1. Creating Taxpayer Awareness: Corporate Responsibility and the Forums for Taxpayer-Tax Administration Dialogue Deborah M. Nolan, Ernst & Young, LLP Americas Leader, Tax Controversy and Risk Management Services

2. Introduction

3. Page 2 1 2 4 3 Accelerating pace of globalization Changing model for tax administration Shifting economy Rapid succession of legislative and regulatory changes The changing landscape of global tax controversy and risk management

4. Page 3 Changing model for tax administration ► Tax administrations are beginning to operate like large taxpayers — globally. ► They are realigning their operating models ► They are forming collaborative working relationships with one another ► They are sharing leading practices, methodologies and taxpayer information in an effort to address common cross-border challenges and internal issues ► They are striving for greater efficiencies and effectiveness

5. Corporate Social Responsibility and Corporate Governance

6. Page 5 IRS Oversight Board – 2010 Taxpayer Attitude Survey

7. Page 6 IRS Oversight Board – 2010 Taxpayer Attitude Survey

8. Page 7 IRS Oversight Board – 2010 Taxpayer Attitude Survey How important is it to you, as a taxpayer, that the IRS does each of the following to ensure that all taxpayers honestly pay what they owe?

9. Page 8 IRS Oversight Board – 2010 Taxpayer Attitude Survey How much influence does each of the following factors have on whether you report and pay your taxes honestly?

10. Page 9 IRS Oversight Board – 2010 Taxpayer Attitude Survey ► Conclusions from the taxpayer survey: ► Individuals feel that it is their civic duty to pay their fair share of taxes ► Those who cheat on their taxes should be held accountable ► Tax administrators should be ensuring that corporations are reporting and paying their taxes honestly ► Integrity is a key factor in compliance with tax laws

11. Page 10 Financial and Reputational Risk of Tax Controversy ► Financial Risk ► Cost of additional taxes and penalties ► Restatement of financials ► Reduced future dividends ► Sale of assets to satisfy liabilities ► Reputational Risk ► Current media focus on corporate tax practices ► Shareholder confidence ► Share price

12. Page 11 Corporate governance and risk management ► Corporate governance taking a greater interest in risk management ► Company leadership ► Board of directors ► Internal and external auditors ► Regulatory agencies ► Sarbanes Oxley Act ► FIN 48 ► Schedule UTP

13. Page 12 Corporate governance and risk management “The board must oversee how management manages them (taxes). And that means some level of understanding, a set of policy principles and then a control system of review and reporting that assures the board that their policy is being carried out. My goal is to promote good corporate governance on tax issues and engage the corporate community in a dialogue about the appropriate role of the board of directors in tax risk oversight.” Douglas Shulman — Commissioner, Internal Revenue Service — United States “I am suggesting that you, the leaders of your organizations, should have a mechanism to oversee tax risk as part of your governance process.” “…the audit committee needs to know and influence what tax posture the tax planners are taking.” Dave Hartnett, HMRC Permanent Secretary for Tax – United Kingdom “Most of the material weaknesses and the business processes have to do with taxes…(the) result of this development is that tax is becoming increasingly important in the boardroom.” Theo Poolen, Deputy Director-General, Dutch Tax and Customs Administration — The Netherlands “Tax legislation has long imposed tax compliance obligations on companies. While this is not new, what we are observing — both here and overseas — is an increasing focus by regulators on the need for robust risk management frameworks. My question for you as directors is: how well-placed are you to meet increased levels of scrutiny, both now and into the future?” Michael D'Ascenzo — Australian Tax Office Commissioner

14. Page 13 Corporate governance and risk management OECD / Forum on Tax Administration (July 2009) ► Corporate Boards are accountable to their shareholders for ensuring appropriate corporate governance practices. ► Good corporate governance is fundamental to good business. The importance of good corporate governance and greater transparency is highlighted by the current global financial crisis. ► How a large business manages tax risk can affect its financial performance and reputation. CEOs and Boards of large businesses are increasingly considering tax risk management as part of their overall corporate governance. ► Tax administrations have a vital role to play in ensuring that corporate boards understand that they are ultimately responsible for their business's tax strategies and outcomes. ► Tax administrations are increasingly focusing on encouraging good corporate governance and enhancing relationships with large businesses.

15. Crossroads: Is there room for mutual interests and common ground?

16. Page 15 Tax administrators and taxpayers are searching for common ground ► Greater need for efficiency and effectiveness ► Scarce resources ► Need to close tax gap ► Need to get fair share of the global “tax pie” ► Maintaining a competitive tax system. Pressure on taxpayers Need for forums that allow for taxpayer and tax administrators to engage in dialogue ► Need for certainty as a business objective ► Changing business models ► Increased corporate governance ► Need for efficient use of scarce resources. Pressure on tax administrators

17. Page 16 Forums for taxpayer – tax administrator dialogue ► IRS Stakeholder Relationship Management (SRM) ► Leverage stakeholder relationship to help IRS achieve its tax administration objectives ► Support the IRS Strategic Business Plan ► Add value to external stakeholders ► Assist stakeholders and improve the overall consistency and quality for stakeholder interactions ► Federal Advisory Committee Act (FACA) ► Advisory committees provide advice that is relevant, objective and open to the public ► Advisory committees act promptly to complete their work ► Advisory committees comply with reasonable cost controls and record keeping requirements

18. Page 17 Forums for taxpayer – tax administrator dialogue ► IRS stakeholder groups ► IRS Advisory Council (IRSAC) ► Information Reporting Program Advisory Committee (IRPAC) ► Electronic Tax Administration Committee (ETACC) ► Tax Executive Institute (TEI) ► American Bar Association (ABA) ► Organization for Foreign Investment (OFII) ► Industry Groups

19. Page 18 Forums for taxpayer – tax administrator dialogue ► OECD Tax Intermediaries Study found mutual benefits to all parties from revenue bodies using modern risk-management concepts ► To achieve mutual benefits, study found that taxpayers must: ► Be transparent ► Be collaborative ► Make timely disclosures ► To achieve mutual benefits, study found that tax administrators must demonstrate: ► Commercial awareness ► An impartial approach ► Proportionality ► Disclosure and transparency ► Responsiveness

20. Page 19 Forums for taxpayer – tax administrator dialogue ► OECD Business and Industry Advisory Committee (BIAC) ► Promotes interests of business by engaging, understanding, and advising policy makers with the objectives of: ► Positively influencing the direction of OECD policy initiatives ► Ensuring business and industry needs are adequately addressed in OECD policy decision instruments ► Providing members with timely information on OECD policies and their implications for business and industry

21. Conclusion

22. Page 21 Conclusion ► Dialogue between taxpayer and tax authority has become more essential than ever ► The desire for proactive tax risk management has become a business imperative ► More companies are seeking to build collaborative relationships with tax authorities ► Tax administrations must maintain appropriate controls and protocols to engage externals ► Establishing a forum for dialogue with taxpayers can significantly aid tax administrators in establishing and improving practices for efficiency and effectiveness

23. Thank you!