U.K. 'Sarbanes-Oxley' holds senior accounting officers responsible.

Legislation enacted in July in the United Kingdom is creating new compliance chores for larger corporate taxpayers. Schedule 46, Clause 92 of the Finance Act of 2009 requires senior accounting officers of large corporations to "take reasonable steps to establish and monitor accounting systems within their companies that are adequate for the purposes of accurate tax reporting."

Such adequacy must be verified and certified annually; failure to comply will result in personal penalties levied on the senior accounting officers.

This new legislation initially applies to approximately 2,000 large U.K. taxpayers and covers value-added tax, income tax, customs and excise duties as well as several other tax types.

Similar to Section 404 of The Sarbanes Oxley Act of 2002, the Finance Act creates compliance burdens for larger corporations that are expected to extend to smaller taxpayers should the regulations prove successful. Corporate finance and tax directors are understandably concerned.

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The majority of enterprises view tax reporting and compliance as complex, time-consuming and costly processes that have little strategic value to the business. While U.S. companies already face myriad regulatory and risk-management issues surrounding Sarbanes-Oxley, most European organizations have--thus far--operated relatively unscathed by mandated sign-off on the accuracy of their tax controls. This era ends with these regulations focusing on senior management taking personal responsibility for the effectiveness of controls governing corporate tax-accounting processes.

The intentions behind the new legislation are very similar to Sarbanes-Oxley, but the related penalties differ in that they are levied against the executive who signs off on the processes rather than on the company. It's expected that these types of provisions will proliferate through Europe over time, with increasingly harsh penalties.

The nature of the new penalties also raises issues regarding personal reputational risk for finance and tax directors, which could cause difficulty for companies in recruiting and retaining high-quality candidates for these roles. Though the fines are not yet especially punitive, many high-caliber tax professionals may think twice before accepting the more risky senior tax roles that become available in the future.

With these new regulations in place, organizations are scrutinizing their tax-accounting systems to adopt best practices and risk-mitigation measures. There are tax automation solutions on the market that can help both U.S. and European firms by providing many of the processes and controls required by the Finance Act.

--contributed by Chris Walsh, chief International Indirect Tax Officer, enterprise corporate tax solutions, Vertex Inc.