Strategic Management of Corporate Income Tax (CIT) Through Treasury Planning & Fintech Innovation
Forward-Looking Fiscal Management in Line with Basel III Endgame
To follow up on the corporate accounting approach driven by Fintech Interaction innovation highlighted by the FED interagency Guidance SR 23-4 of June 7, 2023, we propose a new strategy to managing corporate income tax (CIT) based on the dynamic integration of treasury accounts under the Total Loss Absorbing Capacity (TLAC) standard. This method aligns national Finance Departments' accounting strategies with the evolving Basel III framework, specifically its "Endgame" phase.
Introducing the SOX Ratio for Internal Financial Performance Accounting
Fintech Interaction approach uses a unique performance metric:
SOX Ratio = Savings from Loss Mitigation (or Economic Capital) / Incentivized Pay
(Source: Journal of Corporate Accounting & Finance, Feb 14, 2023)
This financial indicator provides a foundation for managing expected earnings supplements resulting from Potentially Recoverable Losses (PRLs), and channels these savings into both tax contributions and incentivized compensation.
Bridging Regulatory Gaps in Corporate Income Tax (CIT) Forecast Management Through Interaction Expertise
This FinTech Interaction System—also known as Sustainable Accounting FinTech (SAF)—is specifically designed to address accounting methodology and regulatory shortcomings in corporate tax forecasting at the operational level of Finance Departments and Treasury institutions. These long-standing gaps have contributed to persistent budget deficits in nearly every country.
Operating in SaaS mode, the TPRM Accounting FinTech system integrates seamlessly with existing IT infrastructure, requiring no modifications. It is the result of collaborative contributions from experts and academics affiliated with the HCM Accounting Academy (the Innovation Hub of LELE-HCM Accounting Industry Inc.), representing:
- Five U.S. universities: Georgia, New Jersey, Harvard, Kansas, and San Francisco
- Four European universities: Cambridge, Lyon, Frankfurt, and Malta
Prior to its formal recognition under the Federal Reserve's SR 23-4 guidance—Interagency Guidance on Third-Party Relationships: Risk Management (June 7, 2023), developed in collaboration with the FDIC and OCC—the FinTech Interaction System underwent thorough peer review and dissemination.
It was first featured in the ISACA Journal (Vol. 6, Dec. 2013; Vol. 4, 2014; Vol. 3, May 2016), a leading publication in IT audit and governance. The system was then presented at key international conferences showcasing top expertise in finance, accounting, and management:
- The 2020 World Finance Conference (Malta)
- The 2020 SIBR Conferences in Osaka, Seoul, and Sydney
- The 2020 Management Conference (Berlin, Germany)
- The 2020 International Conference in Lyon, France (in partnership with the Academy of Management – AOM)
Overview of the entire FinTech interaction process
Key Deliverables for Policymakers
We provide:
- A downloadable Working Paper
- Draft Regulation Texts (e.g., draft ministerial decree or treasury regulation)
These resources support the planning and programming of CIT for the 2025–2027 fiscal cycle, enabling countries to:
- Resolve fiscal deadlocks
- Optimize the use of capital and human resources
- Minimize economic waste
How the System Works
Our CIT model is built on Fintech Interaction Mechanics—a method endorsed by central banks (including the Federal Reserve)—and follows international risk management standards, such as:
- PSMOR (Principles for Sound Management of Operational Risk)
- CR3 Templates for Credit Risk Mitigation, mandatory for BCBS-aligned institutions as of January 1, 2023
This model complements—but does not depend on—national implementation of Basel III. For instance, U.S. regulators (Federal Reserve, OCC) have recently enforced internal control rules under PSMOR guidance (see: OCC Press Release 2024-118).
A New Fiscal Engine: Fintech Interactions and Public Revenue
This model evaluates internal financial performance based on:
- The carrying value of workforce productivity (public and private sectors)
- PRL reduction potential within institutional risk tolerance limits
Key Differences vs. Traditional Models
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Traditional IRB Model |
New Fintech PRL Model |
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Relies on relative VaR |
Uses absolute VaR |
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Focuses on unexpected losses (UL) |
Covers both expected (EL) and unexpected losses (UL) |
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Stochastic-based risk estimates |
Performance-based, interaction-driven |
Risk Calibration Levels
- Banking Sector: 0.02% threshold → 99.98% PRL mitigation
- Insurance Sector & Third Parties: 4.5% threshold → 95.5% PRL mitigation (aligned with ORSA standards)
Distribution of Financial Gains
The surpluses generated are allocated as follows:
- 33% → Performance-based employee compensation → boosts household purchasing power
- 67% → Reinvested into corporate liquidity → taxed under existing CIT frameworks
This ensures a sustainable revenue stream for the public treasury, supporting fiscal consolidation and sovereign debt reduction.
Projected Impact on Budget Deficits
The model shows promising CIT revenue impacts from banks and third-party recoveries. Below are select examples based on the CR3 carrying value and Fintech interaction mechanisms:
Developed Countries – CIT Surplus (2025–2027)
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Country |
Total CIT Surplus (USD) |
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USA |
$450.1 billion |
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Canada |
$75.0 billion |
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Germany |
$168.8 billion |
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France |
$99.9 billion |
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UK |
$110.8 billion |
Each country’s estimated CIT revenue gradually increases across three fiscal years (30% in 2025, 60% in 2026, and 100% in 2027).
Developing Countries – CIT Surplus (2025–2027)
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Country |
Total CIT Surplus (USD) |
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India |
$2.61 trillion |
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Nigeria |
$285.5 billion |
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Argentina |
$96.3 billion |
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South Africa |
$85.3 billion |
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Cameroon |
$49.6 billion |
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Ivory Coast |
$34.4 billion |
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Republic of the Congo |
$8.6 billion |
These numbers demonstrate the fiscal transformation potential of leveraging PRL-based fintech accounting in both mature and emerging markets.
Resources and Next Steps
📘Download the Working Document for CIT's Forward-looking management : https://bit.ly/43Ri8DZ
📘 Download the draft Driving Decree or Order proposed to the Department of Finance is available here : https://bit.ly/4l0PeqW
These documents provide :
- Technical methodology
- PRL calculation formulas
- Policy implementation roadmap
“Banks must include all CRM techniques used to reduce capital requirements and disclose all secured exposures, irrespective of whether the standardized or IRB approach is used for RWA calculation” (BCBS, DIS40 - Credit risk, effective as of: 01 Jan 2022).
Gap Analysis Requirements to be met with TPRM Accounting Interaction Fintech
(1) Where are the CR3 template data provided recorded?
• The carrying value contents provided by TPRM accounting Fintech are recorded in the usual income statements on the Earnings Supplement line.
(2) What is the regulatory compliance framework that the accounting interaction Fintech meets, complementing the existing accounting and financial system as a loss mitigation proxy?
The legal framework is that set on January 1, 2023, by the BCBS for the implementation of the final Basel III reforms, the transposition of which varies considerably on a worldwide scale from 2023-2024 for some countries such as Canada, Japan, Singapore, China and Hong Kong to 2025 for other countries including the EU, the United Kingdom and the United States.
- • The requirement to abandon the Internal Rating-Based (IRB) approach governed by these regulations is explicit even if the IRB is approved for the transition as in Canada "Capital Adequacy Requirements (CAR)" guideline published on October 31, 2023, for 2024:2-1/ “Written business line definitions must be clear and detailed enough to allow third parties to replicate the business line mapping. Documentation must, among other things, clearly motivate any exceptions or overrides and be kept on record” (BCBS, CRE - Calculation of RWA for credit risk, Effective as of: 01 Jan 2023).
2-2/ “The bank’s use of CRM techniques must interact with the bank’s overall credit risk profile” (CRE22.6).
2-3/ The disclosure of loss mitigation gain management accounts justifying the benefits in terms of economic capital and SOX ratio dates to 2010: “The recognition of the coverage of operational risk losses by insurance cannot exceed 20% before considering the economic capital accounts. The 20% cap should be interpreted to include mitigation arising from insurance and/or other risk transfer mechanisms collectively. Supervisors should, therefore, be cautious in assuming that 20% is an appropriate reduction to the total capital and should only allow a bank to recognize this degree of mitigation if appropriately justified (BCBS, 2010).
Loss Mitigation Interaction Products and Services offered in SaaS mode:
Step 1/ Programming your carrying value accounts based on cross-cutting interactions mobilizing your Total Paid Workforce or human capital as the driving force.
Log in for the carrying value contents of the forward-looking management accounts of template CR3 (Credit risk mitigation techniques): Request free access to Fintech SAF - V1
These are the processes of identification, collection and treatment of internal loss data that are essential prerequisites to capital calculation under the standardized approach for forward-looking management accounts to be programmed on a three-year plan to provide at each reporting date, the carrying value accounts of the Business Indicator (IB) which is a financial statement-based proxy for operational risk for the recognition of credit risk mitigation, such as guarantees and collateral (CRE22 - Standardized Approach).
Step2/ Train and certify your internal team in automated interaction
Click for HCMA certificate order form
This is to update the interaction skills of your internal team by learning by doing in 90 days, each at their workstation: the software is free until the 1st quarter reporting.
(1) CEO for Board decision making system.
Board forward-looking management decision-making processes based on the SOX Ratio
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Board decision making system
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1- Current average net income (group share) |
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2- Current contribution per employee to average net profit (Group share) |
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3- Absolute VaR estimate (EL + UL) = Gross loss = Loss before recoveries (BCCB, Dec 2017) |
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4- Current Potentially Recoverable Losses (Absolute VaR - Risk Appetite Threshold or Net Loss calibrated to the % of the business sector's risk appetite threshold |
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5- Gross Free Cash Flow (Economic Capital) per employee at the new risk appetite threshold on a 3-year plan |
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6- Economic capital or net cash surplus of the loss control system over a 3-year plan for 67% of the PRL (Not for distribution: SEC, April 2018) |
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7- Variable remuneration or Incentivized Pay (Bonus for employees mobilized by the transversal dynamic of the organization on a 3-year plan for 33% of PRLs) |
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8- SOX ratio of the capital structure (Economic Capital/Variable Salary or Incentivized Pay) securing investments and the predictability of variable salaries over a 3-year plan |
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9- Data for measuring the future financial performance of the fixed salary, basis for calculating the differences to be considered for the fixed salary evolution grid. |
(2) CFO for internal financial performance coordination system.
(3) HRD for motivation data based on incentive paid mobilizing the total paid workforce on internal financial performance objectives considering the risk appetite threshold. HRD tasks include monitoring of psychosocial risks.
(4) Operational Managers (OM) and Heads of operational units for “identification, collection and processing of loss data” (OPE25) providing non-GAAP carrying values linked to the Business Indicator (BI) which is a financial-statement-based proxy for operational risk. OM interaction tasks include variable pay or incentive paid statements.
With V2-3a, the OM function accompanies with heads of operational units, weekly procedures and processes documented by daily record sheets for the identification, collection and treatment of internal loss data caused by:
- Absenteeism,
- Work accident,
- Quality defects,
- Direct productivity gaps (overtime and overconsumption of materials) and
- Know-how gaps (including lack of versatility).
Operating structurally, these socio-economic indicators are taken together in the weighting system provided by the HRM. This FinTech module avoids the mistake of focusing excessive attention on the socioeconomic indicator of greatest concern without realizing that its costs are transferred to the other indicators.
The lack of FinTech V2-3b resulting in the unpredictability of variable salaries is the main cause of the deficits of banks and CCRs:
- FinTech V2-3b is essential to measure the Incentive Pay Leverage Effect (IPLE) of the financial performance of variable remuneration distinct from that of fixed remuneration as now required by country regulations [see SEC, 2018 or European Directive, 2017].
As such, this model constitutes an innovative and sustainable source of revenue for the public treasury. It aligns with fiscal consolidation objectives, notably the reduction of public deficits and sovereign debt, while ensuring compliance with the CR3 template for credit risk mitigation techniques. This regulatory framework, developed by the Basel Committee on Banking Supervision (BCBS, DIS40), has been mandatory for all banking institutions engaging with third parties since January 1, 2022.
- Fintech interaction meets the standards set by the IMF and the World Bank, which advocate for debt-vulnerable countries to integrate fiscal adjustments with sustainable growth strategies.
- This certificate aligns with the core components of the IMF's VITARA curriculum, notably, "Institutional Governance, Strategic Management & IT Integration" and Core Tax Administration Functions" (See VITARA Curriculum Overview)
