The publication of standard UNE 19602 on tax compliance management systems, slated for the first half of 2019, poses a great opportunity for companies to ensure that their tax compliance risks are appropriately managed and to review how the tax area fits within the criminal compliance system. Risk associated with breaches of tax obligations affect all companies and must be afforded special attention.
Moreover, in the past few years, corporate compliance has been in the spotlight of public opinion and corporate reputations, and has been routinely addressed in non-tax laws. For example, the Criminal Code reform that introduced criminal liability of legal entities (primarily Laws 5/2010 and 1/2015) criminalized offenses against the public treasury.
Accordingly, entities can incur not only administrative penalties but also criminal liability for infringing tax laws. In addition, Law 31/2014 amending the Capital Companies Law to enhance corporate governance established specific tax responsibilities for the managing bodies of listed companies.
These rules have placed compliance (criminal and tax), along with good governance, into the spotlight as a way to achieve appropriate risk control and fulfill regulatory requirements, as well as to avoid liabilities of both types that would severely affect entities and their directors. In this context, the Spanish Association for Standardization commenced its project to issue standard UNE 19602 “Tax compliance management systems. Requirements and guidance”. The standard was drafted by a committee comprising professional firms, various companies, universities and certain regional and local authorities.
The standard establishes requirements and guidance for adopting, operating and continually improving tax compliance management systems within organizations. Following publication of the definitive text, organizations will have a complete, structured and exacting standard or model, integrated with pre-existing general and criminal compliance standards.
Beyond that, the standard can help companies in other ways, by guiding the approach company directors, executives, compliance officers and tax managers must follow. Firstly, the model implemented must be appropriate for the entity in question, and be devised through a specialized project. Even though these aspects may seem cut and dried, it is here that serious errors are often made. The size of an entity and its business sector, risks, internal operations, tax management and relationship with the tax authorities are, without a doubt, key factors that determine the appropriate approach, nature and content of the measures and protocols to be adopted.
Secondly, the standard contains a series of formal rules and requirements that must be implemented in management and taxation of an entity, based on a deep knowledge of the model, of compliance (tax and general) and of the company.
The exact usefulness and interest this standard has may differ depending on the particular features of each entity. In some cases, it can provide a control system to ensure solid tax management, helping to avoid criminal and other risks. In those businesses whose directors or executives have doubts or uncertainties about taxation, it can be an ideal opportunity for implementing measures (and assigning resources), under a systematic framework, that ensure that risks are properly and proportionately controlled.
Experience has shown that measures adopted as part of a crime prevention plan or a general compliance plan can be too generic to carry over to the tax arena, an area that requires the knowledge of specialized professionals. Publication of this standard is a good opportunity to specifically review the tax area.
In highly structured companies with well-developed tax management and established protocols or that have already adhered to cooperative compliance schemes, the new standard can be a way to review the strength of the procedures and policies or to complement existing tax management. This must be done comprehensively with the entity’s remaining compliance areas.
But above all, given that certification under the standard will be available, any type of organization may look to the standard, in the medium term, as a way to secure a public and audited credential evidencing its diligence (and that of its directors) in tax control and management.
José Vicente Iglesias, partner at Tax Department of Garrigues in Madrid.