This document discusses taxation risks and their management from both domestic and international perspectives. It defines tax risks as uncertainties related to the application of tax law and how tax liabilities are determined based on a company's facts and operations. Specific tax risks include transactional risks from unusual transactions, operational risks from day-to-day business, compliance risks from tax filings, and financial accounting risks. Generic risks include portfolio risks from multiple specific risks and management/reputational risks. The document outlines steps to manage tax risks, including identifying and assessing risks, reducing risks, ongoing execution, and establishing a tax risk policy. Benefits of tax risk management include improved understanding of tax strategy, better internal communication, a framework for tracking tax risks,

1. Taxation Risks and their Management
(Domestic and International Perspective)
Prof. JUDr. Tomas Balco, LL.M., ACCA
KIMEP Almaty

2. WHAT ARE WEWHAT ARE WE
TALKING ABOUT?

3. TAX RISKS
• Risks = business uncertainties
– uncertainties in respect of tax – give rise to tax
risks
• May Arise in relation• May Arise in relation
– to the application of tax law and practice
– to particular facts,
– to the facts themselves or
– to how well systems operate to arrive at the tax
results of the business activities and operations.

4. TYPES OF TAX RISKS
(SPECIFIC)
• Transactional risk
– Related to a particular transaction
• The more unusual and untested, the higher the
risk, (Tax Avoidance scheme?)
• Operational risk• Operational risk
– Applying the tax laws to the routine every day
business operations
• Related Party Transactions, Creation of taxable
presence

5. TYPES OF TAX RISKS
(SPECIFIC)
• Compliance risk
– Organization's tax returns and the risks within
related processes
• Impossible to fully eliminate, linked to
reputational riskreputational risk
• Financial accounting risk
– Implications for the financial statements and
Internal Controls
• Appropriate estimates? (Balance Sheet , Income
and Cash flow statements)

6. TYPES OF TAX RISKS
(GENERIC)
• Portfolio risk
– Cumulative impact of several specific risks
• Worst come worst (Multiple jurisdictions risks)
• Management risk• Management risk
– Absence of proper risk management
• Mismanagement of the tax risks (Ignorance)
• Reputational risk
– Reputation with various stakeholders
• Can in turn have impact on other risks

7. WHAT CAN HAVE IMPACT?
• Disclosure obligations
– US GAAP, IFRS require accounting for tax uncertainties
and proper disclosure
• Raising a red flag for the tax authorities
• Change of Legislation• Change of Legislation
– Redefining the tax liabilities – impact on business
– Introduction of Anti-Avoidance provisions
• Court Decisions on Unclear areas
– May be against the similar positions taken
• Behavior of Tax Authorities
– Impact of Financial Crises

8. MANAGING OF TAX RISKS
• Opportunities vs. Challenges
– Opportunities in form of tax savings
• Tax being a non-productive costs
– No Risks = No profits
– Challenges– Challenges
• Actual increase of costs
• Non-compliance penalties and fines
• Reputational damage
• Managing risks – may involve accepting some risks while
eliminating or mitigating others
– Tax evasion however is not tax risk management

9. Tax Evasion vs. Tax Avoidance
• Tax Evasion
– Illegal
– Tax liability did arise, but enterprise ignores it
• Tax Avoidance• Tax Avoidance
– Legal
– Tax Structuring preventing the tax liability to arise
– May be questionable from ethical point of view
• Tax Planning an Optimization
– Using the instruments and tools provided by tax
law to reduce the tax liability

10. Tax Risks in Mongolia
• Very young tax system
– Lack of clear rules for specific/unusual transactions
• Leads to Transaction Risks
• Existence of Anti-avoidance Concepts
– Creation of taxable presence, Transfer Pricing
• Leads to Operational Risks• Leads to Operational Risks
• Lack of Tax Professionals and Experts
– Likelihood of Errors, Non-compliance
• Leads to Compliance Risks
• Combination of the Above
– Unclear impact on the financial statements
• Possible misstatement (failure to make provisions, loss
of DTA, etc)

11. Preconditions to Tax Risk
Management
• Communication and Coordination between:
– the corporate tax department,
– the business units, and management
• Who are the stakeholders?
– Head of Tax / Tax Function– Head of Tax / Tax Function
– CEO / CFO
– The Board
– Investors
– Revenue Authorities
– Auditors
– Business Units and Functional Units

12. 4 STEPS TO TAX RISK
MANAGEMENT
• Risk identification and assessment
– (every aspect of the business)
• Risk reduction
– (controls and indicators)– (controls and indicators)
• Ongoing execution
– (owners coordinate and improve strategy, processes,
and measures)
• Tax risk policy and strategy
– (formal policies, tax planning opportunities review)

13. Benefits
• Apart from meeting regulatory requirements, also
provides:
– Board level understanding of tax strategy
– Better internal communication between business units
– Framework and process for tracking and managing tax– Framework and process for tracking and managing tax
risk
– Context for identification / approval of new tax
strategies
– Improved effective tax rates and thus earnings per
share
– Fewer successful tax authority challenges
– Cost savings through more efficient working practices

14. Thank you
tomas@kimep.kz
tombalco@yahoo.com