2014 Budget Seminar. Tax Risk Management in

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1 Budget Seminar Tax Risk Management in changing fiscal climate Paul C. and Mahip G. p PwC Singapore

2 Agenda Changing Tax landscape factors driving the change Current Development reflecting the increased tax risk Tax Risk Control Framework T3M to assess tax controls Conclusions PwC

3 Changing Tax Environment 3

4 What is driving the Change - New Economy Technological change 1940s 1990s 50 years 15 years 2010s & resulting mobility of global values chains Technology is integrating the world economy as never before - making the global value chains more mobile IP, capital structures, e-commerce, entrepreneurial centers and other value drivers moving to low tax jurisdictions with greater ease PwC 4

5 What is driving the change Tax laws needing an overhaul..corporate tax Perception is that existing tax rules are not system has leading to fair outcome in a new economy not kept pace with ih the advent OECD considers preferential tax regimes of the digital triggering a 'race to the bottom' by driving tax age and the to zero. rapidly changing global economy. Countries are already taking unilateral a actions Tim Cook rates on increasingly mobile sources of income to get their fair share of revenue with aggressive stands on PE, WHT, TP, substance requirement and so on PwC 5

6 Global Developments: Tectonic Shift Base Erosion and Profit Shifting (BEPS) Initiative Automatic Exchange of information Country by country reporting Anti-avoidance Tax Policy initiatives Developing economies Aggressive enforcement Arm s length principle vs. formulary approach Differing definitions of key concepts such as PE, intangibles, etc. Increased complexity overall NGO / Public Developed perspectives countries Political, media & social pressures Economic pressures Attack on income migration Respond or Perish The need for an effective tax risk management framework is more than ever PwC 7

7 Global Developments: Tax on Boardroom agenda st of CEO in the same survey conveyed that paying 2014 Tax risk is now Number One business risk per Lloyd s Risk Index moving up from 13th position 75% their fair share of tax is important t to their company % of CEOs in a latest survey supported the publishing of revenue, profits and taxes for each territory where their companies operate PwC 7

8 Global Developments: it is brewing hot PwC 8

9 Knowing Risks and Managing it 9

10 Question? Could you confidently explain to your stakeholders: what tax risks exist across your business, and how they are being managed / controlled/ monitored? PwC

11 Tax Control Framework A well managed tax control framework consists of: Strong tax governance with a tax strategy aligned with business In-depth understanding of where the key risks lie; Effective controls to mitigate identified risks; and Communications strategy to manage tax stakeholders Tax Control Framework Controls Monitoring key tax controls

12 Key Tax Risk Areas & Potential Responses Common Tax Risks Response Increased Tax Scrutiny Effective Tax Controls Risk Assessed Approach higher focus likely if tax controls are weak Identify gaps Penalty implications Assess existing controls Identify gaps Implement steps to fill the gaps Segregation of Income & Expenses into Taxable (deductible)/ non-taxable categories Tax incentive & normal categories Cross border Structure & payments Structures lacking substance Transfer Pricing documentation WHT Compliance Incorporate tax elements in the accounting system &process Periodical Tax Health Check Review Structures to assess risks in new environment Review of transactions/ processes PwC 12

13 Key Tax Risk Areas & Potential Responses Common Tax Risks Risk of Lost Opportunities Structures/ Transactions executed without considering potential tax costs/ savings Tax Planning not aligned to business strategy Response Mandate engaging tax function in All key structures, transactions & processes Regular interaction with business Tax Reporting Failing to recognize uncertainty Failing to recognize deferred tax Potential restatement risk Tax Accounting Process Review Integrating tax reporting into accounting system Outsourcing / review support PwC 13

14 Question? Given tax is top business risk - Can you sign off on adequacy of internal control without assessing tax risk controls? Are there any systematic tools that you can use to assess tax risk controls? PwC

15 How to assess Tax Control Tax Management Maturity Model Key Features: Based on internationally accepted models such as COSO Unique tool to support agreements on tailor-made supervision i (enhanced relationships etc.) Enforces an integral organisation-wide approach and not considering tax in vacuum Provides an objective and verifiable view of the degree tax control. Tax MRI scan T3M allows you to work in small steps (project-based) on an MRI scan of tax mngmt. A dynamic model focusing on diagnosis with underlying evidence. To reach final conclusion - professional judgment needed. Add assurance Establish ambition level Inventory and analysis Linking evidence PwC Overall status of current situation 15

16 Simplicity and details at a Glance.. The tax management situation should be clear at a single glance. In order to provide detail, the model consists of four stages. The first stage shows the current (or desired) situation. Stage 1: the overview This level comprises of six main drivers linked to five maturity levels: 1. Business (& Tax) Environment; 2. Business Operations; 3. Tax Operations; 4. (Tax) Risk Management; 5. Monitoring and testing; and 6. (Tax) Assurance. PwC 16

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18 .. Simplicity and details at a Glance The second stage provides more detail on the current situation. Stage 2: detailed view Points for attention are displayed for each main driver (stage 1). In the second stage, these drivers are shown in more detail in subcategories. The application allows you to assign a maturity level to each subcategory. PwC 18

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20 Objectivity and evidence For the model to succeed as a tool for gauging the quality of tax function internationally, it will have to be used as objectively as possible. For this reason, every sub-category in the second stage is checked against objective descriptions in the third stage in order to establish the degree of maturity. Stage 3: objective frameworks For each sub-category category, there are objective descriptions of the maturity level that applies. The description that applies the most can be selected with a simple click. This choice will be shown automatically in stage 2. Evidence and reasons will be given for the final conclusion. Stage 4: the evidence The fourth stage is no more than a portal for accessing existing evidence. This is evidence for substantiating maturity levels and the degree of control. In brief: not a prelude to yet more administrative work but a simple portal to all the relevant evidence. PwC 20

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24 Conclusion It is not the strongest or the most intelligent who will survive but those who can best manage change. Charles Darwin Environment has changed Reputation is invaluable Risk needs to be identified & Managed Opportunities have expiry date PwC 24

25 Thank you. Mahip Gupta Tax Director, PwC Singapore Paul Cornelius Tax Partner, PwC Singapore li 2014 PricewaterhouseCoopers Services LLP All rights reserved. PricewaterhouseCoopers Services LLP. or PwC refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), each member firm is a separate legal entity. Please see for further details.