Global Tax Regimes – The Importance of being “on top of it”

We live in unprecedented times. The level of interest in tax matters from so many different stakeholders is driving change in the world of tax. In particular, the public interest in the amount of tax companies pay - or don’t pay - has never been seen before.

It is almost as though the Tax Authority has enlisted a new compliance weapon, the court of public opinion, in their tool bag to drive compliance, particularly from multinational organisations.

The unspoken word

Traditionally, tax was confined to deep specialists – and was largely a mysterious world that was part accounting and part law – that produced a number so complex that very few people could understand, and even fewer could explain.

Your tax affairs were top secret, not even your priest knew what was discussed between you and the taxman. Now, your tax affairs are likely to end up as a topic for common discussion after mass.

For a multinational organisation, keeping on top of the regulatory obligations in all of the countries they operate in is a massive undertaking, and a missed step in even the smallest territory could have a disproportionate impact on your reputation.

It is no longer acceptable to get it largely right, you have to have it completely right and be able to explain to the fabled man on the Clapham omnibus how you did it.

The new normal

And it is getting worse. New regulations on the Automatic Exchange of Information (AEOI) and the Common Reporting Standard (CRS) will mean that revenue authorities across the world will have access to a vast amount of data about your operations before you even file your tax return.

The advent of sophisticated data analysis tools are revolutionizing the way the tax authority functions as well. We have grown used to the computer audit techniques employed by different tax authorities around the world, but it is about to step up significantly.

In 2015 Her Majesty’s Revenue and Customs, the UK tax authority, announced plans to close 80% of its offices because technology will allow it to do significantly more with less.

Tax Authorities are using technology to address a number of the major issues:

(a) closing the tax gap;
(b) collecting and sharing information across borders; and
(c) improving their operational efficiency.

Changing dynamics

As if that was not enough, many tax authorities are moving from a negative assurance model, where a taxpayer only reports errors and pays over any underpayment, to a positive assurance model where in return for the personal undertaking of a C-suite executive assuring the tax authority that they have put in place all appropriate procedures to ensure their organisation and its underlying accounting systems are capable of meeting all of their tax obligations.

This may not seem like much of a difference, but it is a sea change from the traditional approach. Now the Chief Financial Officer (CFO) will have to be confident that appropriate human and technical resources have been deployed in managing tax in order to ensure that the organisation meets all of its obligations.

Multiply the effort

Multiply that across many jurisdictions, add in the massive increase in the level of public scrutiny, and the task of the tax department has become “mission critical” to the success of the business.

KPMG believes that the role of a Head of Tax is now truly moving to be that of the Chief Tax Officer – it is no longer someone who reports to management, but rather someone who must be part of the C-suite and who needs a whole array of skills over and above technical tax, legal and accounting expertise.

Mistakes in tax can now have a significant negative impact on the share price, damage the brand and reputation; and cause management to be vilified in the media. Are you comfortable with leaving that to the guy who reports to the guy who reports to the CFO?