Businesses lack resources to manage tax risk - EY

THREE QUARTERS of large businesses struggle to manage their exposure, according to EY’s second tax risk and controversy survey.

In its report Managing operational tax risk, the Big Four firm found 75% of firms generating $5bn (£3bn) in turnover said they lack sufficient resources to cover tax function activities, while 64% said their internal communication is insufficient and 57% said they lack appropriate processes or technology.

Around half (49%) of said the overall size of their tax function has increased, with just 8% reporting a shrink in their tax operation, while 41% said it had remained the same.

A lack of effective technology lies behind the shortfall in effective management of tax risk according to 56% of respondents, with 44% of all companies surveyed either use no technology at all to enable them to respond to tax authority enquiries and manage open disputes or made it the sole responsibility of their local tax teams.

Despite that, 60% of the largest companies report having made changes to the way they approach the documentation of transactions for tax purposes in the last two years; this figure rises to 77% for companies resident in BRIC countries.

Director for tax performance advisory at EY in the US Gary Paice said: “Operational risk has wide ramifications for businesses large and small; every company has to deal with it. Yet not enough companies do it well. The operational side is the only one of the tax risk drivers that is fully within a business’s ability to control internally.”