Denis Yekoyasi Kakembo, a tax and energy lawyer and Managing Partner at Cristal Advocates, a law firm specialised in tax, energy and infrastructure, makes a case for why tax matters are too important for safeguarding the future growth of every organisation.
As such, they should not be ignored, nor left to the finance department alone. They argue, tax issues should form a core part of every organisation’s corporate governance agenda and therefore should be elevated to the highest level in the organisation- the board, which must also have specific tax competences.
Though tax is a key operational business risk, few organisations adequately attend to it merely treating it as a routine financial accounting and reporting matter. Businesses lacking elaborate policies in place to guide tax governance are more likely to deal with the arising issues reactively on an adhoc basis yet a proactive stance with Board of Directors (“Board”) oversight is more beneficial to the organisation as this article sets out.
Corporate governance focusses on helping the Board to direct and control the organisation so that its goals are achieved for the benefit of all the stakeholders. The stakeholders in a company typically include but are not limited to the shareholders or investors, employees, customers, and suppliers. Shareholders appoint the Board of Directors and the external auditors. The Board sets the strategic objectives in addition to providing leadership and supervision of the executive management.
It is a core mandate of the Board to put in place policies that help the business to mitigate risks. Despite its elevated significance in recent times, many organisations do not prioritise the handling of tax risks. Well- known Ugandan entities have shut down or wound up because of liabilities from non-compliance with tax obligations. Multinational corporations are under increased scrutiny from the tax authorities. Civil society players are also lately very attentive to issues of tax justice. Organisations and individuals featuring in recent high-profile leaks of aggressive tax avoidance schemes have had their reputations tainted.
As a basic requirement, it is important that some of the board members are well acquainted with tax matters. The Board should come up with a comprehensive policy that addresses the various organisational governance issues to adequately manage tax risks. The tone at the top should be loud and unequivocal of the underlying commitment of the company to comply with all its tax obligations.
Casual tax stance
A casual stance towards tax compliance can be costly. The sanctions for flouting tax laws do not care whether non-compliance was deliberate or inadvertent. In fact, many times, the non-compliance is unintended only arising because of the lack of prioritisation of controls to enforce tax compliance. It is a failure of responsibility for the Board if the organisation perpetually incurs tax penalties and interest that are easily avoidable with compliance.
Responsibility for tax matters
It is ideal that there is a dedicated team overseeing tax matters. Seeking to manage costs, many organisations merge the responsibility of tax management with the other functions of financial accounting and reporting. Tax matters however tend to be specialist and a general accountant without orientation towards the same may struggle to serve the organisation well. Continuous professional training of tax personnel is also important to enable them keep abreast with the current trends. Tax is very dynamic with amendments to the law almost every year.
Appointing external consultants
Value for money considerations should guide the business in appointing an external tax consultant retained to help with tax matters. Some organisations are reluctant to engage well-grounded consultants purportedly saving costs. Experience has however shown that it is more expensive in the long run for a business not to engage consultants. The avoidable tax penal charges arising because of the lack of appropriate support are significantly more than the consultant fees.
Tax risk and opportunity reviews
It is also good practice for an organisation to undertake a tax risk and opportunities review at least once a year or every six months. These reviews serve a twofold purpose helping the business maintain a high degree of compliance while at the same time identifying legitimate tax planning opportunities to optimise shareholder returns. It is also recommended that tax review findings are directly reported to the Board.
There are benefits in the law in the form of interest and penal waivers for the voluntary disclosure of tax liabilities. The findings of tax reviews by professional consultants are more likely to be taken up without further interrogation by the tax authorities.
Finally, directors are in most instances personally liable for corporate breaches. Directors who do not pay attention to tax compliance matters in organisations that they superintend are more likely to find themselves at the receiving end of sanctions for corporate tax breaches. For this reason, in addition to the others raised above, directors should make tax a key part of the corporate governance agenda.