This article was first published in the May 2019 Africa edition of Accounting and Business magazine.

The business environment continues to change at a rapid pace. Many actions that were once considered acceptable, even legal, are now being questioned on the basis of ethics and morality. This is as true for tax as it is for other business and financial obligations.

In this era of global tax collaboration and exchange of information, companies must comply with an array of regulations, such as the Common Reporting Standard, Country-by-Country Reporting and the Foreign Account Tax Compliance Act. Professional accountants in practice and in corporate roles are now required to disclose tax violations and non-compliance with laws and regulations to regulators in certain circumstances under the Responding to Non-Compliance with Laws and Regulations framework.

More and more countries are introducing corporate governance codes to establish good practice for managing organisations sustainably. Many of the principles included in these codes apply to the tax sphere. For instance, in the new Nigerian Code of Corporate Governance, unveiled by Nigeria’s Financial Reporting Council in January, 20 of the 28 principles have a bearing on tax obligations of companies. These include:

  • the requirement to promote ethical culture and responsible corporate citizenship
  • acting in the best interest of all stakeholders
  • ensuring a balance of skills and experience in board composition
  • use of independent external expertise
  • fair, responsible and transparent remuneration
  • effective internal control and audit
  • whistle-blowing framework
  • related party transactions
  • comprehensive disclosure.

Poor tax governance may not kill immediately but it will eat away at the body corporate over time. The consequences of neglecting it include reputational damage leading to loss of customers and investor dissatisfaction; loss of opportunity – for example, government contracts often require evidence of compliance in the form of a tax clearance certificate; corporate sanctions and penalties in the form of fines, prosecution and imprisonment for officers of the company responsible for violations; business disruption; and, at the extreme, closure – tax authorities have powers to seize company assets and sell them in order to recover taxes due.

Signs that a company may be failing to fulfil its tax governance obligations include senior leadership who neglect their own tax affairs – the chances are they will permit similar laxity in their business; persistent lateness filing returns and paying taxes, whether on the part of a company or a third party appointed by it; poor or incoherent disclosures in financial statements or other published reports; and use of excessively aggressive tax schemes.

Don’t hide

Hiding from tax obligations is not a sustainable strategy. A company should not look to avoid tax by failing to make full disclosure of its tax affairs; hoping that the taxman doesn’t find out is definitely not a solution. Here are some useful tips to help you achieve good tax governance:

Culture: develop a code of conduct that clearly spells out how the company deals with its tax affairs and share it with stakeholders including suppliers, customers, employees, investors and tax authorities.

  • Culture: develop a code of conduct that clearly spells out how the company deals with its tax affairs and share it with stakeholders including suppliers, customers, employees, investors and tax authorities.
  • Transparency: be transparent in reporting and disclose tax matters in detail; this can be part of integrated reporting. Publish your company’s total tax contribution showing all taxes paid (including those collected as an agent of government). Those who have nothing to hide have no incentive to hide.
  • Awareness: incorporate tax awareness training into staff induction programmes and organise regular refresher courses for existing staff at all levels, including the board and suppliers.
  • Record-keeping: keep proper records of income and expenses, and evidence of timely compliance with tax filing and payment; simply meeting your obligations as they fall due is not enough. Do not rely on tax consultants or the tax authorities to keep copies: that is your responsibility.
  • Plan cashflow: manage your cashflows properly and pay your taxes as they fall due to avoid huge liabilities including penalties and interest. Bear in mind that some taxes are payable based on profits which may not have translated into cash when the payment falls due.
  • Process: when dealing with tax authorities, be sure to follow due process and document your interactions for future reference. Under-the-table dealing is not the answer; it only delays the evil day.
  • Control, compliance and leadership: make tax an item on the board agenda; it is not something that can be left to back-office discussion or tax consultants. Monitor the tax environment and respond in a timely way to any changes.
  • Share information: maintain lines of communication with other departments and functions such as legal, procurement, logistics, finance and HR; tax is always a consequence of other transactions and so cannot operate in isolation.
  • Corporate tax strategy: plan how the organisation views its tax responsibilities in the context of its business operations in the short, medium and long term. There should be tax sign-off for corporate transactions and a plan to deploy technology for tax management including getting insights from tax data analytics.
  • Outside expertise: make use of tax specialists where necessary. Tax matters can be very complex and the cost of not consulting can end up far greater than the consultancy fee.

So, to sum up, companies should implement a tax plan, communicate with stakeholders inside and outside the company, monitor to ensure that they are on track, and update in response to changes to ensure they remain compliant. Those that do will come out in front.

In the words of former US president Franklin D Roosevelt: ‘Taxes are the dues that we pay for the privileges of membership in an organised society.’

Taiwo Oyedele is a partner and West Africa tax leader at PwC and founder and president of the Impact Africa Foundation.