Building a successful Tax Risk Register
What is a Tax Risk Register?
A tax risk register is a comprehensive list of potential tax risks associated with an organisation's operations. By maintaining a reliable, auditable, and technologically supported tax risk register, tax professionals can systematically identify and assess potential tax risks and prioritise their management efforts accordingly. Based on the above problems and benefits we identified, a tax risk register can contain the following information:
Details of the nature of the risk and reporting tools
- A detailed understanding of the source of the risk, including tax type, entity and jurisdiction;
- The risk type and where the risk is placed within the organisation;
- The expected financial and accounting impact; and
- A risk assessment of the materiality and likelihood of crystallisation, based on the risk appetite of the organisation.
Governance aspects relating to the risk
- A RA(S)CI matrix of the stakeholders
- A mitigation strategy linking the risk assessment to a risk management process;
- An auditable, transparent and supporting summary to serve as contemporaneous documentation on how the team dealt with the risk, including a detailed timeline of actions taken to mitigate the risk; and
- An understanding of how the risk evolved over time.
Communication tools
- A visual representation of the overall tax risk environment of the organisation;
- A visual risk matrix, mapping risks by materiality and likelihood of crystallisation;
- A visual risk trend analysis per tax type; and
- An overview of jurisdictions where risks have arisen, preferably in a map view.
How to build a robust Tax Risk Register?
Getting started
To establish an effective tax risk register, start simple. Identify the key risks associated with your organisation's specific tax types. Define the processes involved and the parties responsible, and determine the necessary measures to manage the risks associated with these processes. Utilising tax technology can assist in translating these requirements into efficient processes, controls, and comprehensive overviews.
Align the tax risk management environment to the risk framework of the wider businessTo manage tax risks effectively, organisations should adopt a strategic approach that encompasses the entire company and its global operations. This involves integrating tax risk management into the overall risk management framework and establishing top-down governance structures. As noted above, tax is rarely a standalone process, and so risk management assessments and processes should align with those of the wider organisation.
This also allows for further buy-in from the business. Board members and C-suite stakeholders should fully understand the company's tax profile as it extends beyond financial implications and moral and ethical considerations, encompassing reputational risks as well. Defining a clear approach to tax planning establishes a strong foundation for proactive risk management and future mitigation opportunities.
Enhance your digital capabilities
In today's digital era, leveraging technology is crucial for optimising tax risk management. Implementing a new digital operating model revolutionises tax compliance and audit readiness. Utilising advanced tools and technologies to archive digital files facilitates efficient data retrieval and analysis during audits. Additionally, establishing a real-time data compilation system grants immediate access to relevant information for audit defence and potential controversies.
Manage the lifecycle of the risk register
Follow a structured approach to managing the tax risk register throughout its lifecycle:
- Assess: Conduct an initial evaluation of the organisation's tax risk and governance position.
- Plan: Develop an action plan to mitigate risks in each area. Implement proportionate controls to reduce risk levels.
- Monitor: Regularly review the risk register to ensure it aligns with the organisation's evolving needs.