Make Tax Planning a Part of Your Company’s Risk Management Strategy

Three strategies for boards.

by

and

Michelle McAllister

by

and

Michelle McAllister

November 13, 2020

Phil Ashley/ Getty Images

Summary.

Companies face a taxpaying dilemma: Paying less means higher earnings and a higher value for shareholders, but overly aggressive tax minimization strategies can lead to fines, public scrutiny, and/or reputational damage. Research finds that companies that incorporate their tax-planning decisions into their overall enterprise risk management are better able to find that balance of risk and reward. To do this, boards should 1) Take responsibility for risk oversight; 2) Engage in risk-monitoring activities on a regular basis; and 3) Foster an appropriate risk mindset.

The five largest U.S. companies (Apple, Microsoft, Alphabet, Amazon, and Facebook) reported an average income tax liability of $7.3 billion in their 2019 annual reports. Yet those same companies have repeatedly faced criticism from politicians and activists for aggressively avoiding paying billions more.

Mark Beasley is KPMG professor of accounting and the director of the Enterprise Risk Management Initiative in the Poole College of Management at North Carolina State University. Having published over 100 articles and thought papers, his research particularly focuses on the intersection of enterprise risk management (ERM) practices and corporate governance. He frequently works with boards and senior executive teams on ERM implementation issues.
Nathan Goldman is an assistant professor in the Poole College of Management at North Carolina State University. His research examines capital market consequences of corporate taxation and has been published in journals including The Accounting Review, The Journal of the American Taxation Association, Journal of Accounting, Auditing, and Finance, and Journal of Management Accounting Research.
Christina Lewellen is an assistant professor in the Poole College of Management at North Carolina State University. Her research primarily focuses on the determinants and capital market consequences of corporate taxation and the intersection of corporate governance and taxation, and her work has been published in journals including Contemporary Accounting Research and Journal of Management Accounting Research.
Michelle McAllister is an assistant professor in the W. A. Franke College of Business at Northern Arizona University. Her research considers judgment and decision-making issues in auditing and accounting, and her work has been published journals including The Accounting Review and Journal of Management Accounting Research.

Make Tax Planning a Part of Your Company’s Risk Management Strategy

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