Why Growing Businesses Should Not Wait Until Their Tax Issues Turn Into Legal Issues

A developing company faces more and more tax issues as it grows. New markets, new employees, merger & acquisitions, restructuring, or financing may require the attention of tax advisers. This challenge is universal regardless of the country. While a business may operate in Australia, the USA, the UK, Singapore, or Canada, tax governance becomes essential for scaling up even though there are differences in regulations, thresholds, and procedures from one country to another.

Nevertheless, many businesses are mostly focused on the growth of revenue and operations and neglect tax issues until there is a problem. However, a proactive attitude to tax compliance could help to lower risk, increase the effectiveness of the business, and avoid future disputes with the authorities.

To illustrate the importance of this problem, let us discuss the Australian experience of tax compliance, when the Tax Office actively works to ensure that all the organizations meet their obligations and when the tax disputes happen quite fast as soon as a business goes beyond its initial phase of development.

More Complexities as the Business Grows Up

As the company expands, it not only files taxes on time, but also encounters various tax problems connected with foreign expansion, acquisition, financing, incentives, and restructuring. Inability to deal with all these matters might bring extra tax liabilities, fines, and tax controversies.

Australian experience illustrates this process well. For instance, in recent years, there have been numerous tax disputes of large companies concerning their international structures, transfer pricing policies, and significant corporate transactions. What is interesting about these cases is that the main reason for conflict was not the misconduct of the business but merely the complexity of operating across the borders, structures, and transactions without sufficient specialized advice.

The same thing happens in other countries as well. A business that wants to expand its presence in Singapore from the UK or a company from Canada acquiring a subsidiary in the USA is in the same situation – different in details but identical in its essence.

Tax Governance Is Part of Good Strategy

Today, good tax governance is not a job for the finance department anymore. It requires business leaders to think of tax implications of their strategic decisions, including investments, expansions, and organizational changes. This kind of approach will help the business avoid uncertainty and make informed decisions.

The regulators become aware of this idea as well. Thus, Australian tax authorities have started to pay more attention to the corporate tax governance framework by requiring large companies to demonstrate that tax risk is actively managed at the highest management level and not at the operational one.

Those companies that have some documentation about tax governance processes, escalation policy in case of uncertain positions, and board of directors awareness of the tax risk tend to cope with the questions better since they could prove that their decisions were carefully considered.

However, this process is also relevant to mid-size businesses during their first acquisitions, overseas hiring, and organizational changes since tax considerations were neglected from the very beginning of the strategic process.

Do Not Wait Until Your Company Needs an Audit or Tax Dispute

A lot of companies consult a tax lawyer after receiving an audit notice or becoming entangled in the dispute. However, taking into account potential tax risks and problems in advance might help the company to avoid them.

Usually, when an organization receives a notice of audit, it means that it is already too late to take necessary actions. Some positions were made, some transactions were concluded, some documents were collected that might contradict a later position. Therefore, seeking professional advice at the planning stage allows the business to test its assumptions, make corrections, and collect all the documentation.

Companies conducting some significant transactions, facing some tax problems, or carrying out restructures could benefit from consulting experienced tax lawyers. This kind of advice is especially useful in countries like Australia, where the tax controversy has become a separate practice of law with the specialized practitioners familiar with both the technical aspects of tax position and the approaches of the regulators.

Choosing a Proper Tax Adviser

Different law firms specialize in different fields. Therefore, before consulting a tax adviser, the company should examine its practice and experience and make sure that it is suitable for the organization. The majority of commercial firms provide assistance with tax, corporate transactions, dispute resolution, banking and finance, employment, and regulation matters, thus helping a business at any stage of its development.

Moreover, if the organization has some cross-border operations, the company should choose a firm that has enough experience in working in the particular countries and not the firm with a general commercial practice. Firms with tax controversy capabilities, experience in international tax laws, and negotiation with revenue authorities would have much better chances to help a business solve its problems or avoid them in advance than a generalist practice.

Conclusion

Development brings some legal and tax responsibilities to the business. Considering tax issues in advance and consulting the tax lawyers will help the business avoid risks and make better decisions.

The Australian experience demonstrates the importance of this approach: companies that include tax considerations in their strategic plans have a better opportunity to cope with the disputes and, most of the time, to avoid them. No matter what country the company operates in, proactive tax planning is always better than reaction to the problems.