Corporate tax issues may not be the first thing on board members’ minds. But they should occupy a prominent position on any board’s agenda, especially in today’s economy.
Board members may think of tax issues as the purview of lawyers and accountants: important, but probably best left to specialists. Yet boards need to stay current on tax matters for two main reasons: value and risk.
Appropriately planned taxes can enhance a company’s overall value by improving corporate earnings, strengthening the PE ratio of company shares, and influencing the way analysts perceive and cover the enterprise. Tax issues are also closely tied to risk. When companies engage in tax planning, they are interpreting laws, an activity made risky by the possibility of disagreement between the company and tax authorities. If not property controlled, tax issues can lead to a finding of material weakness by auditors. Tax planning is therefore a crucial part of risk management.
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