How your in-house lawyer can help your business manage tax risk

September 13, 2017 | BY SHANNON Q

For businesses operating in today’s global economy, the tax challenges are many. Complex laws, increased regulatory scrutiny, a growing compliance burden, and having to handle ever increasing volumes of data all make managing tax risk more difficult than ever. 

Having an in-house legal resource can be a cost effective way of asserting control over and enhancing the value of your business’ tax function to your entire organization, particularly when pursuing a growth strategy through acquisitions.

It’s important to think about hiring the right talent because managing tax issues often falls outside the core business of most companies.  While tax compliance is something all businesses must address, the tax function often is not integrated with the other core business functions. It’s also expensive. No doubt, large companies can rely on sophisticated tax departments with the bench strength and capacity to anticipate risks and minimize the tax impact of strategic acquisitions and expansion initiatives to achieve growth.

Smaller businesses don’t have that luxury. They might look instead to their external advisers who will help out with compliance work and some tax structuring. But rarely are these professionals fully immersed in the strategic direction of the business and its day-to-day operations. Relying solely on outside help also begs the question of who has overall responsibility for the day-to-day management of tax and business risk and global compliance needs.

Naturally, if you decide to hire in-house counsel, it should be someone whose primary function is to support your company’s ongoing transactional and legal needs.  But truly effective in-house counsel also understand the big picture of the business. If that person has a good grasp of complex tax issues in a transactional, strategic and global context, then you have a key advisor to help guide the business in meeting its strategic objectives. You also have someone who can effectively manage key business risks, including tax risks.  Your in-house counsel can prepare a 3-5 year tax and risk management plan that integrates strategic considerations and can develop efficient document management processes for effectively meeting your tax reporting obligations and responding to audits. Ultimately, this will lower your overall tax spend while unlocking opportunities for value creation.

Another key advantage is that communications with your in-house legal advisor to seek legal advice is considered privileged information. Communication of legal advice cannot be compelled by a court of law, which enables a more open discussion between the lawyer and decision-makers contemplating a transaction.

Obviously, for a business expanding its footprint into new markets across borders, it will be necessary to hire outside tax expertise. But the in-house lawyer who understands complex tax issues will serve as an important bridge between internal tax compliance and external tax advisors. She can ensure that your legal agreements properly contemplate and reflect your strategic business and tax objectives, and are respected at tax compliance time.  She can also put in place the necessary policies, processes and control to ensure your tax and strategic plan is effectively deployed throughout the business. This will allow your business to show there is a continued legitimate business purpose to your global structure, which respects the spirit of the tax laws governing the organization and withstands scrutiny by a tax authority.

Part of that involves in-house counsel educating the management team and directors about the tax and strategic plan, on the requirements of jurisdictions where subsidiaries are located, and how to operate the business in a tax compliant way.  It also involves maintaining communication between various business functions across the company – something that in-house counsel are typically good at.  In addition to managing the company’s tax structure, the in-house counsel will keep an eye on the quickly changing tax landscape as well as any operational risk that may creep up within in the company as a result.

All over the world, as tax authorities move toward stepping up enforcement and transparency initiatives, companies of all sizes are forced to reassess whether they are truly equipped to manage their day-to-day and long-term tax and business risks.  With the proper in-house legal talent in place, a company can achieve meaningful compliance on an ongoing basis, reduce its risk exposure to major tax issues, and take advantage of opportunities in pursuing growth strategies.

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