**2. The responsibility of company administrators in the management of tax risks**

Regarding 'risk management', there are regulations in Brazil, for example, that are in line with the Sarbanes–Oxley Act (SOX) and the Basel Agreement (for financial institutions). The SOX was published in 2002 in the USA, in response to some corporate scandals. It introduced important changes for the regulation of financial practice and corporate governance of companies. It emphasized the critical role of internal controls [8].

Internal controls include the organization plan and all methods and measures adopted in the company to safeguard its assets, verify the accuracy and fidelity of accounting data, develop efficiency in operations and stimulate the follow-up of prescribed executive policies [9].

This is one of the reasons the administration, notably of the large companies, have become more complex and difficult, requiring professionals with expertise in various areas of knowledge, causing the separation of ownership (owners) and management (executives) to allow business to be conducted in a more professional manner [10].

#### **2.1 Good corporate governance practices**

The Organization for Economic Co-Operation and Development (OECD) emphasizes that a good corporate governance system enables corporations to operate for the benefit of the community, with investor confidence, and attract stable long-term capital. It stands out for the range of topics dealt with and their influence on the global dissemination of the principles of good corporate governance

practices. According to the OECD, governance fixes as a link of development of bond markets, corporations, and nations [11].

The adoption in 2002 of US Law SOX, printing new coherence to the rules of corporate governance, as renewal element of good practices of legal compliance, provision accounts (accountability), transparency (disclosure), and sense of justice (fairness) [12].

Good corporate governance practices attributed to the board of directors and, in its absence, the senior management of the organization, the fundamental task of identifying, prioritizing, and ensuring effective management of various risks that may affect its business and even its continuity. In this vein, the responsibility of the board and the senior management members—from both a corporate and a tax perspective—loomed in the risk society. From the tax point of view, there may be the extent of the responsibility of the legal entity to its partners, directors, officers, or legal representatives in some situations, which may even result in the blocking of their personal property, including their bank accounts, among other measures [13].

For example, the article 135 of the Brazilian tax code prescribes that "they are personally responsible for claims relating to tax liabilities arising from acts performed with excess of power or violation of law, article of incorporation or bylaw: directors, managers, or representatives of legal persons of private law".

#### **2.2 Tax governance to optimize the company's tax burden**

A species of the genus corporate governance, tax governance is the way in which organizations are led, directed, and managed to optimize their tax burden, identifying opportunities for their reduction, and minimizing the possibility of tax contingencies (risks) [14].

Through tax governance, the company aims to identify the most beneficial tax incidence hypothesis, to allow their activities may lawfully be benefited by the reduction in tax burden or inserted in the context of no tax levy. The company should also minimize the generation of tax contingencies [15].

The tax governance considers all aspects of the issue, from a legal, tax, accounting, financial, and economic outlook considering domestic and international experience in order to minimize risks and maximize the legitimate tax savings, following high ethical standards and in full compliance with the letter and spirit of applicable laws [16].

The international surveys by large accounting firms indicate that the management of tax risks has been gaining more importance on the board. Senior executives are increasingly looking for information about taxes, because of its potential material impact on the financial statements and the tax issue can no longer focus exclusively on tax compliance and managing the effective rate of taxes. CEOs and board members are doing more complex questions about how your organization manages its exposure to tax risk [17].

The OECD has stressed the importance of the involvement of the board in tax strategies of multinational companies: 'Encourage the board, the CEO, and the audit committees from the large companies to have more interest and responsibility for their tax's strategies'. There is a clear expectation that the OECD will expand its guidelines on corporate governance for the tax area of the companies soon [18].

#### **2.3 Tax risks management**

Tax risks include the risk of paying more or less tax than legally required. Damage to reputation resulting from such errors may cause additional costs which

#### *The Management of Tax Risks in Mergers and Acquisitions - The Importance of Tax Due... DOI: http://dx.doi.org/10.5772/intechopen.96964*

are difficult to measure. Errors in assessing the tax effects of transactions may lead to wrong business decisions. For many companies, the tax is a cost factor which may be important for their competitiveness. Tax risks consist primarily of compliance, transactional, operational, and reputational risks. These are good reasons for the board is involved in the management of tax risk [19].

The risk appetite is associated with the level of risk that the organization can accept in the pursuit and achievement of its mission/vision (activity more associated with prior risk analysis). The risk tolerance is in line with acceptable levels of variability in achieving the goals and objectives defined (activity more associated with risk monitoring). Together, these two components defining the organization's risk profile, in relation to the exposure to the risk that it accepts, as **Figure 1** displays [20].

Managers—in compliance with the guidelines and limits set by the board should choose the appropriate and specific techniques of risk management, especially those related to minimization, immunization, and transferring these risks [21].

The tax governance will have to cover the tax philosophy and strategy of the company, internal policies, and procedures regarding tax risks and external communication regarding all tax matters. The board of directors will be responsible for defining a direction, the implementation of a tax system of governance and of course for enhancement of company value, through tax reduction [22].

Therefore, efficient, and sustainable company from the tax point of view (regardless in which country it is located) is one that seeks to identify with the requisite notice the legal and tax alternatives less costly to achieve their business objectives and adopt a set of coordination procedures, control and review in order to minimize the possibility of generating tax contingencies. We remind you that from the owners' point of view the obligation of senior management of the company to plan its business, to increase—in a continuous, permanent, and sustainable manner—its revenues and reduce their costs (including taxes), to make it increasingly profitable [23].

The corporate sustainability can be defined as the ability of companies of creating value for its owners over the long term, through proper management of risks associated with economic, social, and environmental factors, as shown in **Figure 2**. Soon, the company, concerned with sustainability, investing in its continued ability to continue growing. There is a natural convergence between sustainability and

#### **Figure 1.**

*Corporate risk management model resulting from appetite and tolerance to risk. Source prepared by the author.*

**Figure 2.**

*Convergence between sustainability and implementation of corporate governance practices. Source prepared by the author.*

implementation of corporate governance practices. From an economic standpoint, we can say that there is no sustainability without profitability [24].

Intangible liabilities (mentioned in the above **Figure 2**) mean the requirement whose information about its existence remains hidden from the user of the financial statements and, in some cases, even from its managers [25].

Because of all that has been exposed so far in this chapter, considering the responsibility of company administrators in the management of risks it is especially important do carry out a due diligence procedure, on which we come to deal with in the next topic.
