Tax risk management

Increasing tax pressure is one of Chief Executive Officers’ main concerns, driving them to adopt internal controls and sound reporting processes to satisfy tax authorities, regulators and other stakeholders. At the same time tax authorities all over the world are keen to achieve a greater degree of conformity among taxpayers and to see that their fiscal policies are not superseded by global trade and economic developments.

Italian law, similarly to other juridiction, is promoting and forms of “enhanced cooperation” with larger taxpayers (referred to as “cooperative compliance” in research promoted by the OECD).

This form of cooperation is based on a transparent relationship between taxpayers and tax authorities, taking the form of the prior disclosure of the corporate organisational models adopted for the management of the areas of particular importance for tax purposes. This is intended to give businesses access to some benefits such as quicker rulings and final tax assessment on fiscal years, fewer formalities and lower penalties for infringements.

The two measures constituting the first decisive step towards the introduction of a “cooperative compliance” system in Italy are:

  • the Revenue Agency has started a cooperative compliance programme for large taxpayers, which the Agency is using to acquire information regarding the internal control systems of the taxpayers which took part in the project;
  • the government has been asked to lay down and issue detailed rules for the terms, procedures and systems of benefits proper to “enhanced cooperation” (Law 23 of 11 March 2014), which is awaiting implementation through legislative acts by the Government.

According to the above enabling law, larger taxpayers which wish to participate in the “cooperative compliance” regime must set up a “structured corporate tax risk control system”, i.e. a Tax Control Framework (hereafter “TCF”), as it is referred to in the OECD research papers.

In addition to being a requirement for taking part in the “cooperative compliance” programme, a TCF enables companies to identify and manage their tax risks. This constitutes its tangible usefulness, apart from the benefit derived from participation in such a scheme, in a scenario in which tax risk is on the increase both owing to the intrinsic complexity of the matter and the possible unfavourable reputational repercussions for both company and managers.

According to our experience, in many cases taxpayers already have a TCF in place, namely a set of procedures, which may not be complete or may only focus on obligations and which is often, if not always, uncoordinated with the company’s other risk management processes. The enabling law stresses the importance of the tax risk issue and would seem to indicate that businesses should examine the degree of maturity of their TCF.

With the advantage of the experience it has gained at international level, PwC Tax and Legal Services has developed a program (TCF Self assessment tool) with which you can conduct a preliminary self-assessment of whether your firm has the basic elements in place for managing and controlling tax risk.

This tool, which does not claim either to be complete or to serve as a reference for future legislative developments, can be accessed online free of charge and anonymously.

To access the tool you can consult your usual contacts in PwC Tax and Legal Services or click on this link. The procedures for access to the tool will be as determined by PwC Tax and Legal Services at its discretion.