Leading Women in Tax Forum, London – Key takeaways
Brexit: The post-Brexit tax system
Erika Jupe, partner, Osborne Clarke Kelly Stricklin- Coutinho, barrister, 39 Essex Chambers Anneliese Dodds, member of parliament, Oxford Labour
The panel focused on:
The EU’s traditional influence on UK tax; Where we are in the withdrawal agreement; The harmonisation of VAT; Customs requirements post-Brexit; Dealing with disputes; M&A; and How the UK can stay competitive.
The EU’s traditional influence on UK tax
The EU’s most significance influence is on VAT – a requirement of membership.
Other areas of traditional influence, which are often more hidden to the public, include:
The EU’s push for harmonisation to promote the single market; The EU’s Code of Conduct Group’s (Business Taxation) work on tackling harmful tax practices; and Requirements around withholding tax, accounting principles and implementing the OECD BEPS measures.
Unfortunately, recent scandals, such as the Panama Papers, has led to wider EU action and things like the EU tax blacklist.
Where we are in the withdrawal agreement
There was very little debate on tax within the withdrawal bill, but the bill has now passed.
When there has been discussion about tax, generally it’s been focused around the topic of customs and whether we would be part of the VAT area or not.
The customs bill is likely to be discussed in Parliament before the summer recess.
There has been a very limited conversation on VAT. Much more considered discussion is necessary. Although it is hoped that it will happen when the bill is discussed in Parliament, government may rush the bill through.
In terms of the withdrawal agreement, while VAT policy has been agreed, the details have not – and the devil is in the detail. VAT
Considering VAT accounts for 20% of UK revenues, it is surprising how little air time VAT matters have received. But, this poses the question of whether the lack of VAT discussion is intentional.
According to the agreement that has been negotiated with the EU, the provisions, at the moment, say that the UK will stay very harmonised with the EU for the transition period and for the next five years after the transition period. If that’s maintained, we could see a significant amount of harmonisation.
Where alternative discussions have taken place, the focus has been on direct VAT costs if there is no harmonisation. But there has been little discussion on indirect costs if the rules were significantly changed.
Any change in the VAT rules, however, will require significant investment in the necessary infrastructure – and there has been no mention of whether that is feasible or possible in the timeframe and where the money for that would come from. This is unlikely to happen in the near term.
However, little change now doesn’t mean VAT will remain the same for long. If the government were to change the VAT rules in the long term, it is hoped that this could offer an opportunity for deeper discussions on the tax and a chance to make some changes, as well as allowing businesses a chance to adequately prepare for any changes.
It is hoped that the lack of discussion and silence on VAT matters is a sign of there being very little change to VAT rules immediately after Brexit, and in the near future.
Either way, at the moment, it’s difficult for businesses to plan for any possible VAT changes.
However well the system is dealt with in the next few years, there will be bumps in the road.
Customs
Customs is an area where we have had the most debate, but the least clarity on what the outcome is going to be.
There seem to be three main options on the table:
1. Do nothing and stay in the customs union.
2. Enter into some type of new customs partnership – the government’s favourite approach. This seems to have the benefits of an external border around the whole of the EU plus the UK. The UK would act as a collection agent on behalf of the rest of the EU in picking up tariffs and customs duties, etc. and passing them onto the other jurisdictions. This option seems to be quite radical though. It’s not clear if the EU is on board with it. It’s also a novel proposal.
3. Max facilitation – separating the UK from any customs union. This is simply by using technology to smooth borders, but it would not solve the Northern Ireland issues.
The conversation about customs matters has primarily focused on goods, but little attention has been given to the impact on services.
The UK government is going to put in place a new Customs Declaration Service (CDS). The idea is to comply with legislative requirements that were established before the UK voted to leave the European Union. However, the National Audit Office’s latest report shows how badly this has gone. The system has not identified the users yet and therefore there are questions over how it will work when it comes into force and whether it will be ready in time.
Having a customs border will mean more costs for businesses, which are likely to be passed onto consumers.
The short transition period poses another problem.
Dealing with disputes
In the last few years there has been a significant impact on UK taxation as a result of litigation – generally group litigation – about whether or not the UK’s corporation tax law is compliant with EU fundamental freedoms. For example, this was questioned in the Marks & Spencer case and the franked investment income (FII) group litigation case. The latter involves almost all areas of corporate taxation, including dividends, control shareholding, portfolio shareholdings, aspects of group relief and loss relief, thin capitalisation, transfer pricing and CFCs.
Key questions are what happens to the law in that area after Brexit and is the government likely to change it to go back to its previous discriminatory practices? The likelihood is that it won’t revert to the old rules for now.
Little is likely to change in terms of litigation in the first few years post-Brexit. This is because UK laws are very much aligned with EU rules. However, for matters that are argued in the UK courts, we could see some retrospective claims potentially be implemented.
Many taxpayers currently litigating matters involving EU laws are trying to get these resolved before the transition period ends.
The UK and EU will need to implement a mechanism to deal with UK-EU disputes, which may be a tricky one to resolve.
While the ECJ has been seen as the villain at times, one thing that will be missed post-Brexit is its issuance of opinions on matters that don’t get litigated.
While the ECJ’s jurisdiction may end, the EU are keen to tie the UK to the European Court of Human Rights (ECHR). Although the ECHR rulings do not impact heavily on tax, the principles apply. As such, with no ECJ jurisdiction, the ECHR could play a larger role.
On state aid, the EU’s state aid rules will apply until transition. The UK can apply its own state aid rules post-Brexit. The withdrawal agreement is likely to include provisions on state aid benefits/subsidies.
Whatever happens with ECJ jurisdiction, if the UK remains very close to EU law, it will be very difficult for UK courts to ignore what is happening in the ECJ.
M&A
Brexit shouldn’t have a major impact on M&A activity. Particularly because a number of international tax rules are converging. The BEPS process is leading to more standardisation. As such, most developed nations are quite aligned.
One area where there may be a difference is whether the UK will still be seen as a holding company jurisdiction. Over the past couple of years, there have been a number of measures that have been brought in to make the UK more attractive to holding companies, such as the dividends exemption, as well as being within the EU. This helps with the UK being able to take advantage of certain rules, such as the Interest and Royalties Directive, the Parent-Subsidiary Directive and also the Mergers Directive. There has been hardly any mention of what the impact of Brexit is going to have on those provisions.
If the Parent-Subsidiary Directive ceases to apply, holding companies would have to rely on double tax treaty provisions, including the rates herein for withholding tax, dividends, royalties and interest. But, this may not be beneficial for all companies as not all DTAs offer a 0% benefit on dividends, for example in the Germany-UK DTA. This could be damaging to businesses based in the UK or with operations in the UK.
If we cannot harmonise UK rules with EU directives, there is a risk that there could be a tailing off of the UK as a holding company jurisdiction post-Brexit and UK-based M&A activity could slow.
How to stay competitive
The UK leaving the EU has brought a focus on taxation as potentially an element of competitiveness, arguably motivating the corporate tax rate cuts – something that has not been positively received by some EU member states.
In the UK, there is an opening up of conversations around VAT and duties as part of the competition conversation. There is unlikely to be a VAT rate cut for now. But, the topic of regional VAT mechanisms and freeports has been floated.
There is a real potential for the UK to become a CFC jurisdiction for other countries.
Part of becoming more competitive is eliminating some of the hindrances that businesses will have cross-border. It’s about looking at the systems in place and making sure reclaim procedures that operate cross-border are useful.
There needs to be a government that invests in HMRC. Efficiencies are required. It’s not possible to be competitive if you don’t have a structure that works efficiently.
The UK may also want to look at policies when the ECJ’s jurisdiction ends. A ruling system with anonymous rulings being published would be a positive change.
The government should also ensure it looks after SMEs that will suffer the most during the transition period and after the UK leaves the EU.
There will be a shift in the UK’s relationship with the EU from co-operative to competitive. Part of this is being able to attract and retain talent.
Effective planning for managing your tax and transfer pricing disputes
Sophie Brown, partner, Deloitte Marta Pankiv corporate tax manager, Clariant Anna Elphick, vice president of tax for Asia and Africa, Unilever
A survey of the room showed that the majority had some TP work to do as part of their role, creating a need for them to know how to deal with TP matters and the likely controversies that can arise from them.
When preparing for TP and disputes, end-to-end is really important. You also need a conceptual framework on what you want to achieve from your transfer pricing and all your tax interactions.
Having tax principles that are clear are really important. Some companies publish these on their website. These concepts can allow a business to critically assess its business development opportunities, and be consistent in how it responds to those opportunities as they arise. Consistency is really important internally too.
There needs to be alignment between the transfer pricing model and the business operating model. Pre-BEPS, many people talked about tax models and tax advantage models, but this language cannot be used anymore. You have to be talking about business operating models – and transfer pricing is applied to those models.
It’s crucial that everyone in your team and the wider business understands the business model and tax policies. Everyone should live by these, with regular testing to ensure this is happening. Having policies written down and not working by them may create tax or audit risks.
You also need alignment between the business and service units of a company.
Not everyone in the business will have an understanding of TP matters. As the topic expert in your company, it is up to you to educate those around you and explain the topic and the arm’s-length principle and how it relates to them and their work. Give them the understanding that laws are different in each country and that some tax authorities are examining multinational operations more closely than others.
You must keep in mind that there is often a constant turnover of people. The people who worked with you when the business model was established may no longer be working at the company. Having regular contact with people and ensuring they understand what you are doing and living the business model concept is important. This can be quarterly, half-yearly or annual.
Living the business model
Having all three of these aligned will put you in a good position to defend your practices in the event of an audit or dispute.
The behaviours that support the business model
M&A is also a challenge in a TP context. You have to consider the differences in TP policies between merging companies and determine whether to integrate them, or if the units will work independently. There may also be differences in understanding of TP and tax policies, so some training or educating maybe required.
On M&A projects, it’s important to be involved from the very beginning – as soon as the model is decided. It’s crucial to understand what the business wants to do, such as a joint venture or a full integration. These are different things for transfer pricing matters, particularly when considering CbCR, for example.
Partnering with business is important.
Documentation
Documentation is very important for a post-BEPS era, but be careful what you have in your documents and policies.
Everything should be aligned before putting policies and business models on paper – check it is all aligned with tax policy – think CbCR.
The growing risk now is the types of questions tax authorities are asking before or during an audit. They often ask unexpected questions – a key reason why employees need to “live” the business model and tax policies.
When considering the types of documents you need, think about the following:
Reports, e.g. benchmarking, inter-company reports, etc. Commercial documentation – tax authorities are asking for more commercial documentation. When compiling these, consider going back to basics on commercial documents. You want a clear explanation behind the business model. Don’t be scared of keeping it simple – this will work in your favour to determine the understanding a tax officer has about your business and your tax matters, thus allowing you to give them the right knowledge. Five years into the future – The risk posed to tax directors today is retrospective action. When compiling documents you need to be comprehensive because you don’t know what the tax authority may look for in five years’ time. As such, think about what you are collating now and ensure you have a document trail for your reference.
APAs
APAs are not easy. Although APAs can offer a business tax certainty, they can sometimes take years to agree. When the process can take a long time – sometimes even as long as nine years – you need to question whether APAs are right.
Increasing tax authority engagement on APAs would be helpful, but a problem with this is that competent authorities are under-resourced.
Unilateral APAs are not ideal and can lead to more double taxation. Bilateral APAs will help mitigate this.
No matter what the APA route is, transparency is essential.
MAP
The caseload for tax advisers is going up. However, that doesn’t mean it’s all bad. MAP stats say 60% of MAP cases get resolved without double tax.
When considering a MAP, take into account whether it is good to have a MAP and bilateral APA.
The positive for businesses is that tax authorities are realising that it is good for them to have more access to businesses.
Overall, MAPs are a good platform and the future for TP disputes, but it’s a painful process. Nevertheless, it’s a good opportunity to gain TP dispute solutions.
Audits
Audits are becoming very cumbersome.
In one example, HMRC wanted to interview 40 people and requested reams of information. Some of this data can be difficult to attain when not all decisions are done formally.
Audits are evolving from the traditional document and evidence requests. Tax authorities are asking for much more to fill their files and prove they have checked everything. This is an irksome task for businesses when it won’t change the audit outcome.
Post-BEPS, tax authorities are now becoming bolder in making their own interpretations. However, any difference in interpretations among different tax authorities does create double taxation risks.
Going forward, there will be increasing transparency and information exchange. Companies now need to work on the assumption that the tax authority will share their data.
Sharing information is beneficial for business too – it shows that the tax authority cannot pool all revenue in one jurisdictions. To help ensure global compliance, companies should carry out some analysis on their CbC reporting – a traffic light system can help.
One thing to watch is joint audits, which are increasing.
The challenges and opportunities of the ‘post-BEPS world’ (Slides available for this panel)
Catherine O’Meara, partner, Matheson Donata Anna Koren, group tax manager, Zalando Janine Juggins, senior vice president, global tax, Unilever Margriet Lukkien, partner, Loyens & Loeff Cécile Henlé, partner, Loyens & Loeff
The face of global trade and investment is changing. This is not just from a tax perspective, but also from a political perspective. We have: The rise of the right; Brexit; OECD with the BEPS measures; President Trump with US tax reform and influencing the trade war with tariffs; and The rise of China.
This is all this happening at a time when we are meant to be planning for the future.
This session focused on three topic areas: How to deal with the pricing of intangibles; The new concept of a permanent establishment in the MLI; and The concept of holding companies and their future within international groups.
Transfer pricing and intangibles “Profits should be taxed where value is created.” This concept of value creation is no more capable of being defined with precision than the arm’s-length principle. So have we just substituted one thing that is difficult to define with something else that is equally difficult to define?
The challenge comes in thinking about which activities are important and contribute the most in value creation.
As such, the value creation could be people, or it could be something else. In coming up with the emphasis of value creation, this aspect has not be properly thought through yet by policymakers. They were thinking about people and jobs, they were not thinking about the other aspects of value.
Tax authorities are looking at the changes made in the OECD intangibles and transfer pricing guidelines and they are thinking about how they can raise challenges in a different way to raise the amount of tax they collect in their country.
The OECD’s profit split guidance is worth spending some time on. If you don’t have much time, it’s worth just looking at the examples.
On value creation for intangibles, the question now is whether this will be swept up in the broader debate on taxing the digital economy.
Some practical challenges with intangibles include: Withholding taxes mismatch with TP adjustments – The rules don’t work very well. Exit taxes and TP adjustments – A transfer pricing adjustment in one particular year in isolation shouldn’t really lead to a transfer pricing adjustment. However, there have been discussions where this does happen. If you put yourself into a world where transfer pricing adjustments become more frequent, maybe because you are putting more weight on functions and activity, this could potentially trigger exit taxes. US cost sharing agreements – This has been left to one side because of the US tax reform and the BEAT. There is a let out there for non-routine services that are subject to US cost sharing arrangements. We are yet to see final regulations to understand exactly how that will work, but there is a question mark hanging over how you make intangibles transfer pricing guidelines work really well with arrangements that you are also trying to make work from a US cost sharing perspective. That’s a massive unresolved issue. Multilateral agreements – Making transfer pricing adjustments that are all about people operating in different countries means you are inevitably moving away from the bilateral scenario to a multilateral scenario. We are very poorly equipped to have that multilateral agreement to the extent it is required. As an example, a business operates in six key jurisdictions. If the business had more business flexibility to put more people closer to consumers, including those roles that really create value for the business, it would mean the business could have roles in every single market in proportion to the size of the market. So, what’s the option? A possible multilateral transfer pricing agreement that covers 80 countries? It starts to get very difficult in practice. Tax authority capacity – Transfer pricing is challenging for many tax authorities already. What’s changed is that there are more grey areas in terms of intangibles. That may have created more opportunities for tax authorities to challenge, but what about those tax authorities that were struggling already? What do they do with it? Some novel challenges are arising on intangibles, trademarks and brands.
DEMPE Two separate intangibles can arise in the case of a trademark. For example, there is the licensor of the trademark and the licensee who buys rights to the trademark for its use. Costs such as advertising and promotional material cross over these two areas of the trademark as do the fees and who charges who for which element. Then, there are third party licensing arrangements that need to be considered. Explaining this to the tax authority can be very difficult.
The new concept of a permanent establishment in the MLI One of the big changes post-BEPs and in the MLI was the changing definition of permanent establishment (PE).
Many companies are finding their online retail business being put in the same basket as companies such as Amazon. As such, these businesses are coming to the attention of the European Commission and tax authorities across the continent. The particular focus tends to be on whether there is a PE.
Tax authorities across Europe tend to very have different approaches to PE and corporate taxation, as well as fixed establishment for VAT. This brings a lot of uncertainty for the way a business can operate. It’s really very hard to define upfront what kind of services and what kind of structure you have to have within the country to ensure you have no PE or fixed establishment risks. However, there are those countries which are very sensitive about PE and fixed establishments, such as Italy.
[Slide 7 shows three different examples of how a company could consider structuring to mitigate PE and fixed establishment risks.]
[Slide 8] The most problems taxpayers are experiencing: Diversification of regulation regarding PE (different stages of implementation and MLI influence) – Each and every country has a different approach to the PE notion. Some countries have tried to use the new PE definition before it was officially introduced by the MLI. It’s very hard for a business to define what kind of PE it has from its activities because it has to look at double tax treaties, domestic laws and interpretations, talk to local advisers, and look at the MLI if it has been signed. It’s a lot of work for in-house tax directors. It cannot continue in this way and something has to change. This is likely to happen in the next couple of years in line with the digital taxation debate. Discussion around the “preparatory and auxiliary” character of activities – It seems it was quite easy in the past to claim that something was preparatory and auxiliary in sense of the services itself. But, right now, the tax authorities look at the whole business structure. For example, for Zalando, warehousing activities should be preparatory and auxiliary – you prepare the goods and you sell them to the customer. But, if you look from the business perspective, warehousing activities are its core business because its core competency is to deliver the goods as soon as possible. So, coming from that, the tax authority can always claim that the business has PEs just because it has warehouses. This brings a lot of problems when it comes to registrations. Increasing awareness of the national tax authorities – Tax authorities are increasingly aware of the above-mentioned PE problems. They are aware of PE topics and fixed establishment topics for VAT. They tend to also use a lack of tax regulation to approach the taxpayers to try to claim that it has a PE even though their basis for that argument is not always clear. In most cases, a company would argue that no, there is no such PE. However, some countries offer some security around this issue such as Italy, Poland, Netherlands, and France. Usually the cost of obtaining this security is often not that high in comparison to the risks. Increasing complexity of structures – Global multinationals are getting increasingly complex in their group organisation. So, there is more and more intercompany cross-border relations, which is bringing with it problems over defining certain matters. Principle purpose test (PPT) – This is an area to watch. It will be interesting to see how governments approach this. Taxation is a core part and a driver of business decision-making so developments here should be monitored by businesses.
Separately, on June 19 2018, the Luxembourg government released a draft bill to transpose the EU Anti-Tax Avoidance Directive (ATAD) into national law, which included an amendment to its domestic definition of PE in order to avoid PE mismatches.
The proposals are designed to resolve conflicts of interpretation on the existence of a permanent establishment resulting from the interaction between the provisions of domestic law and the provisions of a relevant double tax treaty.
Advisers are now every busy working through this.
Driven by the pending McDonald’s state aid investigation and the BEPS project, the Luxembourg tax administration decided to give a new interpretation to the domestic PE definition. So, this definition has to be viewed alongside the double tax treaty to avoid situations of double non-taxation, which could happen in some situations. There could also be situations where the double tax treaty definitions could override domestic law.
The concept of holding companies and their future within international groups There are so many moving pieces today coming from, for example, the EU and the OECD on the tax front. This has been driven by the fair share discussion and the need to share the tax take among countries. On the other hand, countries still want to have a strong investment climate and remain attractive to multinationals.
This is what is happening in the Netherlands and Luxembourg.
Luxembourg, on the one hand, has published a law on the ATAD and PE definitions – with similar approaches in the Netherlands. On the other hand, they don’t want to create unnecessary damage to the investment climate.
Slide 10 highlights the current tax developments that are most important.
In the Netherlands, for example, the singular most important current tax development for holding companies is the new coalition government’s plan to abolish the dividend withholding tax as of 2020. This tax has applied for around 100 years, but the aim is to remove it to attract businesses and be attractive post-Brexit. There are discussions about how this change will interact with the BEPS initiatives to balance the manner in which certain incentives are given. Nevertheless, it is likely the Netherlands will get rid of dividend withholding tax.
In Luxembourg, there are dividend withholding taxes but these only apply in limited circumstances. In line with Slide 12, there are challenges and opportunities for holding companies in Luxembourg. The challenge is Luxembourg’s bill of law No. 7318, published on June 20 2018, which implements the ATAD provisions and other domestic measures.
The opportunities lie beyond the upcoming legislative elections in October 2018. To boost Luxembourg competitiveness, some of the political parties are talking about the implementation of the notional interest deduction regime, as well as the abolition of the dividend withholding tax and the cut in the corporate income tax rate.
The singular most important current tax development in the EU for holding companies is the introduction of the ATAD and CFC rules. Based on the EU ATAD, the EU member states need to have implemented CFC rules by January 1 2019.
In the case of the Netherlands, we have some idea about the rules that will be introduced, but there are no legislative proposals yet.
Both the Netherlands and Luxembourg both have a reduced participation exemption regime already, so there are a lot of holding companies in both jurisdictions. What we see now is that businesses want to ensure that they can survive those CFC rules that will be introduced. The CFC rules are unlikely to be a game-changer and they are likely to be manageable.
There are two options for implementation of the CFC rules in line with the ATAD for all EU member states: Model A: Tainted income approach: EU shareholder needs to include in its tax base specific types of non-distributed passive income of a CFC as defined in the ATAD; or Model B: Transactional approach: EU shareholder needs to include in its tax base non- distributed income of CFC arising from non-genuine arrangements which have been put in place for the essential purpose of obtaining a tax advantage.
The Netherlands would strictly not need to amend its legislation as the existing Dutch transfer pricing rules effectively already provide for a sufficient implementation of Model B.
Nevertheless, the Netherlands still wants to implement a light version of Model A as well. This is likely to apply as follows: Only for certain CFCs, located in countries that have a low statutory tax rate or are on the EU Blacklist. Only for specific types of non-distributed low-taxed passive income of the CFC. Not for CFCs to which the substantial economic activities escape applies, which is in any case applicable if the CFC fulfills relevant substance requirements: o these are clear and concrete and well applicable in practice. o BEPS developments with resulting alignment of business functions and legal structure are helpful.
Clients seem to be confident that they will be able to deal with this structure. The Dutch approach also complies well with the BEPS approach. More details are expected at the end of June or beginning of July 2018.
Ireland has not announced which model it will opt for, but it is likely to be Model B because that ties in best with Irish tax policy.
Luxembourg is likely to opt for Model B CFC rules, which could be managed through substance.
Reading recommendation: Working Paper on non-collective investment vehicles. This document gives examples of great help that can be used when considering investing in certain jurisdiction.
The importance of working together and mentoring
Hannah Manning, partner, Travers Smith Alexandra Hone, head of fund tax, Intermediate Capital Group Caroline Conder, head of tax, Lloyds Development Capital Louisa Gonzalez, vice president of tax, ConvaTec Russell Warren, partner, Travers Smith
This panel was focused on how to embrace influence, power and run a successful team, as well as find the leadership style that suits you and developing a mentor framework. The main focus was leadership, team working and championing women in the world of tax.
Panellists spoke openly about their own experiences and shared their personal stories. Only limited aspects and advice from those stories are shared here.
Leadership
If you have a team and you are leading your team, then you are a leader. But it doesn’t end there.
Building inclusive teams can offer a platform to develop a diverse team and allow employees a path towards career progression.
As a leader, you have a number of internal stakeholders, so it’s important you take some time to learn who they are and get to know them. For example, a tax director needs to get to know the CFO, other high-level executives, boards, and peers.
There are also external stakeholders, such as the tax authority and advisers.
How do you deal with all of this? People look to the tax director as the tax expert – and you would be the tax expert. But, this expertise becomes a lesser priority and as you grow in seniority. It’s up to you to keep an eye on matters, but also develop a team that become subject matter experts.
As a leader you’re the person that needs to use judgment, develop a strategy, have the vision and understand commercial relevance. As a manager, you have a multitude of issues to deal with.
The image you want to create of yourself to others is of a beautiful swan gliding across the water, while you are frantically paddling underneath to keep it altogether and stay afloat. This requires a good team to support that.
Ideally, you don’t want to show yourself as someone who is paddling frantically because this can sometimes erode the trust of others in you to do the job – but that also doesn’t mean you don’t show your vulnerabilities.
You just need to show your confidence to your team and all stakeholders. It’s also important to learn from your mistakes.
On the swan analogy, it’s also important that a team paddles together too. Outwardly, a team should also look like a graceful swan.
It’s also important to recognise good work. You should advocate for the people who are doing a great job – this is a really important aspect of leadership. The aspects of your role that you want to excel in as a leader to:
Sell the vision; Delegate well; Innovate often; Empower others; Overcome resistance (part of this is also to be very good at negotiation); Build strategic relationships; Focus on your customers; and Listen very actively.
Barriers to women leadership roles and overcoming them
For one tax manager, her recruitment decision did not lean towards a specific gender, but was influenced by the new graduates over the past two years. For her, when she left the management role of a specific tax department, the team was 50% women. Since her move, however, that has changed and there are now more men on the team under a male manager.
There is quite a distinction between career progression at a Big 4 firm or law firm compared to an in- house tax team. There is a clear path in these professional services, whereas it’s not so transparent in a company. In the latter, either there are opportunities through business growth, or you have to look at expanding the role.
For your employees, you have to work how they can continue to do their existing roles, but with additional areas that expand it and help the individual to grow. One way to do this is group mentoring and learning from each other.
Also, it’s important for individuals to be able to bring growth to the business themselves. That may be, for example, from new ideas.
One tax director said they rely on their network and talking to people to come up with the ideas.
Other tax directors agreed that it’s not possible to survive without your network. The broader your network, the more advantageous that is to your progression.
It’s good to take some time out of your week or month to review your network and take time to nurture your network or build it.
See networking as something you do as part of your day job – as opposed to something you do after 5pm. If you see networking as part of your job, you will be able to achieve this.
Different things work for different people. Even if you are a bit scared, give it a go.
Reading recommendation to help with networking: Never Eat Alone, by Keith Ferrazzi and Tahl Raz
Empowering others
One tax director said her mantra is to make tax user-friendly and solutions driven. This sometimes also involves mentoring and coaching people in the company that do not report to you to get them to understand you and the role you do. Upskilling other people in your organisation on certain tax rules or basic tax matters, such as by having a training morning, can empower your colleagues to deal with certain matters. It helps everyone and helps develop mutual respect.
As a leader, manager, subject expert and service provider, it’s important to understand that people think differently. As a field in which many people offer subject specific advice and solutions, the customers/stakeholders can sometimes have a different day job or level of understanding. You need to frame your idea or project in a way that makes it relevant and understandable for them.
In tax, you are expected to be subject matter experts – there is no getting around this. It is what you are employed to do. However, it is important to communicate with others what you do, and guide others to enable open communication. External networks and peer-to-peer conversations over a coffee can also help. Sometimes peers or an organisation that is not specific to your industry can help too.
While you are a subject expert, you are still a person and don’t be afraid to show your personality. This is valued and is gives you a USP in a personal way.
Team working
On helping to build a team, role-modelling senior people can be very helpful. When people become senior or become a partner, these individuals tend to get put on a pedestal or get idolised. This can be intimidating for junior employees, creating the fear that they can never achieve this. Role modelling allows these senior team members to open up and talk about the challenges they have faced and what they had to overcome to achieve their goals. It makes them more human and allows junior team members to identify with them.
As a leader and a team member, it’s important to get to know your team. Understand their likes and dislikes, their hobbies, etc. It’s also important to understand cultural differences – this is particularly important when you are working in a global organisation and work with colleagues in other countries.
Equally, never assume a gender bias on day-to-day matters, such as sports.
It’s important to try and understand and see the institutional bias. Just because you can’t see it, it doesn’t mean it’s not there. Try to put yourself in the other person’s shoes. You can’t see it unless you really try to open your eyes.
Naturally, the more diverse your team is, the better success your team is likely to have. It could give you a competitive advantage.
Flexible working is really important. This is no longer a gender issue, especially as the 9-5 structure becomes less relevant.
A agile working policy can help. This could include working from home and building a trusted organisation. Show your employees that you trust them no matter where they work. You need to build a structure that works for everyone.
It’s important to give equal status to people in different roles. This is particularly important for those that may not work full time.
Reading recommendation: Why I’m no longer talking to white people about race, by Reni Eddo- Lodge; The Smith report of racial diversity. YouTube recommendation: Walk a mile in her shoes
Mentoring
There are good and bad mentor scenarios.
Formal mentorships, where a mentee is assigned to a mentor, can be good, but only if the chemistry works between the two individuals. However, even when the mentoring relationship isn’t going as you intended it is likely you can still get something positive out of it so it is important try. In the worst case, when you do not think it is working at all, you can ask to be paired with someone else.
Informal mentoring relationships can be very good. This doesn’t have to be within your organisation. It can be with your peers, or someone more senior. These informal arrangements can allow you to be more open, honest and relaxed in the situation. This can often mean a relationship that has more chemistry.
Alternatively, there could be cases where there is a particular matter you are looking for guidance on, so you could opt for mentorship for these specific matters only. As such, these don’t have to be the long-term mentorship relationships that we are more accustomed to.
It’s important for both the mentor and mentee to go into mentorship meetings prepared.
It’s important to be thankful for your mentor.
If you are asked to be a mentor, be relevant to the individual you are mentoring.
As a mentor, some of the questions you are asked can help challenge you too.
Building and using your network to further your career
Kathrine Kimball, managing principal and founder, Aptis Global Lisa O’Hare, head of direct tax, Co-op Nicola Harvey, group tax director, Vectura Ali Kennedy, vice president, Sophos Group Sofie Stas, principal and founding member, Aptis Global
In 2005, the percentage of women partners in the Americas was 12.5%. At that time, this was significantly less than corporate Americas at around 18% and US Congress at 21%. In 2017, the percentage of women partners had only grown to 18%.
Symbolising the significant of being a woman partner at a firm in 2005, one panellist said: “When I made partner in 2005, my best friend sent me a bracelet with a key as my new proverbial ‘key to the men’s room,’ which I have worn for you all today. You are welcome to come see me later and take a selfie with it for inspiration! All joking aside, all of the firms have made great progress in the area since then but we are nowhere near a healthy balance of women in leadership. It’s no secret, a balanced leadership group is simply good business.”
Your network is not just about what it means to you, but what you mean to your network.
Having a good network that you are able to nurture and maintain can lead to job opportunities you could not have expected via the traditional routes of career progression and recruitment. It’s important to work out what you do and don’t want in your ideal job and career.
In one example, a tax professional had informed her manager of becoming pregnant, and received an unexpected response. The manager said they were shocked that a female talent like this tax professional would ruin their career by having a child. The tax professional quit the job while pregnant with no plans for the next step. However, while pregnant, a client approached her to offer her a job when she was ready to come back to work. This opportunity allowed her to develop a career in a niche area of tax and work her way up the career ladder. All her job opportunities have come from her network. She has never had to apply for a job in the traditional way over her 35-year career.
“I have had so many jobs because people knew who I was, where I was and what I was good at”, said the tax professional.
Her advice: It’s all about the network. You need to build your network, talk to your peer group, and be very careful to build your network across continents with all of your stakeholders. When thinking about the next job, it’s important to think about how you can put yourself in the position that makes you the most obvious candidate when that type of role comes up. Let people know what interests you. Always play to your strengths.
If you get the chance to take on another role during your career aside from your day-to-day position, such as a school committee board, or as part of a charity or other professional board or committee role, it’s the first steps to starting a potential second career. This allows you to keep your professional life interesting and.
‘Authentic Chameleons’ and trust
For millennials, the jobs that this generation will have in 10 years do not exist yet. As such, developing a personality and the skills to be a chameleon is important, but you still need to remain authentic to succeed.
Trust is crucial in a global and transparent community. This can be difficult to establish for those working in a global organisation where you are not necessarily going to be in the same room as your colleagues or stakeholders or peers. It’s also something you can lose very quickly – at which stage it can be very difficult to repair.
When those face-to-face conversations don’t happen easily, it can be very difficult to build that cohesive group and team. Building clear goals and objectives can help. Sharing ideas and plans and continuously sharing progress can help too. Also, each team member or country group should share their goals and objectives with each other and success should be measured in the same way globally.
Very regular check-ins are also important. Video conferencing, rather than telephone calls, is important with those colleagues not in your resident office. Body language is very telling and it’s important you can see that. It’s also nice to encourage conversations about things not related to work, such as family, hobbies, etc. Get to know what motivates your each team member.
Never ignore your digital network
To get to know someone in the first instance, the natural instinct now is to Google them. If your online profile is a complete wreck then this could be bad news. The way you see yourself in your own mind and the way you perceive yourself may not be what others see online. Someone who has had no previous interaction with you may see your drunken or embarrassing moments when searching for you online and that does not help build a profile of you as a trustworthy person. Be very conscious of your physical personal network and your online network – your online profile is as much your personal brand as you are.
How to determine what people see when they look at your online profile: Ask someone you don’t know to search your name on the internet and tell you very honestly what the search engine says about you. The risk of doing this yourself or asking a friend to do it is that you automatically filter the results.
When it comes to trust, self-belief is really important. If you don’t believe in yourself and what you do and that you are a capable individual to do the job you have been appointed for, then nobody will have that trust in you either. It’s about having that mental resilience to walk into a room and hold your head up high and ooze confidence.
Know your limits, but equally know exactly what you can do.
When on conference calls, relate to those people you are speaking to. Everyone has something in common – it doesn’t necessarily need to relate to the topic you are meeting over.
It’s about being you, being authentic, and carrying that air of confidence that allows people to believe in you as soon as you enter a room.
Reading recommendation: Presence, by Amy Cuddy
Going global and being virtual
If you work globally, you have people from different countries. That brings together native and non- native speakers.
In such a team, communication is really important, but the language barriers can cause a breakdown here.
For example, native speakers may speak English, but their language skills may be weak in places. This also applies the other way. This is where speaking slowly and simple can help to ensure everybody understands each other.
Getting to know each other across a global, and often virtual, team can be tricky. A way to overcome this is to develop a fun task that everyone can get involved in, like a photo challenge or quiz.
To understand cultural differences, do some research, speak to people, and understand the cultural differences to determine how a person may perceive a piece of communication. You have to invest time to understand this. It’s also crucial to understand that each country can also have a diverse range of cultural differences. It’s important to recognise this.
Social media
If you had a physical notebook or contacts book, you would never leave it exposed. Similarly, you need to think about your social media networks using a similar analogy.
Be careful who you connect with on LinkedIn. Do not automatically click yes to everyone who sends you a request to connect. By allowing an unknown person to connect to you, you have just given your entire network away to them. As you become more senior, you and your peers can get more sensitive about this. Think about who you are prepared to connect with. This says a lot about you as well. Use social media consciously, not unconsciously. You have to exercise suitable caution. Remember, what you post on social media is there forever.
What would you tell your younger self?
Panellists said:
“Savour the moment” – Life goes so quickly. If there is something you are enjoying, take the time to enjoy it. “Let go of the guilt” – Whether it’s family life, or something else, feeling guilty is utterly pointless and destructive. “If something is scary and terrifying, what is the worst that can happen? If you want to climb a mountain, do it” – just give it a go. “When you are there, be there in that moment”. “Bring your heart to the game” – It’s only tax, but what matters at the end is the relationships and the friends you make.
Collaborating across tax authorities, in-house tax departments and tax advisers – where do the responsibilities lie?
Patricia Oakley, senior director, VAT compliance, Avalara Helena Tender, head of global tax, ASCOM Melissa Howarth, group head of tax, Merlin Entertainments
Whether you work in a tax department, accountancy firm, law firm, tax authority or other tax service area, everyone has to do more with less.
Tax reporting has always been a core competency in a tax function, but there is no ‘one size fits all’ and each entity needs to invest the time to find the solution that fits in with them.
For one company that has only one person in its tax team (while some areas of the work is managed by the finance teams across the world), the tax director is important. When you are a small in-house tax team it makes sense to use advisers: you don’t have to reinvent the wheel they have better technology and a lot of knowledge. Corporate tax directors can dive into that and make the most of it. In these circumstances, tax advisers are sometime not viewed as an outside source but partners to the tax function.
In comparison, another in-house tax team may prefer to have a tax person in every country where they have core operations. This allows the tax function to not have to rely on advisers, thus bringing down costs.
What’s changed in the past 18 months for one in-house tax director is the hiring of a transfer pricing manager. From speaking with their peers and other tax directors, it is clear that this is a real change over the past few years. In the past, some in-house tax teams would not of had the capacity for an in-house transfer pricing manager, but this is now an area where most tax teams are requiring an expert because of all of the changes that are taking place, such as the BEPS measures. The focus is definitely more on transfer pricing because of BEPS, says one tax director, estimating that it takes up about 70% of their focus.
On BEPS and transfer pricing, today’s tax department needs to understand their own business more than it ever had to do in the past. The role goes beyond figures. It now requires an understanding of transactions and where responsibilities lie.
As tax authorities move towards more real time reporting and increasing data sharing, we are gradually moving to a situation where tax authorities will know more about a company’s transactions – or know this information earlier – than the business or tax director.
The difficulty that arises in ensuring that the information the tax authority gains is accurate and matches the business data. Every company would do this differently, but it’s around standardisation and knowing those operating processes in all parts of the business.
Standardisation goes back to having documentation, policies and strategies in place. But having what’s written down on paper must match the reality, which is something that doesn’t always happen. Ensure your company is providing substance in the countries that it operates – and that your documents match this. Equally, the decision-making process should be in line with what a company portrays on paper.
The tax director needs to be involved in business processes at all levels. It’s important to make your colleagues understand that matters like which jurisdiction you place a person for a particular role can have an impact on transfer pricing strategies.
Automation
Automation can be different for every company.
For one tax director, automation offers an opportunity to streamline compliance, reduce costs and improve data quality of certain manual tasks. However, despite looking at technology solutions, their company still relies on spreadsheets. The large costs and time associated with implementing specialist tax software has been far too much and could not be justified, they said. In most cases, there was not much technology between the standard spreadsheet software and the specialist tax software that met the needs of the business.
However, that is evolving and there are more large software tools becoming available. There is also more middle-ground software emerging – these may not be specific for tax, but they offer the potential to be used in tax reporting processes. It allows partial automation.
The automation process for taxation has come, to some extent, from manufacturing. It comes from applying those thought processes to tax, starting at ERPs, then moving the compliance, then automation, then robotics, AI and machine learning. It’s about working out what those manual repetitive steps are and determining how to automate these so that the human can be used for more value-added work. This can allow, potentially, a company to do more with less people.
If you have data at a granular enough level, whether you do it automatically or at a human level, you have the potential to investigate the figures or analyse them in whichever way you need.
The modern tax authorities
With increasing access to data, tax authorities are now looking at other aspects of the business and documentation. For example, tax authorities can go into a company and ask for the past four years of emails of the sales and marketing teams. This raises questions within the company about whether those four years of emails are available, what may be in those emails and whether you want to hand this over to the tax authorities. This can cause panic stations. Tax authorities will use their AI technology to go through that data to determine whether decisions are being made where they should not be, etc.
You have to be prepared that the tax authority will have access to a vast amount of information.
The way companies and tax authorities interact with each other can vary dramatically according to the country. For example, in Switzerland, the authorities are extremely open and available for conversations. Other countries are the opposite, meaning there is little point in being proactive and approaching them to disclose any matters or finding a solution – the answer will always be no. Then, there are other countries where tax authorities don’t follow their stereotypes. For example, a tax director said she had experienced her worst tax audit in Germany – even worse than an experience in Angola. German tax authorities went to the German office of the company with no papers and demanded a tax payment, leading to an on-the-spot negotiation. Needless to say that the tax authority won to avoid a lengthy and costly litigation battle in the courts.
The tax director role is changing. It is shifting from a tax compliance role to a role where they need to make sure the whole business is compliant.
In the case of HMRC, one tax director believes the relationship between the tax authority and the business is starting off on a much more adversarial basis, rather than collaborative.
In recent years, on transfer pricing matters, HMRC are using more of a two-pronged approach to verify processes and transactions. Once they have interviewed senior management on TP processes, the tax authority wants to see evidence, backing up what they have been told during those conversations. In some cases, there can be a time lag between when those interviews take place to when the document evidence is requested.
Cross-border joint audits are also growing in numbers. In one example, tax authorities across the EU had collected all the inter-company declarations that were made and then reconciled them to another country – in this case the Netherlands. The Netherlands compared the reconciliations in the other 27 jurisdictions on what had been sold in the Netherlands, and compared it to the Dutch tax return and found that this information did not match. This was the start of a cross-European inter- company audit on VAT compliance.
Advisers
The days of when an adviser could just turn up at a business and deal with the tax matters has gone.
The focus has changed on how advisory services are used. They are more of a partner of the business. Advisers are expected to be part of the team, especially with smaller in-house tax departments. Larger tax departments often work with their advisers on a specific project.
An adviser’s role also requires them to look beyond the tax function to see where the business can become more tax efficient, whether that’s R&D or finding incentives to benefit from. The tax advisor needs to understand the business and speak to the commercial arms of the business.
EU and OECD digital tax frameworks: Considerations for tax strategies (Slides available for this panel) Catherine O’Meara, partner, Matheson Patrycja Brzostowska, international tax manager, Zalando Tove Maria Ryding, policy and advocacy manager, Eurodad Xiaoshan Sun, global transfer pricing senior manager, Omnicom Pierre-Antoine Klethi, tax adviser, Loyens & Loeff
OECD published its interim report on digital taxation in March 2018. It stated: “There is no consensus on the merits of, or need for, interim measures, and therefore this report does not make a recommendation for their introduction”. – In other words, it said not to do anything until it has got some sort of global consensus.
In the EU, there are two directives on digital taxation announced on March 21 2018:
Directive 1 – The long-term solution, which includes the digital PE concept; and Directive 2 – The interim solution, which proposes a digital services tax (tax on turnover).
A road to a global consensus
In the days of Trump, the issue of multilateralism is not easy to discuss. But on the positive side, we have seen, sometimes, that when some states start going rogue, the rest of the world eventually starts working all together. There can be a little grain of hope in all the chaos that is going on.
A global deal is often used to explain an agreement between approximately 190 countries where they have sat down to talk, negotiate and reach consensus on a mutual issue. This is what has happened in the case of climate change, despite some states like the US going rogue. But, for most signatories, that agreement was much more than an agreement, it was also a common understanding that evolved. Because the negotiations were followed very closely by media and interested parties, there was public engagement on the matter that developed support and public accountability.
On taxation, it’s a different situation. There is a labyrinth of international agreements, but a global agreement is not a way that international tax has been solved until now. For example, it can be argued that the arm’s-length principle and the transfer pricing guidelines have been primarily led by the OECD countries. On BEPS, there were around 100 developing countries that were not part of those negotiations.
It has not been long since BEPS was agreed and now we have what seems like a nasty fight between the OECD members themselves on digital taxation. This has created a mess of what the political agendas of the OECD countries are.
The OECD often agrees to disagree and that is where we might be going with digital tax.
Unlike the public awareness of the climate agreement, people do not actually know what the BEPS agreement was about and therefore it does not appeal to the public.
One of the issues with the digital tax debate is that it is has been driven by data leaks, scandals and political shocks. The problem with this is that it leads to governments imagining an overhauled tax system where they would get a bigger share of the pie, leading to proposals such as digital taxation.
In conclusion, a UN solution to the international tax system looks unlikely as governments are not ready for that, and the road ahead is going to get bumpy. Be prepared for more unilateral action and a lack of agreement. The OECD may paper over matters and agree to disagree. On the bright side, the hope is an eventual international tax peace deal.
Value creation, data and user participation
The concept of value creation is not being defined very clearly in the digital taxation debate.
It may be worth considering an extension to the OECD’s value creation definition. This could include looking at competitiveness and growth potential.
There are some digital businesses that do not care about increasing revenues or reducing costs, their focus is on competitiveness and what their growth potential is in the markets in which they operate, as well as customer loyalty.
The framework of international taxation has changed. It now involves new processes and a reduced dependency on the physical location of a business and tangible goods. Data and user participation play a larger role in this framework for businesses in today’s digital world. The value created and the data required is very different for, for example, a streaming business compared to an autonomous car business.
If we really want to look at the role of data and user participation in terms of charging tax and to get it right, there needs to be an understanding of the value creation process in real time.
The digital PE
How can you create a nexus in the country when you are a digital business and have no physical presence in the country? And what should be taxed in this scenario?
The EU draft directive approaches this in terms of profit allocation. It considers how the profit allocation rules can be applied to digital businesses.
In terms of the ‘significant digital presence’ the criteria are that the business model is carried out through the digital interface and meets one of the three below to establish a digital PE:
Has revenues of $7 million or more from providing those services. There are more than 100,000 online users – the problem with this is that the EU directive states that this should be done via IP addresses. This criterion doesn’t accurately measure the number of users when most people own two or more devices such as a mobile phone, tablet and computer. More than 3,000 online contracts.
The directive gives some examples and definitions of services, as well as the services that are excluded.
The concern is how value creation should be measured. This will require a global solution.
On the criteria for a ‘significant digital presence’, with the inaccuracies that could occur from measuring user participation through IP addresses, another option could be to measure market share in each country where the company operates.
One difficulty that governments have not recognised is the difficulties for businesses in being able to determine where the user is.
In conclusion, it would be wise for the European Commission to wait for a wider agreement on taxing the digital economy from the OECD. Digital services tax (DST) proposal
One of the key difficulties with the digital tax services proposals is how to tax the different types of businesses, such as the online sale of goods and services, digital platforms, intermediation services and the sale of digital content/services, etc.
A worrying aspect of the DST proposal is that it is meant to be an interim measure, but there is no sunset clause.
The DST would also not be covered by double tax treaties. There is also a higher risk of double taxation.
The allocation of taxing rights will be based on the residence of the user, so it will be much more destination-based, rather than based on where the business or people functions are located.
Fishbowl session
Alessandra Gomensoro, partner, Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados Elizabeth Lavercombe, deputy head of group tax, Old Mutual Jean Sharp, chief taxation officer, Aviva Angela Shah, EMEA head of tax, Nomura Tasneem Kadiri, UK and Ireland tax director, L’Oreal
Panellists spoke openly about their own experiences and shared their personal stories. Only very limited aspects and advice from those stories are shared here.
It’s becoming more common for men to realise that working with a women offers some great opportunities for them, especially when it comes to their skillset.
It’s quite common for women to doubt themselves in their careers once they have kids, but it is possible to succeed and not let it affect your confidence. Feeling guilty may never go away, so learn to manage it and let go at times.
When you are in a relationship, people often refer to their other half as a “partner” – and this is exactly what that is – a partnership. You have to communicate and also agree with each other how you plan to live your life, have a family, etc. This support is important to help you manage your career, and vice versa.
The advice that was given by the panel included:
Always be true to yourself. Realise that we are all equal as human beings. Always try to maximise return on effort. Knowing who you are and what matters to you is crucial. Work out your values. Be Brave. Have a go. You never know, it might be fun. Give it ago. Your expectations need to be tested. Believe in yourself. Just because you don’t experience bias in your role, doesn’t mean it doesn’t exist. It’s really important to have a seat at the table when discussions are taking place, but that can only happen if you build up your allies within the organisation and show the value you can bring. Maintain a growth mindset – when you incur setbacks in your career, rather than feeling disheartened, ask yourself what you would have done differently if you were faced with the same issue again and what skills you need to develop to achieve a positive outcome next time. That will allow you to grow as a person and succeed. Be proud of who you are and celebrate your differences. Use your strengths to excel in your career. Be passionate about what you do. When going to meetings people can really see that. Be your own ambassador – be confident in talking about your achievements. Seek advice from people you trust. As a leader, it’s important to be available to others who may need to just have someone approachable in the company that they can come to talk to. It’s important to be authentic in your leadership style. Don’t try to copy someone else’s leadership style. People can see through that.
What would you tell your younger you?
The panellists said:
“Don’t be so critical of yourself” – A women will normally only apply for a job if she has 100% of the skills, whereas a man will apply for the same role even if he only matches 50% of the requirements. “Live the life you want to live and take career opportunities that come your way that match your lifestyle because you only have one life.” “Come out of your comfort zone, confront your fears. Don’t let fear stop you from achieving your goals and your ambitions.” “Don’t compare yourself to others.” “Don’t put people on pedestals. Everyone is human.”