Tax Risk Management Keeping Up with the Ever-Changing World of Corporate Tax March 27, 2007 Tax Services Bryan Slone March 27, 2007

Copyright © 2005 Deloitte Development LLC. All rights reserved. 1 Heightened Tax Risk Pressures More Risks Financial accounting Technical Strategic Compliance Operational Implementation Law change Reputation More Stakeholders Tax Director Chief Financial Officer Chief Executive Officer Chief Risk Officer Board and Audit Committee Lenders Investors Customers More Pressures Enforcement Regulatory Changes Transparency Corporate Governance Media Attention to Tax Political Pressures Capital Markets Pressures Estimates indicate that only about 30% of tax risk are actually controlled by the tax department Deloitte survey of Tax Directors of FTSE 100, the majority believe tax is likely to become a future indicator that a company is trustworthy and socially responsible

Copyright © 2005 Deloitte Development LLC. All rights reserved. 2 Why Tax Risk Management? Tax Planning Savings –Establish company’s tax risk profile –Facilitate continued tax planning savings Enhanced Controls/Effectiveness/Transparency –Periodic Risk Identification & Prioritization –Documented framework and timeline for remediation –Enhanced management communications More Effective Change Management –Resource planning/budgeting –Addressing process, data, and people risks –Rethinking the concept of a “Tax Calendar”

Copyright © 2005 Deloitte Development LLC. All rights reserved. 3 Model TRM Approach COSO – Enterprise Risk Management – Integrated Framework – 9/04 High-level goals, aligned with and supporting its mission Effective and efficient use of its resources Compliance with applicable laws and regulations Reliability of reporting – scope of 404

Copyright © 2005 Deloitte Development LLC. All rights reserved. 4 Internal Environment Encompasses the tone of an organization Sets the basis of how risk is viewed and addressed by an entity’s people Includes –Risk management philosophy and risk tolerance –Integrity and ethical values –Environment in which they operate

Copyright © 2005 Deloitte Development LLC. All rights reserved. 5 Decision Web Provides a policy for future decision making based on factors and risk tolerances established by your company. SizeAggressiveness Reportable Transaction Tax Advisor's Opinion Impact on Other Transaction Financial Benefit ReputationEase of Implementation Consideration Company Established Threshold Transaction Score Size41 Aggressiveness22 Impact on Other Transaction 24 Financial Benefit 42 Reputation44 Ease of Implementation 25 Tax Advisor's Opinion 21 Reportable Transaction 45

Copyright © 2005 Deloitte Development LLC. All rights reserved. 6 Objective Setting Setting objectives that support and align with the entity’s mission and are consistent with its risk tolerance.

Copyright © 2005 Deloitte Development LLC. All rights reserved. 7 Event Identification Identifying internal and external events that affect achievement of an entity’s objectives. Need to distinguish between risks and opportunities.

Copyright © 2005 Deloitte Development LLC. All rights reserved. 8 Risk Assessment Analyzing risks based on likelihood and impact to determine how risk should be managed. Assessed on an inherent and residual basis.

Copyright © 2005 Deloitte Development LLC. All rights reserved. 9 Tax Risk Map

Copyright © 2005 Deloitte Development LLC. All rights reserved. 10 Risk Response Developing a set of actions to align risks with entity’s risk tolerances and risk appetite. Potential responses: –Avoiding, accepting, reducing, or sharing risk.

Copyright © 2005 Deloitte Development LLC. All rights reserved. 11 Mitigation Plan Tax Risk Category Potential Impact Likelihood Urgency Mitigation strategy Mitigation Benefit (ROI) Estimated Cost to Mitigate Resources

Copyright © 2005 Deloitte Development LLC. All rights reserved. 12 Control Activities Establishing and implementing policies and procedures to help ensure risk responses are effectively carried out.

Copyright © 2005 Deloitte Development LLC. All rights reserved. 13 Deliverable: Mitigation Timeline 600 Hours 725 Hours 200 Hours 500 Hours 1000 Hours UK VAT Reportable Transactions Transfer Pricing Rev Proc Year One SUT Compliance Year Two 1 st Qtr2 nd Qtr3 rd Qtr4 th Qtr 1 st Qtr2 nd Qtr3 rd Qtr4 th Qtr

Copyright © 2005 Deloitte Development LLC. All rights reserved. 14 Information and Communication Identifying, capturing, and communicating relevant information in a form and timeframe that enables people to carry out their responsibilities. Flows down, across, and up the entity.

Copyright © 2005 Deloitte Development LLC. All rights reserved. 15 Monitoring Monitoring entirety of enterprise risk management through ongoing management activities, separate evaluations, or both. Adjustments made as necessary.

Common Risk Areas

Copyright © 2005 Deloitte Development LLC. All rights reserved. 17 Financial Reporting Risk The risk that tax transactions are not reported appropriately on financial statements. Primary focus of SOX 404

Copyright © 2005 Deloitte Development LLC. All rights reserved. 18 Operational Risk The risk of inaccuracies in tax accounting caused by normal day- to-day operations and communications infrastructure. Examples: –Complexities of globalization –Lack of communication among parties –Administrative inadequacies

Copyright © 2005 Deloitte Development LLC. All rights reserved. 19 Compliance Risk The risk of not complying with regulatory, judicial, and administrative requirements. Includes both the filing of returns and post-filing audits.

Copyright © 2005 Deloitte Development LLC. All rights reserved. 20 Transactional Risk The risk associated with applying current tax law to a particular set of facts. The risk that the company does not appropriately implement a transaction. Transactions will be closely scrutinized under the current environment. –Schedule M-3 –Reportable Transaction disclosures –Increased access to tax accrual workpapers

Copyright © 2005 Deloitte Development LLC. All rights reserved. 21 Strategic Risk The risks that planning is not adequate and/or actions are taken that are not within the company’s overall strategy.

Copyright © 2005 Deloitte Development LLC. All rights reserved. 22 Reputation Risk The risk that a company’s status will be harmed by a particular action/inaction.

Copyright © 2005 Deloitte Development LLC. All rights reserved. 23 Specific Examples Tax Provision Processes Tax Compliance Processes Tax Controversy Processes Tax Planning Processes Tax Risks Related to Non-Tax Operations

Questions?

Copyright © 2005 Deloitte Development LLC. All rights reserved. 25