The evolving tax landscape and oversight of tax strategy

January 2016

On 23–24 November 2015, members of the European Audit Committee Leadership Network (EACLN) convened in Barcelona for their 24th stand-alone meeting. In a session on current developments in the tax arena and board and audit committee oversight of tax, they were joined by Josephine Feehily, former chair of the Office of the Revenue Commissioners in Ireland and former chair of the Forum on Tax Administration at the Organisation for Economic Co-operation and Development (OECD); Matthew Mealey, international tax partner at Ernst & Young LLP; and Chris Sanger, partner and global tax policy leader at Ernst & Young LLP. 

The expert guests and EACLN members touched on four topics: 

  • Global tax trends
    Corporate taxation has become a prominent issue in recent years, with several interrelated trends unfolding across the globe. Governments have become more intent on bringing in tax revenue, even as they continue to encourage investment by offering tax incentives to multinational companies. Meanwhile, the public and media have become much more aware of the tax strategies used by both companies and governments, sparking anger and more scrutiny. These developments have led governments to initiate coordinated reform efforts to reduce the ability of companies to avoid taxes. These efforts include modifying tax rules, increasing transparency and collaborating on enforcement.

  • EU initiatives on tax
    The European Union (EU) is moving aggressively to address taxation issues, creating uncertainty for companies in Europe and beyond. The European Commission’s (EC’s) competition directorate is waging a campaign against special deals between companies and tax authorities, based on the charge that these deals constitute illegal state aid. In addition, the EC’s tax directorate and the European Parliament have launched a variety of initiatives in pursuit of objectives such as better reporting on tax and tax rulings, a common consolidated corporate tax base across Europe and improved transfer pricing.

  • The OECD’s Base Erosion and Profit Shifting (BEPS) project
    To aid the Group of 20 (G-20) in its focus on tax, the OECD has recently completed a project to tackle base erosion and profit shifting, known as BEPS. Its recommendations include country-by-country reporting to tax authorities, new rules on transfer pricing and intellectual property regimes, and more exchange of information on tax rulings. While some of these issues are already being addressed, the completion of the project will accelerate the changes being implemented around the globe, with significant implications for how companies manage their tax affairs and conduct business.

  • The board and audit committee’s oversight of tax
    Tax issues often rise to the board and the audit committee, where various aspects of tax strategy and administration are discussed. A key concern is how the goal of minimizing tax is balanced against compliance concerns and reputational considerations.  Boards may also review relations between the company and tax authorities, and the nature of disclosures about tax. The tax function itself comes under scrutiny as well: its critical processes and procedures, the qualifications of the staff and the use of outside advisers. In all these areas, the recent wave of changes is forcing boards to reassess their companies’ basic assumptions and approaches.