What is it about?
Corporate taxes represent a significant cost of doing business for a company. We wanted to see what happens when boards of directors take an active role in risk oversight for a company’s tax-planning efforts – and we found that it makes a substantial difference to a company’s bottom line.
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Why is it important?
Tax uncertainty is the risk that the IRS or another taxing authority will overturn a company’s tax position, resulting in the company having to pay back the money it saved from the tax positions – as well as penalties. A good tax-planning strategy is one that results in substantial tax savings and does not subject the company to other risks or unexpected future tax liabilities. We estimate that companies with the highest level of board risk oversight have 31% lower tax uncertainty and 13.2% lower tax burden, as compared to the companies with the lowest level of risk oversight.
Perspectives
I hope this article highlights the important role individuals who serve on an organization's board of directors play in monitoring the risk-taking actions of management. Our study shows how more engaged boards of directors help balance the pressure of saving money through lower taxes without creating greater uncertainty that might lead to significant tax penalties and damaged reputation and brand.
Mark Beasley
North Carolina State University
Read the Original
This page is a summary of: Board Risk Oversight and Corporate Tax-Planning Practices, Journal of Management Accounting Research, June 2020, American Accounting Association,
DOI: 10.2308/jmar-19-056.
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