Companies See Prospect Of Tax Audits As Governments Seek Revenue

by Leroy Baker, Tax-News.com, New York

13 April 2009

As governments seek additional revenue in the current tight economy, senior business professionals say the increased possibility of an audit by taxing authorities is the most significant tax risk facing their organizations today, according to a survey conducted by the Tax Governance Institute (TGI).

Some 30% of more than 500 respondents polled during a recent TGI webcast identified the possibility of a tax audit as their number one risk. Also, high on the list of anticipated tax risks were increased regulatory requirements (27%) and accuracy of tax provisions (26%).

“As countries and states seek additional revenue, corporate tax executives are bracing for a round of heightened regulatory scrutiny,” said Hank Gutman, principal at KPMG LLP, the audit, tax and advisory firm, and executive director of the TGI. “Companies know they will need to have documentation in place and accessible to demonstrate compliance with the many domestic and international tax requirements they regularly address in today’s global economy.”

Companies are also seeking to improve cash-flow in the current economic climate, the survey found. In fact, identifying and increasing the potential use of tax refunds, credits and incentives has been the top tax area of focus by companies in the past six months, according to 37% of respondents.

“By being alert to both overpayment of estimated taxes and opportunities to claim credits or utilize incentives, companies can reclaim some much-needed cash, a valuable commodity in today’s difficult marketplace,” said Scott Vance, KPMG.

The survey also revealed that compliance and reporting has been the tax function most focused on by companies during the past six months, according to 44% of respondents, followed by enhancing tax savings (21%).

“In difficult economic times, tax professionals can play a critical, strategic role for their enterprises,” said Gutman, “by both limiting compliance risks and effectively managing their refund and incentives opportunities.”

Among other key findings:

• During the past six months, most companies (47%) kept tax department resources about constant, with 28% reporting a decrease in their in-house tax resources.

• A majority of companies (69%) view tax risk management as an integral part of their organization’s enterprise risk management policy.

• Most companies (51%) said that reporting by the company’s tax function to the board and audit committee has remained about the same, while 18% said that such reporting has seen an increase over the past six months.

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