The tax director of tomorrow 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 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.
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?
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.
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.
‘THE REALITY IS THAT THE PUBLIC AND BUSINESS ARE PAYING QUITE A LOT MORE THAN GOVERNMENTS THINK THEY DO’ I think that what has changed is the line. Things that historically might have been considered as tax planning are now considered as avoidance.
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.
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.
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.
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.
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