Audit questions by tax authorities

Whenever I talk to tax leaders, I hear that tax audits become more complex to handle. They take more time and resources. As the tax authorities step up their data mining and data analytics game by combining the data obtained from multiple tax domains, they have a better understanding of the taxable position of multinationals and the inconsistency in reported positions across the different tax domains. Furthermore, tax authorities tend to take more aggressive positions, sometimes contrary to the aspired “horizontal” relationship that is envisaged in certain cooperative compliance regimes.

Tax audits never come alone, there are always multiple inspections at the same time, in multiple countries, sometimes even multilateral audits 😬. They come in waves of activity, with busy periods upon the receipt of a lengthy questionnaire for which in-house tax needs to collaborate with the diverse internal (finance, legal, treasury, the business) and external (advisors) stakeholders in order to prepare the answers. And calmer periods upon provision of the answers, after which the tax authorities need to analyse all the information received. Given the lengthy nature of these audits (multiple months to years), it is very challenging to recall exactly where you are in the process, what has been received vs provided, and what the next steps and related deadlines are.

Sure, your CFO and board want a real-time overview of all your positions, the status, the aggregated exposure and risk levels, and the provisions that have been booked. As if the in-house tax team is supposed to have these overviews readily available 🙄

In any case, it is clear that tax teams need to improve their tax audit readiness. The tax authorities are investing heavily, with very impressive outcomes. At the same time, your stakeholders are more and more focused on tax risk, including your investors, board and CFO. I'm curious to hear from you what best practices your team is applying here…

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