance of tax remains relatively low,” said Mr. Hickey. “But those that do tend to use tax to create value, perhaps in the form of a business driven piece of tax planning, a well executed disposal, or stealing a march on competitors by anticipating compliance developments.”

The KPMG paper stresses that good management of tax is only part of the task. It says that clear, credible communication has to be at the heart of a company’s approach to tax, and recommends an “outside in” approach.

This starts with various stakeholders’ requirements for information, which drive the board’s need for knowledge on tax matters, which in turn drives the organization and resourcing of the tax department.

“Open communication needs to be tempered by the board’s attitudes to disclosure and communications in general, to avoid over- reporting around tax,” said Mr. Hickey, “But I am convinced that companies which embrace greater transparency in their tax affairs and which invest in the necessary tools to manage tax and communicate well have a great deal to gain from doing so.”

About the survey

“The Governance of Tax” is a global discussion paper, prepared by KPMG’s Global Tax Practice. Our intention is to stimulate debate on the options open to companies in an environment in which the management of tax seems set to become one of the criteria by which corporate governance is judged by investors and important non-owning stakeholders.

The paper follows from “Tax in the Boardroom”, which was published two years ago and investigated the implications of treating the management of tax as a board level issue. “Tax in the Boardroom” aroused interest and provoked debate worldwide among academics, governments and regulatory bodies as well as business.

Copies of “The Governance of Tax” can be downloaded here.