Tax Governance: How In-House Teams Can Build Trust and Close Gaps
Why do some group tax functions operate as trusted business partners while others struggle to be consistently involved? This three-part series explores how in-house tax teams can harness governance as a strategic enabler to reduce risk, strengthen stakeholder relationships, and get things done more efficiently. Part one addresses the essential groundwork: identifying practical issues arising from governance gaps, and how to engage stakeholders in solving these problems together.
The ”sound familiar?” speech bubbles at the top give you a taste of how tax functions typically all face similar challenges. Teams tend to operate somewhere on the spectrum between the two extremes illustrated below.
Understanding the Governance Gap
Any Head of Tax or Tax Executive can probably think of several examples, where a policy that provides clear guidance has proven to be very helpful. This is especially true if the policy is widely known and accepted across all hierarchy levels of the organization. Conversely, you will easily come up with examples of areas that suffer from a lack of such governance.
Regardless of whether your department currently operates in a more reactive or proactive mode on the above spectrum, taking a step back and initiating improvements is bound to pay off. Some examples are illustrated in the table to the below.
|
Policy / Process |
Benefit |
|---|---|
|
Contracting policy |
Ensures consistency of contracting party to critical types of agreements |
|
Signature / PoA guidance |
Provides clear guidance on who can sign what, where, and for which legal entity |
|
Transfer Pricing policy |
Ensures consistency in intragroup transactions |
|
HR location policy |
Establishes a process to ensure key roles are based in locations consistent with the Transfer Pricing set-up |
|
Guidance on Terms & Conditions |
Ensures that Terms & Conditions include appropriate wording to cover material tax risk areas |
|
Approval of key transactions |
Ensures tax approves and/or has upfront visibility of e.g. mergers, liquidations, dividends, inter-company loans, R&D contracts, BD contracts etc. |
|
Tax audit guidance |
Establishes primary point of contact for interaction with local tax authorities, incl. sharing of documents / information |
|
Board meeting guidance |
For key entities such as main IP owners, tax should be involved in agenda setting and ensuring they take place in the right location |
|
Tax controls description |
Outlines how the tax function is organised and how it manages or mitigates the main tax risk areas – can be shared with internal + external auditors |
|
Review process for annual report |
Ensures consistency of any tax-related statements in the annual report with the group’s Transfer Pricing documentation |
Unfortunately, the introduction of more formal governance is often driven by costly mistakes. Trying to make progress in this area without such a triggering event can be challenging. It may, therefore, be advisable to start in small and informal steps, rather than trying to overhaul and formalize everything at the same time. Aiming for an all-encompassing “perfect” solution may have a paralyzing effect, so that nothing ends up getting done at all.
The Stakeholder-First Approach
Reframing “challenges” as “opportunities” sounds like a corporate cliché. Yet such a shift in perspective can prove essential. Governance procedures should be credibly positioned as what they ideally are – beneficial guardrails rather than obstacles. At their best, such processes support efficient business management and decision-making, while also providing a “comfort zone” for the business to operate in.
While other departments’ actions may be triggering significant tax exposure, the same colleagues can also be the tax team’s strongest allies. What steps can be taken to kick off the process of getting there?
- Start by identifying the top 3-5 areas to focus on. Which activities have the most material inherent tax risks? Which topics create a disproportionate amount of recurring work for the tax team?
- Schedule conversations with key contacts in the relevant departments. Discuss the main challenges that they are facing in their day-to-day work and how tax factors into that.
- Ensure that a common vocabulary has been established – the same words don’t always mean the same thing to everyone.
- Once there is a common understanding, explain the key tax risks that their activities create and that need to be managed. Whenever possible, quantify the potential exposure – attaching a credible number to the risk or to an example will make it real.
- Jointly explore options to address both the respective department’s main challenges as well as the tax function’s concerns.
Engaging in the conversation and seeking to understand stakeholders’ positions can already have a significant positive impact on risk awareness and behaviour – before anyone has even started to draft a new policy.
Part one has established the foundation: identifying pressure points and engaging stakeholders. Part two will build on this groundwork by exploring how to design governance frameworks that achieve their intended result.
Deloitte’s View
Governance is often deferred until crisis forces action—a costly approach. Deloitte's broad experience across in-house tax functions of all sizes reveals a consistent pattern: teams that invest in governance early gain competitive advantage. They reduce audit risk, accelerate decision-making, and secure their seat at the business table.
Authors
- Anna Eldring - Director, Tax & Legal
- Markus Reese - Partner, Tax & Legal
- Lucie Winklerova - Senior Manager, Tax & Legal
