Governance and fiscal control as a key element of good corporate governance

Good tax governance, proper compliance with the rules, fiscal control and transparency have all come to be viewed by many large corporations as essential principles. This has been discussed by Javier Martín, professor and chairman of the committee which developed quality standard UNE19602 on tax compliance, and José Vicente Iglesias, partner in the Garrigues Tax Department and head of the firm’s good governance and tax compliance area.

In the latest edition of Garrigues Sustainable Dialogs, which is moderated by Sonia Franco, head of the firm's Communication and Marketing Department, they analyzed tendencies and the current situation.

Iglesias explained that taxation forms part of Garrigues’ firm commitment to sustainability through, among other aspects, its good fiscal governance and tax compliance facet. Similarly, he remarked that it has been apparent for a number of years now that there is a shift taking place among large corporations towards fiscal control and the prevention of tax risks.

Martín, on the other hand, stressed that the tax component is always fundamental in any business decision, and it is therefore essential to raise awareness throughout an organization of the importance of tax compliance and the fiscal consequences of business transactions, providing clear guidelines to be followed. And it is here that various aspects of good governance and tax compliance come into play and can prove useful.

The professor reminded us that rules on tax guidelines and the control of tax risks for large corporations were introduced into Spanish commercial legislation for the first time through the 2014 reform of the revised Capital Companies Law, as an obligation incumbent on board members. And although, at the time the law was published, it was generally thought that this was something which only concerned large corporations, it has ultimately come to affect, and become a point of reference for, all organizations. Martín pointed out that there are courts which are already making it clear that board members will be held liable under commercial law for non-fulfillment of their duty to monitor tax risks. For José Vicente, the changes which have taken place in this area have helped make directors more aware of the need to comply and act responsibly in the area of taxation too.

Martín stressed that companies must have in place a tax control framework which systematizes all the control measures they have already implemented. They must also establish a risks map, set up a tax compliance body, establish the competencies corresponding to the managing body, and create a whistleblowing channel.

Iglesias also explained that there exist a variety of initiatives and mechanisms for presenting relevant information and data to the public, to stakeholder groups and to the tax authorities. He pointed out that these can, in certain cases, provide a means of conveying and highlighting the value of the considerable contribution made by companies, through taxes, to supporting public expenditure, and to the development of the communities within which they operate, and the efforts they make to be diligent and compliant.