The basis for sound tax-risk management is a tax-risk policy that needs to address what the strategic, operational, financial accounting and compliance tax risks are in the business and what the response is to those tax risks, if and when they occur.
Tax risk management is not about minimizing tax risk but about determining what level of risk is acceptable to the business, how internal mechanism is set to address such exposure, what response is required to identified tax risk and monitoring that such response is actually taking place.
These controls are easy to monitor but are time consuming and often regarded as a burden on the organization. Tax Risk Management is a first step to be able to demonstrate that the tax department is in control of the tax function. Also, it will make it easier to assign resources and budgets to the tax function without increasing the business’s tax-risk profile.
Tax-risk management is not only about documentation, but about making sure that your organization actively monitors and responds to tax risks, if and when they occur. It is about people, processes and technology.