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A daunting cocktail of complexity, challenge and risk is putting corporate tax departments under more pressure than ever, according to experts at a recent roundtable hosted by Accounting and Business and Thomson Reuters

This article was first published in the July 2012 International edition of Accounting and Business magazine.

Tax is top of the political agenda. Revenue-starved governments around the world are struggling to grab their ‘fair share’ of the total tax pot in an increasingly globalised and connected world, in which technology plays an ever greater role. Politicians, tax authorities and the media are all focusing on this hugely complex subject, driving change that is fast and sometimes unpredictable. The lines between planning, avoidance and evasion are consequently becoming more blurred. Caught in the crossfire is the tax director, who has to balance the competing demands of managing a company’s effective tax rate while ensuring compliance and managing tax risk – and with an eye fixed ever more firmly on PR.

Accounting and Business (AB), in association with Thomson Reuters, brought together a group of tax experts to pull together these developments and predict how these will affect the tax director of the future.

AB

It feels as if governments have declared war on companies over their tax affairs. With attitudes of governments around the world to tax avoidance hardening, what impact will this have on tax directors?

CRC

People and businesses are trying to navigate their way through very difficult systems. But at the same time governments are saying: ‘Well, actually you should pay more.’ However, the reality is that the public and business are paying quite a lot more than governments think they do.

TWO

I think that’s a good point. I’m not sure government attitudes to tax avoidance have shifted, in that most governments have always said people should pay their fair share. I think that what has changed is the line. Things that historically might have been considered as tax planning are now considered as avoidance.

TWA

Governments increasingly view tax planning as tax avoidance. More importantly, the public is increasingly taking the same view. Even though companies may have a perfectly legal and defensible position under their right to minimise tax as much as possible, they are taking a public relations hit over it.

TD

Companies are seeking to minimise their tax position because they are competing in a global economy against other companies. But public outcry following the financial crisis gives permission to governments to increase regulation, including retrospective legislation. We have seen this recently with the banks and there was hardly any outcry.

GH

The most interesting point about navigating this path is whether the CFO’s view of the tax department will change. Most CFOs measure the tax department’s effectiveness through the lens of the effective tax rate (ETR) and in many respects by reducing it. This may well change to one of maintaining an acceptable ETR or to shift the focus to other measures altogether and perhaps looking at the management of taxes more widely.

SG

I also think that the job spec
of the tax director will change. You assume that the tax director is competent in assessing tax risk, but this has now moved on to reputational risk.

AL

Tax directors are used to looking at technical risk. In addition to reputational risk I think there is an operational risk. In order to manage reputational and operational risk, tax directors need to be more commercial. There is competition among governments to get their fair share of revenue and this is why transfer pricing (TP), for example, is increasing in prominence. This is a very challenging thing to tackle operationally. TP is embedded throughout the business units, so how do tax directors control that? They have to talk to the business units. They have to be ahead of transactions, which is not something the tax director has traditionally needed to look at.

TWA

Tax positions used to be operated in a silo, but you are now having to share data through transfer pricing, and you are now having to reconcile tax positions of multiple different regions in your operations. You have got to be able to have some visibility to be able to say you have the legitimate tax positions. I think that technology has to play a massive part in that. You need to dig down deeper into the data levels so that you have the visibility to make further reconciliations.

AB

What will be the impact on tax directors as tax authorities begin to reach beyond their borders, such as with FATCA (Foreign Account Tax Compliance Act) from the US, as governments struggle at a national level to deal with a globalised world?

CRC

We have already seen global audits and one of the things with transfer pricing, which we have always known, is that you never say one thing in one jurisdiction and something else in another. The two things must tie up. Sooner or later, one part of the world will catch up with another. You will need to be careful about how you provide information to any one tax authority because this could be shared globally. This will be much more the case going forward.

TWO

Multinational groups are interconnected and global. Tax authorities are increasingly dealing at that level as well, and not just those in the historically more developed countries. I think that developing countries are getting more sophisticated in understanding a lot of the more global issues.

TD

A global company that operates on a global and local basis keys into these authorities and their emerging views. Multinationals may have tax departments around the world, but they may not put a lot of effort into lobbying locally. Once they are part of a global tax department, if the centre says this is important they should allocate resources towards it.

TWA

The technology ramification is that it needs to be on similar data elements, on similar taxonomies, similar technology. This means tax directors need to change their reporting systems and processes because they are going to be sharing data with other countries.

TWO

At GSK we found a lot of people in the business were ‘doing tax’, so we now have a global tax team that brings individuals into the tax reporting line rather than a local reporting line. We now have much more visibility locally and this allows us to standardise our approach much more.

AL

We’ve seen information exchange around the EU for a while – for example, European Commission sales lists – but what about other jurisdictions?

GH

I think there’s a desire but no mechanism at the moment, although it’s not that far away. But it’s a one-sided equation at the moment – tax authorities are going after avoidance and treating avoidance as evasion, but there is not much simplification for business. I feel quite sorry for tax directors at the moment. They are under siege and have to fight their corner while the organisations that could help more are not helping.

AB

Does this mean tax functions are becoming more expensive?

AL

That’s a good question. One of the skills some tax directors have to learn is how to do more with less and build business cases. They know they need a more systematic and standardised approach, but feel helpless in trying to get a budget for this.

CRC

Tax departments may be getting bigger, but I’m not sure they’re getting more expensive – they could be outsourcing. There might be an expansion in the function but that does not necessarily go hand in hand with more cost. But sooner or later that increase in cost will come through as developing countries catch up and start becoming expensive.

AB

A lot of debate focuses on large multinationals, but what about SMEs? What pressures are they feeling in terms of aggression from tax authorities and the changing challenges of managing their tax?

KS

Essentially, these are people who are just trying to make a living. If they know the rules, they will pay their tax. But certainty has disappeared. My clients will sit there and see all the things that the multinationals are doing and ask why they are being hounded for a £5,000 VAT bill while an international company has paid hardly any tax in the UK.

GH

Companies big and small face some of the same issues, it’s just a matter of scale. It’s about understanding the rules. There’s a real challenge around keeping current with the rules and rates, not just in the UK but around the world.

CRC

This is also a technology issue. For instance, in the UK there is real-time information (RTI) coming in, which will also happen in other countries, and I just wonder if SMEs are willing or prepared or have started investing in RTI systems.

AB

Which brings us neatly to the next subject. How will the tax director of the future be impacted by technology, including XBRL, and does this add to the potential offered by outsourcing and shared services?

SG

If you’d suggested a career move into tax software 10 years ago to a tax person, they would have asked: ‘Why would I do that?’ It seemed a very narrow niche area, but that has quickly changed. Tax directors now realise they have to seriously consider implementing better tax compliance systems, especially in big multinationals, systems for data collection, and streamlining the whole tax compliance process.

GH

Yes, but what surprises me is that you have global businesses with global tax directors who are accountable for the tax worldwide yet have little or no visibility in the centre of what is happening on the ground across the taxes. I’ve seen some organisations go for the technology with all the bells and whistles yet as a starting point just basic visibility is the key to them really reaching out to the organisation to manage taxes effectively.

TWA

Another slant on this is that a lot of organisations have focused on ‘good enough’ tactics for technology for a long time. I just don’t think that cuts it any more, there’s too much change. It’s about getting the right technology.

CRC

I think there are dangers in tax being hived off to shared service centres. It is a cost saving, but perhaps businesses need to recognise it is a dis-saving because you could end up with additional internal issues which may not be addressed. You might not have people within your business who can tell you exactly where you stand from a compliance point of view, articulating why you have got certain tax numbers, working out business-specific issues that affect your tax position. The finance director of the future needs to be careful and retain a significant part of the tax function within the business.

AB

As well as being technology experts, do tax directors have to be PR experts too? What happens when you have protests outside your offices or your shops?

CRC

In some ways I think it would be good where you’ve got an organisation such as UK Uncut protesting about an issue for the tax director to stand up and defuse the situation. But I’m not sure that there are many tax directors willing to do that. However, I think that is going to be forced on them in the future because they need to be able to get the information out to wider audiences. It could make the job more interesting.

GH

There are some sectors such as oil and mining that I think are very good at articulating their total tax contribution in their annual reports. I think that the tax director has got to be on the front foot with the board in terms of getting their message out to the public.

TWO

We’ve also seen a trend of public relations being done collectively, such as through the CBI. The challenge in making the proactive case is that a lot of tax issues are difficult to understand and convey. When the press is seeking to deliver a particular message, it is difficult to get across the detail. It is a challenge for the tax director to articulate and make the point while it’s a lot easier to attack something.

AB

How will the development of different kinds of taxes – for instance, the greater focus on transfer pricing and environmental taxes – impact the work of tax directors?

GH

I think from my perspective the head of tax faces the challenge of working out who really owns tax. In a lot of the work that we do, one of the problems that we see is that it is a grey area; it is owned by tax in the home country and it is owned by the business outside the home country. But when you go to that business, they say it is owned by the tax department at the centre.

Who has ownership of all taxes (and how responsibility cascades through the business) together with how the CFO measures the effectiveness of the tax department are two really big questions. Historic focus has been on the effective tax rate and not on cash tax measurements, which are becoming significantly more important than they have been over the last three years and will be increasingly important in years to come.

TWO

The tax director needs to have a much wider focus, but not everyone can be a specialist in all areas, so it is important that the tax director who is a specialist has an appreciation of other areas – enough to be able to identify crossovers so that they can identify the appropriate specialist within the organisation or go outside to advisers.

AB

We have in-house tax directors along with external advisers around this table; how have relationships changed in recent years? Is it a more tense relationship now?

GH

There can be tensions in the relationship from time to time. But provided you are clear and honest with your client, and they see you are doing your very best to work with them as a business partner then, in
my experience, there hasn’t been a material change in the nature of
the relationship and both sides appreciate we are operating in difficult economic times.

CRC

With specific tax expertise more prevalent in large organisations, there is a much better, more understanding relationship where they challenge each other when there is a real point to discuss, rather than just scoring points.

KS

Small businesses will call in the accountant to deal with the direct tax issues and then deal with all the indirect tax in-house. The bookkeeper can do the VAT, but if there is an error, the external adviser can point out how much this is costing. Mistakes can be significant.

TWO

It’s important that the tax department has the capacity and individuals to do some of the work first – and knowledge to be able to know what it is they actually need, and then get that advice. This hopefully results in better quality of instruction to advisers.


GH

I think that where there is a really good relationship between the client and the advisers, where there is respect and trust in the relationship, the question is often: ‘What would you do?’ Often there is no right answer and it is about managing risk and applying judgment. At another level, clients want an adviser’s international capabilities because the in-house teams need capability outside their home country – they are looking for the same level of service in other jurisdictions. This means that the advisers have really had to up their game because of the capabilities of their in-house clients. The final point is that sometimes the client needs bodies to get things done. But at many levels the relationship is less parent/child and more peer-to-peer.

AB

Finally, let’s talk about talent management. The tax director of the future will head a team – how should they manage their talent?

TWA

What got us here will not get us there. The big question is who is going to teach the new skills and leadership they will need. How do we pass on the benefits of our experience without the baggage?

AL

Some tax departments now rival accounting firms in terms of organisation, numbers and structure. Some clients are coming to us to ask how they should organise and manage teams of such a size. If they had been in a firm before, they might have only been directly managing 10 or 12 people as a partner, but now they could be managing as many as 60 people.

SG

You really need to split this into two. It’s one challenge to attract talented tax specialists into the team, but there is the challenge of retaining them too. Tax directors need to build a very good team around themselves, but also to talk about a good career track to hold on to people.

THE PARTICIPANTS:

Tom Duffy (TD)
Member of ACCA’s Global Forum for Taxation and a consultant at management consultancy Affecton. He spent 28 years with Shell, including a spell as head of UK tax from 1999 to 2005.

Simon Godley (SG)
Director at specialist tax recruitment consultancy Talentpool Selection.
He trained with Arthur Andersen, and specialised in tax before moving into recruitment in 1996.

Gary Harley (GH)
Head of indirect tax at KPMG, he set up the firm’s process and technology team five years ago. He had been with HMRC and Ernst & Young before he joined KPMG in 1999.

Albert Lee (AL)
Leader of Ernst & Young’s EMEIA Tax Performance Advisory business. He has over 20 years of international tax experience spanning industry and the profession.

Chas Roy-Chowdhury (CRc)
ACCA’s head of taxation. He worked in public practice before joining ACCA’s technical department.

Kingsley Sansom (KS)
Head of operations for AIMS Accountants for Business. He has worked with the AIMS franchise network since it was launched in 1992.

Tom Walsh (TWA)
Managing director and senior vice president of Tax & Accounting EMEA, Thomson Reuters, where he leads a team of 200 tax and accounting specialists throughout EMEA.

Tim Woodthorpe (TWO)
UK tax counsel at GlaxoSmithKline. He qualified as a solicitor at Slaughter and May before joining GSK as the global tax team’s in-house lawyer.

Chairman: Chris Quick (AB)
Editor-in-chief of Accounting and Business. He trained as an accountant at Arthur Andersen before entering journalism in the late 1990s.

Philip Smith, journalist

Last updated: 18 Mar 2014