Tax planning

Some companies have a dedicated department that deals with tax. However, this does not mean that the treasurer doesn’t need to know anything about tax. In fact the opposite is true. The more that the treasurer knows about tax, the more effectively they can communicate with the internal tax department and other specialists.

Tax planning

Many large transactions have substantial tax effects and tax can be a significant component of the total cashflows and costs of the business. Tax planning is the important work done to manage the amount, timing or certainty of tax cashflows. Paying the right amounts of tax on the right dates will avoid any late payment penalties or reputational damage.

In recent years some organisations have faced significant reputational damage and negative press given aggressive tax planning schemes and structures. Whilst this might have saved tax in the short-term, the longer-term damage from this could have a severe negative impact on sales.

Adding value

In the context of tax, adding value means striking the right balance between tax planning and successfully managing tax compliance costs. A company benefits if both the tax and treasury functions are involved in strategic decisions at an early stage. This early involvement should allow tax liabilities to be minimised legitimately in ways that will not lead to any problems later.

Reputational and other tax risks

If tax issues are not understood or the tax rules are not correctly followed, a number of potentially damaging outcomes could follow. These include:

• accusations of corporate tax evasion
• loss of reputation
• financial costs of correcting errors
• payment of financial penalties to the tax authority
• the cost of the time of staff who have to investigate and correct errors
• loss of focus on other important parts of the business.