01 t magazine magazine 01 - ernst & young · with the impact of the tax environment on their...

New dynamics in the world of mergers and acquisitions

Why board members need a better understanding of tax

Tax risk management becomes a core business issue

Change is in the air

Tax becomes central to policy and business

01MagazineTax insight for business leaders

The world is getting smaller, but this doesn’t mean global tax issues are getting any simpler. That’s why we have over 22,000 tax professionals in more than 140 countries working to provide your business with a holistic view of your tax obligations and opportunities. This means, no matter where you’re doing business, you benefit from tax advice and support that helps your organization achieve its full potential.

What’s next for your business?ey.com

Seen the world?

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Imprint

Publisher:Ernst & Young EMEIA TaxBleicherweg 21, 8002 Zurich, Switzerland

Marketing Director: Alfred RaucheisenProgram Manager: Alexander LorimerContent Advisor: Monica Kremer

Publishing House:Infel AG, Militärstrasse 36, 8021 Zurich, Switzerland

Publishing Director: Elmar zur BonsenEditor-in-Chief: Rob MitchellArt Director: Guido Von DeschwandenEditorial Director: Gaston HaasProject Manager: Michèle MeissnerPicture Editor: Diana Ulrich

Printer: Rüesch Druck AG, 9424 Rheineck, Switzerland

All rights reserved. Contents of this publication may not be reproduced whole or in part without written consent of the copyright owner.

A part of this issue will be distributed as an insert in the Financial Times across Europe, Middle East, India and Africa in July 2010.

2 T Magazine issue 01

T01_p03_LEFT_Edito_Kuhn.indd 2 15.06.10 16:57

� By Stephan Kuhn Editorial

issue 01 T Magazine 3

Dear Reader

More�than�three�years�since�the�financial�crisis�emerged,�the�shockwaves�continue�to�be�felt�around�the�world.�Governments�face�record�deficits,�while�corporates�must�contend�with�ongoing�credit�constraints,�uncertain�demand�and�an�unpredictable�macroeconomic�environment.�

Yet�at�the�same�time,�this�is�potentially�a�period�of�great�opportunity.�The�rapid�growth�of�emerg-ing�economies,�particularly�in�Asia,�presents�corporates�with�exciting�new�markets.�Globalization�is�no�longer�a�one-way�street�of�West�to�East�investment�–�instead,�capital,�labor�and�new�ideas�flow�freely�in�every�direction.�Companies�can�now�access�talent,�resources�and�ideas�from�anywhere�in�the�world,�but�they�also�face�a�highly�complex�regulatory�and�legislative�environment.

These�huge�changes�are�coinciding�with�a�major�re-think�of�tax�policy�in�many�countries,�as�gov-ernments�attempt�to�restore�public�finances�to�health.�For�companies�seeking�to�thrive�in�a�post-crisis�world,�this�creates�an�additional�layer�of�complexity.�There�have�always�been�tax�implications�associated�with�any�major�business�decision.�A�key�difference�today,�however,�is�that�tax�treat-ment�is�becoming�increasingly�uncertain,�as�laws�change�more�rapidly.�Information�is�shared�between�authorities�to�an�unprecedented�extent,�while�there�is�growing�pressure�on�executive�boards�to�be�accountable�for�tax�positions.

The�scale�of�the�changes�that�are�underway�highlights�the�need�for�senior�executives�to�be�familiar�with�the�impact�of�the�tax�environment�on�their�business.�T�Magazine�is�a�new�series�of�publica-tions,�produced�by�Ernst�&�Young,�that�will�help�readers�to�gain�a�more�thorough�understanding�of�tax�issues.�It�will�feature�the�insights�of�high-level�executives�and�experts,�as�well�as�contributions�from�leading�policy-makers�and�academics.�Our�aim�is�not�to�tackle�the�technical�detail�of�tax�legislation,�but�to�examine�major�business�issues,�from�dealing�with�the�post-crisis�world�to�the�changing�environment�for�planning�and�risk�management,�through�a�prism�of�tax.�At�the�very�least,�this�will�arm�senior�executives�with�the�information�they�need�to�ask�the�right�questions�and�be�aware�of�the�issues�that�they�must�consider�with�their�counterparts�in�strategy�development,�and�the�tax�and�finance�functions.

Each�issue�of�T�Magazine�will�focus�on�a�specific�theme.�In�this,�our�launch�issue,�we�look�at��the�lessons�from�change�that�can�be�drawn�from�the�crisis.�With�businesses�facing�an�un-certain�future,�the�decisions�that�managers�make�now�will�have�a�significant�impact��on�their�prospects�over�the�coming�years.�In�this�magazine,�we�argue�that�tax�should�be�given�greater�prominence�in�business�decision-making�and�governance.�This�will�require�frequent,�open�communication�between�executive�management,�boards,�finance�and�tax�functions�and�external�stakeholders,�such�as�regulators�and�investors.�We�hope�that�you�find�the�magazine�interesting�and�thought-provoking.

Stephan�Kuhn

Tax�should�be�more��integrated�into�business��decision-making

Stephan Kuhn is Area Tax Leader for the Europe, Middle East, India and Africa (EMEIA) region at Ernst & Young.

Stephan Kuhn, EMEIA Tax Leader at Ernst & Young

T01_p03_LEFT_Edito_Kuhn.indd 3 15.06.10 16:57

content � Credits: Reuters / Philippe Wojazer; Cover: Laif / Edgar Rodtmann


News5 __ Global Tax NewsRecent developments in tax policy and legislation.

6 __ Tax and transparencyAn overview of progress on tax information exchange since the G20 meeting in April 2009.

Features8 __ New challenges, old dilemmasTax may be top of the policy agenda but history shows that reform can be fraught with difficulties.

14 __ Taxing times in a post-crisis worldAn uncertain tax environment creates challenges for business and highlights the importance of board-level engagement on taxation issues.

Focus20 __ Rewarding innovationA new innovation tax credit that gives preferential tax treatment to income derived from patents has received mixed responses.

22 __ A changing world for transactionsThe coming years are likely to see a resumption of new M&A activity, but prospective deal-makers face a dramatically different environment.

26 __ A forum for changeA new international forum of member countries seeks to develop and share best practice on tax policy across Africa.

30 __ Debt in the firing lineThe financial crisis has raised the question of whether a more neutral tax position on debt and equity is needed.

Management32 __ Making the connection with businessInformation on tax must be communicated clearly throughout the organization.

36 __ Platform for the future of the tax functionAn interview with Karen Hayzen-Smith, Director of Tax and Treasury at AMEC.

38 __ Spotlight on riskTax risk management has emerged as an essential discipline for boards and senior managers.

42 __ A rigorous approach to managing riskIan Brimicombe, Head of Group Tax at AstraZeneca, discusses the growing importance of a robust approach to risk management.

44 __ A source of valueA rigorous approach to managing and driving performance in the tax function is vital.

Outlook48 __ co-ordination is the key to European tax reformAlgirdas Šemeta, European Commissioner for Taxation, Customs, Anti-fraud and Audit explores the future of European tax policy.

22 32 42

President Nicolas Sarkozy“The signs of recovery that seem to herald the end of the global recession should not encourage us to be less daring; rather, we must be even bolder. If we do nothing to change world governance, nothing to regulate the economy, if we do not reform our systems of social protection, pensions, education and research, if we do not clean up our public finances, if we do not stringently prosecute the war against tax fraud, if we do not invest to prepare for the future, this recovery will be only a respite. The same causes will produce the same effects.”

Speech marks

Discover more content, news and features on the T Magazine website at www.ey.com/tmagazine

T01_p04_05_LEFT_Content_News.indd 4 16.06.10 17:27


Canada: March 2010The Federal Budget in Canada confirms the government’s desire to make substantial tax cuts for business and set the lowest corporate income tax rate in the G7 by 2012.

United States: May 2010 Chris Van Hollen, Democratic congressman from Maryland, says that US Congress will look to reform of international tax laws, including a crack-down on the misuse of foreign tax credits, as a way of increasing revenues.

Chile: April 2010The Chilean President Sebastián Piñera announces that he will increase corpo-rate tax rates from 17% to

20% from 2011 in order to fund the reconstruction effort following the devastat-ing earthquake in February. The rate is expected to return to 17% in 2013.

United Kingdom: April 2010The start of the new tax year in the United Kingdom sees the 50% top marginal rate of income tax, as well as tapering of the personal income tax allowance for high earners come into force.

The Netherlands:June 2010On 9 June general elections were held in The Netherlands. With no clear path to the development of a coalition government, previously stalled measures such as the possible repeal of

Japan: March 2010The 2010 Tax Reform Bill is passed, with enforcement rules released on 31 March. Key update items include an introduction of the group tax concept, a relaxation of tax haven rules and broader exemptions for investments in corporate bonds.

Australia: May 2010Tax issues generate more press coverage than ever in Australia, with the government facing fierce criticism of their proposed 40% Resources Super Profits Tax, and the Austra-lian Tax Office Commissioner signalling an interest in following the United States Uncertain Tax Positions proposals.

some of the limitations on interest deduction remain in limbo.

South Africa:June 2010Following many other countries in the fight against perceived tax abuse, South Africa is to run a Voluntary Disclosure Pro-gram from 1 November 2010 to 31 October 2011.

Greece: May 2010The Greek government proposes new tax increases as part of an “austerity package” of reforms aimed at restoring its public finances to health and securing access to an emergency loan from Eurozone member states. The measures provoke violence in the capital, Athens.

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Global tax newsA round-up of recent developments from major governments and tax administrations

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__ At the April 2009 G20 Summit in London, world leaders pledged to take action against tax havens as part of a package of measures to respond to the financial crisis. Under the auspices of the Organisation for Economic Co-operation and Development (OECD), 2009 saw a flurry of tax information exchange agreements (TIEAs) as countries brought themselves into line with the new expecta-tions. Costa Rica, the Philippines, Uruguay and Malaysia were removed from the OECD’s blacklist of countries that had not committed to its standards. Once a country had signed 12 TIEAs, it became eligible to join the OECD’s list of jurisdictions that have substan-tially implemented its standards. Countries that have not engaged strongly in developing a range of tax treaties have found themselves becoming increasingly marginalized as a consequence.

Tax and transparencyThe financial crisis has led to an unprecedented clampdown on tax havens and encouraged a new spirit of information exchange among tax jurisdictions.

news Credit: Keystone / Remy de la Mauviniere


jul OctApr 09Timeline of a clampdown

Australia 25 Netherlands 23 Denmark 22 Norway 22 Sweden 22Iceland 22Finland 22

The Bahamas 20Netherlands Antilles 20Bermuda 19France 19Gibraltar 18United Kingdom 18St. Vincent and the Grenadines 18British Virgin Islands 17Aruba 17Andorra 16

Antigua and Barbuda 16San Marino 16St. Kitts and Nevis 16St. Lucia 15Guernsey 15Ireland 15

Isle of Man 15Jersey 15New Zealand 15

Bilateral tax agreements This table shows countries that have agreed the highest number of TIEAs since 2000, according to the OECD, as of May.

Steep declineDeteriorating public finances are a key factor behind the G20 clampdown.

Fiscal Balance

Source: International Monetary Fund, 2010

-10

-8

-6

-4

-2

0

2

’90’80 ’00 ’10

Advanced economiesWorld Emerging and developing economiesG7

Public Debt

0

20

40

60

80

100

120

’70’60’50 ’80 ’90 ’00 ’10

% of GDP

% of GDP

OECD Secretariat provides a report on progress by financial centers around the world towards implementation of an internationally agreed standard on exchange of information for tax purposes.> 2009 April

The OECD removes Costa Rica, Malaysia, the Philippines and Uruguay from its black-list of countries that have not committed to its international standards.> 2009 April

G20 leaders pledge action against non-cooperative jurisdictions, including tax havens.> 2009 April

G20 leaders commit to maintaining the momentum in dealing with tax havens and pledge to use counter-measures against tax havens from March 2010.> 2009 September

The OECD decides to remove Andorra, Liechtenstein and Monaco from its list of uncooperative tax havens.> 2009 May

jeffrey Owens, Director OECD Centre for Tax Policy & Adminstration

T01_p06_07_LEFT_News.indd 6 15.06.10 18:39

Credits: Keystone / Caro Teich / Luca Bruno


jan 10 Apr

Prior to the November 2008 G20 Summit in Washington D.C., a total of 44 Tax Information Exchange Agreements (TIEAs) had been signed. Following the London Summit in April 2009, the number of TIEA signings skyrocketed.

Many of these agreements were made following pressure from the G20 in April 2009 as countries attempted to avoid the OECD’s “blacklist” of non-cooperative jurisdictions and then the “grey list” of countries that are not yet fully compliant. This came to be seen as a de-facto blacklist of countries.

44

During 2009, a total of 199 TIEAs were signed by OECD countries. This marks a 600% increase on the number signed in 2008.

199

Liechtenstein signs its 12th TIEA. This means that it is considered to have substantially implemented the internationally agreed standard.> 2009 November

Singapore moves into the category of jurisdictions deemed to have substantially implemented the standard.> 2009 November

The OECD announces a new Information Exchange Peer Review mechanism. Canada volunteers to be among the first countries selected for review.> 2009 December

Brazil and Indonesia join jurisdictions that have substantially implemented the internationally agreed tax standard.> 2010 June

The OECD formally launches country-by-country reviews, with a group of 18 countries announced as the first to participate in the process.> 2010 March

Offshore financial centers__ According to a March 2010 rankings from the City of London, Jersey is the only offshore financial center to be placed in the top 20 global financial centers.

__ Insurers based in Bermuda reportedly wrote 30% of the 2008 premium at Lloyd’s of London, which totalled £5.4bn, according to the Foot Review of British Offshore Financial Centers.

__ A growing number of alternative investment managers are re-domiciling from offshore centers. In April 2010, for example, the hedge fund Marshall Wace shifted the majority of its funds from the Cayman Islands to Ireland.

Angel Gurría, OECD Secretary-General

“For decades, it has been possible for a taxpayer to hide income and assets from the taxman, by abusing bank secrecy or other impediments to information exchange. This will no longer be the case.”

Turin __ ItalyIn May 2010, Italian police launched an investigation into tax evasion based on customer data that was

stolen in 2006 from HSBC’s private bank in Switzerland. Up to 7,000 accounts are being reviewed under the instructions of Gian Carlo Caselli (left), Chief Prosecutor of Turin. This follows a similar investigation that is being conducted in France by Eric de Montgolfier, a high-profile prosecutor based in nice.

Madrid __ SpainResearch from The Real Instituto Elcano, a Spanish research institute, claims that capital flight from Africa totalled more than US$600bn since 1975, and that for every dollar of external debt borrowed by these countries, 80 cents has flowed out in the same year. The authors cite tax havens as being a key destination for this capital flight.

T01_p06_07_LEFT_News.indd 7 15.06.10 13:49


With governments around the world facing major fiscal deficits, tax is once again top of the policy agenda. But as history has repeatedly demonstrated, getting reform right is fraught with difficulties.

New challenges, old dilemmas

• By Cornelia Glees and Paul Kielstra

A robust and efficient taxation system is the foundation of a successful economy and a prerequisite for sustainable

growth. By raising revenues from individuals and businesses, governments can invest in the infrastructure, education, healthcare and defense that are necessary to sustain a well-functioning state. They can also influence behavior and transfer wealth from the richest sections of society to the poorest. But despite the benefits that an efficient, well managed taxation system brings, it is rarely perceived as a constructive phenomenon.

George Lakoff, Professor of Linguistics at the University of California at Berkeley, has argued that the language associated with tax has come to be highly negative. Tax is presented as a “burden” from which we need “relief.” He suggests that taxation should instead be seen as our “dues” to society. “Taxes are what we pay to live in a civilized society that is democratic, offers opportunity and has a huge infrastructure available to all citizens,” he writes.

As governments struggle with the aftermath of the financial crisis, tax is once again high on the agenda. At a policy level, there is ongoing debate over how to regulate the banking sys-tem, and the role that an international tax on

transactions could play in reducing systemic risk. Tax havens have also come under fire and have been identified by some commentators as a contributing factor to the financial crisis. In response, the G20 has resolved to clamp down on perceived havens and promote greater trans-parency and disclosure between individual jurisdictions.

Faced with the cost of bank bailouts and the aftermath of a credit binge, many countries around the world will be forced to make sub-stantial overhauls of their tax system. In coun-tries that have been most severely affected by the crisis, such as Greece, tax increases have already been imposed. Other countries with large fiscal deficits, such as Ireland, the United Kingdom, Portugal and Spain, will also need to rethink their tax policies in order to reduce their budget deficits.

Any change to tax policy is, as history has shown time and again, fraught with difficulties. Already, the Greek authorities are struggling with strikes and riots that have been held partly in response to tax changes that form part of the Government’s “austerity package.” In May 2010, three people were killed in Athens after protesters firebombed a bank. And with other countries, such as Portugal and Spain, having already experienced debt downgrades and facing certain fiscal tightening to address their

Greek protests The eruption of violence in Greece as a response to government austerity measures is the most recent in a long history of tax protests

features tax in context Credit: Keystone / EPA / Pantelis Saitas

T01_p08_13_LEFT_TaxInContext_NEW_Version.indd 8 15.06.10 14:02


budget deficits, the prospect for further social unrest cannot be ruled out.

Put simply, tax increases have never been popular, and governments have always had difficulty forming an effective tax policy. The perception of Thomas Aquinas from the 13th century that taxes are “a form of legal plunder” has been a persistent one that no government since has been able to change entirely. Despite all the advantages that taxation brings to society, it is difficult for any government to dislodge the perception that it is either set too highly, is being spent ineffectively or that it is being directed toward the wrong outcomes.

The issue is not simply that taxpayers do not like being relieved of their money or that incom-petence in managing these revenues can sap a state’s legitimacy, although both are certainly true. The more common problem is that taxa-tion seeks to achieve a range of ends simultane-ously, and in trying to meet these objectives, governments can unleash unintended consequences. How taxation is collected often matters more than the overall amount.

The popular response to major changes in the tax system highlights the importance of an efficient approach to policy, administration and collection. The selection of a tax rate, and the particular mix of taxes, needs to balance efficiency with sometimes conflicting societal

assumptions about equity – or who should contribute what to the general good. On occa-sion, such as the recent short-term levy enacted on recipients of bank bonuses in the United Kingdom and France, or windfall taxes more generally, tax policy becomes as much about politics as it does about raising revenues. More broadly, though, the progressive tax rates and redistributive policies of most modern income tax systems make a distinct statement about what societies consider fair. Any tax that flies in the face of accepted norms can inspire intense opposition, as former United Kingdom Prime Minister Margaret Thatcher found in 1990 when she imposed the Poll Tax, a new system for charging for local services.

The difficulties with administering taxation highlight the need for an efficient system. The point is, after all, to raise revenue. Some econo-mists use the Laffer curve to argue that, beyond a certain tax rate, government revenues are likely to fall rather than rise, because people will either cheat or cease to engage in behavior that is taxed. If direct tax rates are zero, then this will raise no revenues, but if they are set at 100%, there will also be no revenue because there is no incentive for taxpayers to generate income. The theory argues that there must therefore be a point somewhere between the two where governments can earn the maximum

Credit: Corbis / Bettmann

1 Boston Tea Party In 1773, protests against the British government’s Tea Act culminated in protestors destroying shiploads of tea by throwing it into Boston Harbor

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USAIn 2008, the United States Inland Revenue Service collected more than US$2.3 trillion in revenue and processed over 250m tax returns. Over 101m tax returns were filed electroni-cally. On average, the agency cost US$0.42 for every US$100 collected.



revenue. The economist who devised the theo-ry, Arthur Laffer, came to be associated with the doctrine of “supply-side economics,” which maintained that cutting taxes would lead to economic growth. Supply-side economics became very influential in the US Republican Government of Ronald Reagan. But the theory also attracted strong criticism, notably from the Nobel Prize-winning economist Paul Krugman.

Besides the question of how much tax to seek, the method of raising revenue is another issue. Over the years, governments have come up with a wide range of taxes and duties includ-ing, in many jurisdictions, levies on criminal activity. For example, Al Capone was imprisoned for tax fraud, not gangsterism.

Even if efficient and fair – however those are defined – tax policy runs into the problem of inevitably changing the environment in which it operates. A sales tax, for example, brings revenue to governments but also reduces the amount of goods that suppliers are willing to provide or customers are willing to buy. This creates what economists call “a dead-weight loss.”

Income taxes, by affecting the costs and benefits of working, have an inevitable effect on the labor market. In some cases, when com-bined with the payment of social benefits, they can create welfare traps, where people may be worse off by working than they would be if they received social security benefits. A key difficulty

that impedes the creation of coherent tax policy is the confusion that can result from trying to meet divergent goals. So-called “sin” taxes are a clear illustration of this. In many countries, government budgets often hike alcohol and tobacco taxes. Although treated similarly, politicians rarely talk of eliminating sales of the former, only of the latter. It seems at the very least odd to pursue similar policies but to seek widely divergent results.

Another example is the way in which many countries allow individuals to receive tax advan-tages from structuring savings in specific, pension-related accounts, but may require companies to reverse otherwise perfectly legal structural changes because they are deemed to have been undertaken merely to avoid tax.

A history lessonTaxes, in one form or another, are as old as governments. Mesopotamian, Assyrian and Egyptian records include numerous references to taxation – and its avoidance. The University of Pennsylvania even has documentation of an Egyptian tax shelter – acquired through working for a charity – from before 2,500 BC.

Taxes have been so inextricably woven into our society for so long that we often do not question them, other than to begrudge their existence. Adam Smith, the father of modern economic theory, captured a commonly held view of tax when he noted in 1776: “There is no

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2 Ivan the TerribleThe 16th-century Russian Tsar instigated a number of inventive taxes including a “gun duty” and “nitrate duty”

3 french Revolution A tax system that fell heavily on peasants and wage-earners was one of the underlying causes of the french Revolution of 1789

features tax in context Credits: AKG-Images (2)



art which one government sooner learns of another, than that of draining money from the pockets of the people.”

Governments have always been highly imaginative in their efforts to generate reve-nues through taxation. In ancient Egypt, there were precise rules about the proportion of the harvest that must be paid to the Pharaoh each year. Farmers were taxed in line with their respective yields, and their contributions estimated according to the extent to which the Nile flooded its banks.

Opposition to tax policy has had a profound role in shaping modern society. The American Revolution was, on many levels, a tax revolt. The French Revolution arose largely from the authorities seeking to enhance their revenue-raising capability but showing ham-fisted reluc-tance to share other powers. Even in England, where the liberal interpretation of history credits Parliament’s use of its tax powers with the growth of democracy, tax resistance has regularly contributed to unrest, from Boudica’s revolt against Rome to the blockade by truckers of oil refineries in 2000.

There are many examples throughout history of tax policy leading to unexpected outcomes. At the end of the 18th century, for instance, Austrians stripped the roofs from unused buildings after Emperor Joseph II decided to base taxation on roof area. In the 19th century, a tax was levied on the number of windows in

houses in France, England, the Netherlands and Spain. This led to many homeowners simply bricking up their windows to avoid the charge.

Complexity has long been part and parcel of tax administration. In the late Middle Ages, the sovereign right to levy tolls was extended in some countries to cover territorial lords, mer-chants and cities. This created a multi-tiered system of tax collection that was highly complex and difficult to administer. Thus, the present debate on the harmonization of taxation arrangements goes back a long way.

The very act of collecting taxes can generate huge costs. As studies of financial history in Europe have shown, almost half the taxes levied between the 16th and 20th century were spent on tax collection. This prompted the custodians of the regal coffers to look into ways of rational-izing public revenues, ultimately giving rise to indirect consumer tax and the direct income and property taxes we know today.

In the 16th century, the Russian Tsar, Ivan IV Vasilyevich – better known as “Ivan the Terrible” – was particularly assiduous at finding new ways to tax his subjects. These included a “gun duty,” “nitrate duty,” “fortressing duty” and “protec-tion tax.” One of his successors, Peter the Great, was no less imaginative, levying taxes on beards and charging duty on caps and boots, baths and oak coffins.

More substantial reforms to the taxation system have usually required a profound fund-

4 Adam SmithOften portrayed as a founding father of laissez-faire capitalism, Adam Smith was a strong supporter of the need for taxes to fund governments

5 Abraham LincolnIn 1861, US President Abraham Lincoln created the first US income tax with the Revenue Act

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Roman EmpireThe Roman Emperor Nero instituted a tax on the collection of urine from public cesspools, which served as a raw material in various Roman industrial processes, such as tanning and toga whitening

Credits: AKG-Images, Getty Images / Hirz


Credits: Corbis / Bettmann; NARA / Corbis / Richard Melloul


6 16th Amendment This Amendment of 1913 gave US Congress the right to levy taxes without apportioning it among the states 7 Al Capone In 1931, Al Capone was indicted for tax evasion and spent time at the notorious Alcatraz prison

8 Margaret Thatcher The introduction of the unpopular Community Charge, or Poll Tax, was a key factor leading to the resignation of the UK’s first female Prime Minister in 1990

9 Barack Obama In 2009, the US Treasury announced a series of proposals to curb tax havens and remove tax incentives for shifting jobs overseas

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ing crisis to enact. Income tax, for example, first appeared in the United Kingdom as a temporary measure during the Napoleonic Wars and in Canada during World War I. In the United States, after its imposition during the Civil War, it was found to be too radical an innovation for the Constitution to support until passage of the 16th Amendment.

Taxation can have unintended effects on society’s views of its relationship with the state. In the 19th century, the most common opposi-tion to an income tax was not the money it would raise, which presumably would be offset by lower taxes elsewhere, but the privacy implications of letting the state know all of one’s economic activity. If these considerations now seem quaint, it is at least in part because people have become so used to revealing information to tax officials that any other arrangement seems unthinkable.

The challenge for businessTax, then, is about much more than finding the necessary revenues to fund the government coffers. Throughout history, it has shaped and has been shaped by our sense of fairness in society and the way in which we live our lives. In doing so, the details of the practical implemen-tation of taxation matter as much as the bottom-line figures.

The complexity and uncertainty of the tax en-vironment pose considerable challenges to

business. Even at a national level, tax is a highly complex, technical subject. But combine this with the huge international expansion that many companies have undertaken in recent years and it is clear that businesses face a major challenge in managing their tax affairs. Despite some progress in developing international guidelines for certain aspects of the tax system, such as transfer pricing, taxation remains primarily a national concern, even if business is now global.

To make matters worse, the tax environment is fast-changing and, in many countries, highly unpredictable. Keeping track of changes in legislation is expensive and time-consuming. No wonder, then, that many companies rely on external specialists to help them manage their tax affairs.

The inherent complexity of the taxation environment has historically encouraged a hands-off approach to the topic at the most senior levels of business. Executive and non-executive boards often see tax as some-thing that is best left to specialists while they focus on the more strategic aspects of the business. The reasons for this reluctance to discuss taxation are well understood. But the fact that a topic is complex should not absolve business leaders from thinking more deeply about it. Indeed, one could argue that it is now more important than ever for them to spend time considering the tax implications of the decisions that they take. Tax, after all, is

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United Kingdom Britain’s earliest income tax was instituted in 1798 by William Pitt to fund the Napoleonic Wars. The levy ranged from less than 1% on incomes over £60 to 10% on those over £200 (roughly £175,000 today). The wealthy got off relatively lightly compared with during World War II, when those earning over £20,000 in 1944-45 (about £650,000 today), had to pay 50% plus a surtax of 48%.

features tax in context


Credit: Keystone / AP / Charles Dharapak


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a major cost to any business. It also has the potential to expose companies to severe reputa-tional and financial risks if it is poorly managed.

Whether senior executives like it or not, the regulatory agenda is demanding greater ac-countability on tax issues. Legislation such as Accounting for Uncertainty in Tax Positions (also known as “FIN 48”) in the United States and the senior accounting officer rules in the United Kingdom are elevating tax on the boardroom agenda. Senior executives increasingly need to understand how tax affects their business, even if they are not fully conversant with the detail.

Every major issue facing a company has tax implications that must be considered, including how and where to expand the business, raise capital or conduct research and development. Equally, companies must be aware of how tax policy initiatives, from changes in VAT to the regulation of carbon emissions, affect their business model. And in the wake of the worst financial crisis for more than a generation, reforms to tax policy are likely to come thick and fast as governments try to restore public finances to health and avoid a further deteriora-tion in their fiscal position.

Forecast increases of deficits in 2009 and 2010, in billion €

Source: European Commission

Budget deficits as a percentage of GDP

USA+ 1925 bn €

UK+ 461 bn €

Japan+ 197 bn €

Eurozone + 1282 bn €

in %

0

100

50

200

150

’08 ’09 ’10

70,7

83,1 94

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,0 68,6 80

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173 19

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198

’08 ’09 ’10

69,3

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GE GE filed more than 7,000 tax returns last year. In 2007, it filed what was then the largest United States tax return in history. The electronic filing was 237 MB in size, and would have taken about 24,000 pages to print off.



Michael DevereuxProfessor of Business Taxation at the Oxford University Centre for Business Taxation

What will be your main research priority over the next 12 months?Our academic research mostly addresses long-term issues of the effects of taxes on business behavior and the rest of the economy. But policy work will focus on continuing international issues, bank taxes and proposals for expanding the corporation tax base to pay for rate cuts. Where would you most like to see change in tax policy at a national level?I would like to see the new govern-ment set out clear principles for international taxation, and to implement policies which follow those principles. I do not believe that the existing proposals for controlled foreign companies are consistent with any reasonable principles. Any new taxes on banks should also be carefully designed.

T01_p14-19_LEFT_TaxInAPostCrisisWorld.indd 14 15.06.10 15:56


Large fiscal deficits in many countries are prompting governments to rethink their tax policies. While business will undoubtedly feel the impact, a clear approach to tax strategy can help to mitigate the uncertainty.

Taxing times in a post-crisis world

Credit: Justin Canning Lessons from the crisis Feature

• By Rob Mitchell

Tax has rarely been higher on the political or corporate agenda. Although the critical phase of the global financial and

economic crisis may now be over, governments around the world remain deeply indebted. Their desire to restore public finances to a stronger footing, and mitigate the impact of future crises, is prompting a thorough reassessment of tax policy. And in an environment where public attitudes have hardened against banks and business in general, it has become politically expedient to direct the most draconian reforms at the corporate world.

The crisis has had a significant impact on tax receipts across industrialized countries. Accord-ing to the OECD, the tax burden in 2008, calculated as the ratio of tax to gross domestic product (GDP), fell by around 0.6% of GDP, from

35.8% to 35.2%, with steeper falls expected in 2009. Tax cuts made as part of fiscal stimulus packages are likely to compound the shortfall. According the OECD, tax measures represented 56% of the net effect of the average fiscal stimulus of a member country.

The huge cost of dealing with the crisis has led to a dramatic deterioration in public finances. In Greece, Ireland, Spain and the UK, fiscal deficits have widened to levels in excess of 10% of GDP. As countries start to withdraw fiscal stimulus measures, attention will turn to reducing the deficit by means of tax increases or cuts in public spending. In the wake of serious problems in some countries in the Eurozone, such as Greece, Portugal and Spain,

SummaryThe financial crisis has exacerbated uncertainty in the tax agenda. As compa-nies seek to manage costs and grow their business, this can hamper the planning process and increase exposure to tax controversy. Although companies cannot eliminate this uncertainty, a more strategic approach and better communication on tax issues can help. This highlights the need for tax to be discussed at board level and not siloed in a separate function.



tax oases are certain to dry out under pressure from the big nations, I’m not seeing much evidence of harmonization of corporate taxation at a global level,” says Professor Wolfgang Gerke, a German economist and head of the Bavarian Centre of Finance.

Tax has even been singled out as a contribut-ing factor to the crisis. In a June 2009 paper, the International Monetary Fund argued that problems in the economy had been exacerbated by tax policies that helped to fuel the credit boom. “Corporate-level tax biases favoring debt finance including in the financial sector are pervasive, often large and hard to justify,” noted the authors.

The renewed zeal for tax reform among politicians and international institutions has created considerable uncertainty among busi-ness about where these changes will ultimately lead. “People have always complained about uncertainty in the tax system but it does seem to be particularly severe at the moment,” says

fiscal discipline is once again becoming a core policy objective. For example in May, German finance minister Wolfang Schäuble said that the German government would launch a dramatic budget austerity programme to set an example to the rest of the Eurozone. The aim was to bring the budget deficit down to 3% of GDP, which is in line with targets set by the European Commission.

The deterioration in public finances and a desire to make up the shortfall in revenues have provided fresh impetus to the co-ordination of tax policy across borders. Following the G20 meeting in April 2009, world leaders committed to clamping down on tax havens and promoting the exchange of tax information between juris-dictions. Since then, under the auspices of the OECD, more than 190 tax information exchange agreements have been signed and 110 tax treaties renegotiated. After signing 12 bilateral tax agreements, countries such as Singapore, Switzerland and Liechtenstein have been re-moved from the OECD’s “grey list” of economies that do not fully comply with their standards.

Despite this focus on taxation as part of the G20, co-ordination of tax policy across borders remains limited and taxation remains a national, rather than international phenomenon. “While

The Greek government’s “austerity package” sparks strikes and riots in the country’s capital, Athens

Uncertainty about the tax environment is hampering the decision-making process

In December 2009, Greece’s sovereign debt was downgraded to the lowest rating in the Eurozone. The government responded with a package of tax increases and public spending cuts to address the country’s deficit but this sparked protests across the country. In May 2010, Eurozone members commit-ted to providing a financial package worth €750bn to prevent the Greek crisis from spilling over into other Eurozone countries.

Feature Lessons from the crisis Credit: Keystone / Orestis Panagiotou



Professor Michael Devereux, director of the Oxford University Centre for Business Taxation. “There have been quite a few fundamental reforms of the tax system in recent years, from transfer pricing to controlled foreign company rules, but in many cases the process is not yet complete.”

Uncertainties in the tax system are compounded by an increasingly aggressive and litigious approach among some authorities towards tax controversy issues. A recent Ernst & Young-sponsored survey of multinational corpo-rations found that the increased tax compliance burden imposed by tax authorities was of greatest concern to the more than 350 CFOs and tax directors who were interviewed. Also topping their list of concerns was tax authori-ties’ increased power to enquire into tax issues and tougher enforcement action.

For companies trying to deal with the after-math of the crisis, this uncertainty adds another layer of complexity to the strategic decision-making process. Profound change in the global economy is encouraging a broad re-think of business models, corporate structures, growth strategies and financing. But in many cases, uncertainty about a rapidly evolving tax environ-ment is hampering the decision-making process.

Consider mergers and acquisitions, which many companies may be seeking to apply in their efforts to achieve growth. The debate over the extent to which the tax treatment of debt contributed to the financial crisis has sparked

concern that policy-makers could seek to change the rules over the deductibility of inter-est. “If you were looking to finance a major transaction in the UK at the moment, you might be quite nervous,” says Chris Wales, a former economic advisor to the former British prime minister, Gordon Brown, and an advisory board member at the Oxford University Centre for Business Taxation. “If you are taking on a lot of debt and your calculations are based on interest being deductable for tax purposes, you will need confidence that this will remain the case. But recent political discussions have made that a very difficult issue to be certain about.”

The uncertain tax treatment of strategic transactions highlights the importance of bring-ing the tax function into the planning process at

Dwindling resources Total tax revenues as a percentage of gross domestic product in 2007.

Source: Revenue Statistics, 1965-2008, 2009 Edition

Source: Economist Intelligence Unit

In Percent %

Canada

Mexico

United States

Australia

Japan

Korea

New Zealand

Austria

Denmark

Finland

France

Germany

Greece

Iceland

Ireland

Italy

Netherlands

Poland

Portugal

Slovak Republic

Spain

Sweden

Switzerland

Turkey

United Kingdom

OECD Total

Total Tax: ratio as percentage of GDP, 2007

Note: EU 15 area countries are : Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and United Kingdom.EU 19 area countries are: EU 15 countries plus Czech Republic, Hungary, Poland and Slovak Republic.

1) The total tax revenue has been reduced by the amount of the capital transfer that represents uncollected taxes.2) Unified Germany beginning in 1991. Starting 2001, Germany has revised its treatment of non-wastable tax credits in the reporting of revenues to bring it into line with the OECD guidelines. The impact of this change is shown in Table D in Part I of this report.3) Secretariat estimate, including expected revenues collected by state and local governments.4) The year 2007 understates some local tax revenues.


In Percent %

Canada

Mexico

United States

Australia

Japan

Korea

New Zealand

Austria1

Czech Republic1

Denmark1

Finland

France1

Germany2

Greece

Hungary

Iceland

Ireland

Italy

Netherlands4

Poland

Portugal

Slovak Republic

Spain1

Sweden

Switzerland

Turkey

United Kingdom

OECD Total

0 10 20 30 40 50

33.3

18.0

28.3

30.8

28.326.5

35.7

42.3

43.9

37.4

48.7

43.043.5

36.2

32.0

40.9

30.8

43.5

36.5

37.5

43.6

34.9

36.4

29.4

37.2

48.3

28.9

23.7

36.135.8

39.5

Belgium

Luxembourg

Norway

Mind the gapFiscal Deficits as a percentage of GDP, 2009.

In Percent %

Greece

Ireland

Spain

United Kingdom

United States

Portugal

Iceland

France

Japan

Italy

Turkey

Netherlands

Rep. of Korea

Canada

Australia

Germany

Denmark

Mexico

Sweden

Switzerland

0 2 4 6 8 10 12 14

0 10 20 30 40 50

33.3

18.0

28.3

30.8

28.326.5

35.7

42.3

48.7

43.043.5

36.2

32.0

40.9

30.8

43.5

37.5

34.9

36.4

29.4

37.2

48.3

28.9

23.7

36.135.8




In Percent %

Canada

Mexico

United States

Australia

Japan

Korea

New Zealand

Austria

Denmark

Finland

France

Germany

Greece

Iceland

Ireland

Italy

Netherlands

Poland

Portugal

Slovak Republic

Spain

Sweden

Switzerland

Turkey

United Kingdom

OECD Total





In Percent %

Canada

Mexico

United States

Australia

Japan

Korea

New Zealand

Austria1

Czech Republic1

Denmark1

Finland

France1

Germany2

Greece

Hungary

Iceland

Ireland

Italy

Netherlands4

Poland

Portugal

Slovak Republic

Spain1

Sweden

Switzerland

Turkey

United Kingdom

OECD Total

0 10 20 30 40 50

33.3

18.0

28.3

30.8

28.326.5

35.7

42.3

43.9

37.4

48.7

43.043.5

36.2

32.0

40.9

30.8

43.5

36.5

37.5

43.6

34.9

36.4

29.4

37.2

48.3

28.9

23.7

36.135.8

39.5

Belgium

Luxembourg

Norway


In Percent %

Greece

Ireland

Spain

United Kingdom

United States

Portugal

Iceland

France

Japan

Italy

Turkey

Netherlands

Rep. of Korea

Canada

Australia

Germany

Denmark

Mexico

Sweden

Switzerland

0 2 4 6 8 10 12 14

0 10 20 30 40 50

33.3

18.0

28.3

30.8

28.326.5

35.7

42.3

48.7

43.043.5

36.2

32.0

40.9

30.8

43.5

37.5

34.9

36.4

29.4

37.2

48.3

28.9

23.7

36.135.8




In Percent %

Canada

Mexico

United States

Australia

Japan

Korea

New Zealand

Austria

Denmark

Finland

France

Germany

Greece

Iceland

Ireland

Italy

Netherlands

Poland

Portugal

Slovak Republic

Spain

Sweden

Switzerland

Turkey

United Kingdom

OECD Total





In Percent %

Canada

Mexico

United States

Australia

Japan

Korea

New Zealand

Austria1

Czech Republic1

Denmark1

Finland

France1

Germany2

Greece

Hungary

Iceland

Ireland

Italy

Netherlands4

Poland

Portugal

Slovak Republic

Spain1

Sweden

Switzerland

Turkey

United Kingdom

OECD Total

0 10 20 30 40 50

33.3

18.0

28.3

30.8

28.326.5

35.7

42.3

43.9

37.4

48.7

43.043.5

36.2

32.0

40.9

30.8

43.5

36.5

37.5

43.6

34.9

36.4

29.4

37.2

48.3

28.9

23.7

36.135.8

39.5

Belgium

Luxembourg

Norway


In Percent %

Greece

Ireland

Spain

United Kingdom

United States

Portugal

Iceland

France

Japan

Italy

Turkey

Netherlands

Rep. of Korea

Canada

Australia

Germany

Denmark

Mexico

Sweden

Switzerland

0 2 4 6 8 10 12 14

0 10 20 30 40 50

33.3

18.0

28.3

30.8

28.326.5

35.7

42.3

48.7

43.043.5

36.2

32.0

40.9

30.8

43.5

37.5

34.9

36.4

29.4

37.2

48.3

28.9

23.7

36.135.8

There is concern that policy- makers could change rules over the deductibility of interest

4% A discussion paper from the International Monetary Fund notes that the annualized tax yield across a selection of 16 developed and emerging economies fell by 4% of GDP in the first quarter of 2009

Wolfgang SchäubleIn a May 2010 interview with the Financial Times, Schäuble gave his full support to a global financial transaction tax, arguing that it should be discussed in an “unbiased way” at the June G20 summit in Canada.

Credit: Laif / Hans-Christian Plambeck



an early stage. Not only will this direct discus-sion towards initiatives that are attractive from a tax perspective, it will also prevent resources being wasted on plans that are not viable. “Companies need to think more strategically about tax,” says Alex Postma, EMEIA Interna-tional Tax Services leader at Ernst & Young.

“You can significantly reduce the impact of tax on every part of the business cycle by making it a key component of strategy development.”

A changing tax environment means that com-panies can find themselves straying into contro-versial waters with pre-existing structures and transactions. “There’s a big problem whereby structures that were acceptable two years ago and might have been even relatively industry standard are su ddenly no longer acceptable,” says Roger Bindschedler of Davenport Lyons, a l aw firm. “Companies have to be very careful that they’re not just redoing a structure they did two years ago without checking that it is still acceptable.” This increasing focus on tax as part of strategic thinking, along with growing concern about the potential for risk and contro-versy, is placing tax issues squarely on the boardroom agenda. “Tax is becoming a more im-portant part of corporate governance discus-sions within businesses,” says Postma.

Tax authorities are encouraging this transition, either with explicit legislation or best practice guidelines. The Australian Tax Office, for example, provides a list of key governance q u estions for company executives and directors to consider in order to gain a better understand-ing of their tax risks (see left).

Legislation from the United States and United Kingdom provide good examples of the formal-ization of the board’s role on tax. In the United States, the Accounting for Uncertainty in Tax

Positions interpretation (also known as FIN 48), which was passed in 2006, places greater responsibility on boards to disclose uncertain tax positions. “The FIN 48 disclosure regime makes it much clearer to the board of directors where potential liabilities lie,” says Richard Sansing, Professor of Accounting at the Tuck School of Business. “The fact that they need to record the liability they think they would face if the issue were raised with the tax authorities makes the issue much more real and visible.”

For large companies in the United Kingdom, the introduction of the Senior Accounting Officer (SAO) regime in 2009 was a clear indica-tion that the authorities expected greater accountability on tax disclosure. The rules require that a nominated SAO is identified and held responsible for ensuring and certifying that appropriate tax accounting arrangements have been established and are maintained.

In addition to performing a more central role in strategy and corporate governance, the tax function continues to play a vital role in improving cost efficiency. Research by Ernst & Young (“Lessons from Change”) sug-gests that the majority of companies expect to accelerate cost-cutting initiatives. Although unsustainable over the long term, cost manage-ment is likely to remain a cornerstone of busi-ness practice at a time of constrained funding and depressed demand.

As organizations seek to improve the bottom line, avoiding unintended tax costs and building in tax efficiencies will be critical factors to convert into successful enterprise-wide strategies. “There are a lot of tax planning opportunities available but you have to be very careful that you don’t overstep the mark and you have to be very reputable about what you’re doing,” says Bindschedler.

This highlights the importance of a respon-sible approach to tax planning. Legitimate tax planning techniques play an important role in reducing a major cost for the business and maximizing shareholder returns in a competitive

Board member guide from the Australian Tax Office

– Are you confident that your re cords and control systems enable your group to meet its tax obligations properly?

– Are the amounts of tax you are paying in line with your business results?

– Is there anything to indicate that your group’s business results and tax payments are lower than would be suggested by economic conditions?

– If your group is reporting tax losses, are these real and can they be explained in terms of overall performance?

– Is your group considering the impact of changes in the tax laws on major transactions and strategies?

– Are you aware of any material timing or permanent differences in the group’s tax effect accounting and, if so, are you com fortable with the reasons for those differences?

– Are there any areas of major disagreement between your group and the Tax Office? If so, are you satisfied with the way they are being handled?

– Have any potential additional tax liabilities been adequately provided for?

Shifting composition of the Global Fortune 500China 2%

US and Japan57%

Rest of the world41%

China 7%

US and Japan42%

Rest of the world51%

Source: ”Fortune Global 500,” Ernst & Young LLP

The world‘s two largest economies, the US and Japan, represented 57% of the Global Fortune 500 companies in 2000, but by 2009, their share had dropped to 42%. One contributing factor may be that these two nations have the highest statutory corporate income tax rates in the world. China, meanwhile, has

increased its share from around 2% of Fortune 500 companies in 2000 to over 7% in 2009, while Brazil and Venezuela represent emerging markets that have recently entered the list of countries that a Fortune 500 company calls home.

Profound change in the global economy is prompting a broad re-think of business models

Feature Lessons from the crisis


Credit: Keystone / Rodionov Vladimir


environment. But at the same time, companies have a responsibility to observe regulations, provide appropriate documentation and develop good working relationships with tax authorities. Vodafone, which operates according to a Group Tax Code of Conduct, provides a good case in point. As the company notes in its 2008-09 Corporate Responsibility Report: “We believe

our obligation is to pay the amount of tax legally due and to observe all applicable rules and regulations in all the territories in which we operate. Within this agreed obligation, we have a responsibility to our shareholders to legally minimize and control our tax costs in the context of the Group’s commercial operations.”

The tax function may play a vital role in cost cutting, but it has itself been a victim of the zeal for efficiency. The downturn has forced companies worldwide to make cost savings across every business function, and tax has been no exception. As a result, many tax functions are struggling with a lack of resources at a time

when they face an increasing compliance bur-den and more vocal demands from both internal and external stakeholders. “I’m not sure whether board members actually realize how much more is being thrown on the plate of the tax director,” says Postma.

The growing demands on the tax function mean that the role of the tax director is broad-ening far beyond its technical heartland. “Tax directors are expected to engage on a wider range of issues than ever,” says Wales. “There is a greater burden in terms of risk management, they must understand the dynamics of the business, engage with government to spot policy developments and lobby on the compa-ny’s behalf.”

There are a growing number of signs to suggest that the global economy is returning to health. But, as has recently been shown with the sovereign debt problems facing Greece, the crisis is far from over. Fiscal deficits will persist for many years across the industrialized world, which means that public spending cuts and tax increases are inevitable. For companies seeking to grow while maintaining a focus on costs, this is a worrying prospect. The tax function may not have all the answers to this conundrum, but it is an increasingly important part of the solution.

G20 leaders gather in London for the April 2009 summit

G20Originally founded in the wake of the Asian financial crisis in the late 1990s as a forum for finance ministers from the world’s 20 largest economies, the G20 has emerged during the current crisis as a global “economic steering committee.” Following the Pittsburgh Summit in 2009, the G20 effectively took over from the G7 as the pre-eminent forum for discussing international economic policy, including taxation.

The role of the tax director is broadening far beyond its traditional technical heartland



5% From 2010, the Nether-lands reduced its special tax rate from 10% to 5%. This more favorable rate now also applies to R&D costs that did not result in a patent

5.7% Luxembourg provides a tax rate of 5.7% on intellectual property rights, which can include trademarks and copy-rights as well as patents

• By Rob Mitchell

R&D tax incentives have been an important part of the tax environment for many years. Although the details vary between

countries, the general idea is that companies receive a tax credit for investments made in R&D – whatever the outcome. But in recent years, a new type of incentive has emerged. Variously called “patent box” or “innovation box,” these differ from traditional R&D tax incentives in that they only reward innovation that leads to a successful outcome, such as income derived from a patent.

In recent years, a number of countries have introduced patent box regimes. The Nether-lands, for example, introduced a patent box regime in 2007, which it later broadened to cover other forms of intellectual property. Other countries in Europe, including Belgium, Luxem-bourg, Ireland, Spain and, from 2013, the UK, have also introduced or proposed patent box regimes that provide more attractive tax rates for certain aspects of intellectual property.

“Although the detail varies from country to country, the general principle is that you calcu-late your taxable income related to successful innovations or patents,” explains Jim Hunter, Global Director for Business Tax Services at Ernst & Young. “If a company earns US$100m of taxable income and US$60m of that can be traced to patented items that were products in the market, then it gets a reduced tax rate on that US$60m of income.”

Governments hope that patent box regimes will serve as a powerful influence when compa-nies are determining where to locate R&D centers. In some cases, this does appear to be effective. Following the announcement by the UK Government that it would introduce a patent box regime, GlaxoSmithKline said that it would create 1000 new jobs in the UK with US$775m of additional investment.

But while the incentives offered by patent box regimes are significant, they are not univer-sally supported. Some commentators worry that the emphasis on patents, rather than R&D in

general, will penalize companies that engage in more speculative innovation. “Any kind of incentive is a good thing but if you only get an incentive when you’re successful, it doesn’t provide the same encouragement to take risks,” says Hunter.

Science-based work that does not lead directly to new products can have much broader benefits over the longer term. “Something may not be successful from a product development perspective, but that advance in knowledge can still be extremely valuable,” says Frank Buffone, EMEIA R&D Tax Leader at Ernst & Young. “You learn things along the way that can be applied to other projects and that is important. Pushing the knowledge base is what drives a company’s products and processes over the longer term.”

There can also be difficulties determining which patents are eligible. As the Institute for Fiscal Studies, a UK think tank, noted in its Green Budget 2010 report, it can be difficult to define which patents were created in a particu-lar country because the underlying innovation can depend on the work of multiple inventors in multiple countries. There is also a crucial differ-ence between where the R&D work was conduct-ed, and where the patent was ultimately held.

Moreover, the regime will ultimately favor the largest companies that generate the most patents. Data from the European Patent Office shows that, in 2009, the top 10 applicants accounted for 10% of all patents filed in Europe.

Despite the trend towards the introduction of patent box regimes in Europe, they will remain a small part of the overall R&D tax incentive system. And it is the more general R&D incen-tives that will have a bigger impact on influenc-ing corporate decision-making. “Unlike patent box regimes, R&D tax credit schemes work because they incentivize companies to take on more R&D and because they lead to changes in behavior,” says Buffone. “You’re getting com-pensated for investing time and money in R&D whether it works or not. It is important for nations to continue funding these incentive schemes in order to increase the overall knowl-edge base.”

Rewarding innovationA new generation of tax incentives that offer a reduced tax rate for income derived from patents has been broadly welcomed, but not universally supported.

Focus R&D Tax incentives

T01_p20_21_LEFT_RDTaxIncentives.indd 20 15.06.10 13:47


A virtuous cycle?The aim of a patent box regime is to reward companies for investing in innovation and,

by incentivizing them to carry out successful R&D work, to increase their investment

levels further.

-0.1

0.0

0.1

0.2

0.3

0.4

0.5

Source: Warda, J. (2009) „An Update of R&D Tax Treatment in OECD Countries and Selected Emerging Economies, 2008-2009“, mimeo

Fran

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Spai

n

Indi

a

Turk

ey

Nor

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Cana

da

Kore

a

Sout

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fric

a

Chin

a

Italy

Aus

tral

ia

Japa

n

Uni

ted

King

dom

Net

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nds

Uni

ted

Stat

es

Pola

nd

Switz

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nd

Isre

al

Russ

ia

Swed

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Ger

man

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Tax subsidy rate for US$ 1 of R&D, large firms and SMEs, 2008

SMEsLarge firms

R&D subsidies in the OECD__ In 2008, 21 OECD countries had R&D tax credits, compared with 18 in 2004. The largest subsidies are provided by France and Spain, which both make no distinction between large companies and small and medium-sized enterprises. Other countries, such as Canada, Japan and the United Kingdom, are more generous to smaller companies.

Company applies for and is granted a patent

Company conducts early-stage research work with a new product in mind

Development work takes place in the R&D center

Manufacturing of the new product takes place

Company pays a favorable tax rate on income derived from the patent

Company sells its product and reports income based on it

T01_p20_21_LEFT_RDTaxIncentives.indd 21 15.06.10 18:48


• By Paul Kielstra

The economic downturn had a dramatic impact on mergers and acquisitions (M&A) activity. As companies sought to

rebuild their balance sheets, and with the funding environment highly constrained, ambitious deals were far from the minds of senior executives. Cross-border transactions, in particular, fell into the doldrums. According to the Economist Intelligence Unit, global foreign direct investment (FDI), including M&A flows, dropped by about half between 2007 and 2009.

But in recent months, a more nuanced picture has started to emerge. Major deals such as Kraft’s US$18.9bn acquisition of Cadbury, Merck KGaA’s US$7.2bn deal to buy Millipore, a US laboratory supplier, and Prudential’s ulti-mately failed US$35.5bn bid for AIA Group, the

Asian insurance business of AIG, are signs of renewed confidence in the corporate sector, even if overall deal volumes globally remain well below historic highs.

But overall, a mood of caution prevails. Continuing economic uncertainty, particularly in Europe, has made many chief executives reluc-tant to commit to deals. Ongoing volatility in capital markets is also deterring deals because it makes assets more difficult to price.

There are also strong regional differences. According to Dealogic, there was a record amount of M&A activity in emerging markets in the first three months of 2010. Targeted volume reached US$215bn between January and March, which is 152% higher than the same period last year. Major deals, such as Bharti Airtel’s US$10.7bn acquisition of Zain Telecom, helped to push up deal volumes significantly.

Over the past few years, major M&A deals have been few and far between. But as companies once again consider transactions, they should ensure that they are aware of changes in the tax environment.

A changing world for transactions

Bharti AirtelSunil Bharti Mittal (right) is the founder, Chairman and Managing Director of Bharti Enterprises, a major conglomerate based in India. In early 2010, Bharti Airtel entered into negotiations to acquire the African assets of Zain, a telecoms company based in Kuwait. The deal would make Bharti Airtel the seventh-largest telecoms company in the world.

40% Planned cross-border acquisitions in emerging markets in 2010 account for 40% of the global cross-border total by volume, compared with 23.6% in 2009, according to Dealogic

Focus Tax implications of M&A

T01_p22_25_LEFT_TaxImplication.indd 22 16.06.10 09:11


Sunil Bharti Mittal, Chairman of Bharti Airtel

Credit: Bloomberg / Getty Images


SummaryCompanies are once again turning their attention to M&A transactions in the wake of the financial crisis. But as they do so, they will find a dramatically different deal-making environment. In addition to structural changes, such as the increased predominance of cross-border flows from emerging markets, compa-nies will also face greater scrutiny from tax authori-ties and a number of tax reforms that could impact deal structures.

– In the US, the release by the Federal Accounting Standards Board of Statement 141 (R) will have an impact on a number of tax- related M&A issues;

– The Australian Taxation Office has launched an action againt private equity firm TPG, which relates to its initial public offering of the retailer Myer. This is an indication of a tough stance being taken against the industry in Australia.

When planning a transaction, national idio-syncrasies in tax systems can cause unexpected problems. “In some jurisdictions, there are oddities that don’t have comparables elsewhere,” says Karen Hughes, leader of the London tax practice at Lovells LLP, although she adds that tax advisors will generally be able to check for the standard tax issues in most countries. She suggests that tax advisors with local knowledge be brought in at an early stage in order to avoid tripping up over unexpected local regulations.

The shift of economic weight from West to East means that companies may be considering transactions in a broader range of countries. In Asia, for example, the strong economic perfor-mance of China and India is creating a new category of potential M&A targets for Western companies. Equally, Asian companies are look-ing to acquire companies in other fast-growing markets, and in OECD countries as well.

The range of choices available to the growth-oriented company is an exciting aspect of the post-crisis economic environment, but compa-nies must be careful to keep track of tax issues across the full range of target countries. For example, Indonesia and Thailand are consider-ing a range of proposals to increase M&A invest-ment, while China is tightening up on the use of offshore companies to avoid tax on the sale of


13% During the first quarter of 2010, M&A deal volumes were 13% greater than the first quarter of 2009, according to Mergermarket

Mio. Dollar Mio. Dollar

Source: UNCTADSource: UNCTAD

Value of net cross-border M&A sales by region/economy of seller

Value of net cross-border M&A purchases by region/economy of purchaser

’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’090

100 000

200 000

300 000

400 000

500 000

600 000

700 000

800 000

0

100 000

200 000

300 000

400 000

500 000

600 000

700 000

800 000

North America Europe Asia

North AmericaEuropeAsia

North AmericaEuropeAsia

There are numerous examples of tax reforms that will have an impact on deal structures

As the global economic recovery becomes stronger, the focus on growth is likely to return more broadly to corporate boardrooms. With valuations now more realistic, and currency volatility making some cross-border deals seem particularly attractive, it seems likely that transaction volume will pick up over 2010 and 2011, even if the deal frenzy seen at the height of the boom does not return. With their balance sheets now much healthier, banks will be more willing to finance transactions. In some cases, however, companies will choose to bypass banks and tap capital markets directly for debt.

When companies are planning a transaction, the strategic rationale for the deal is naturally the most important consid-eration. But tax can also be an impor-tant factor in its success. Moreover, companies must bear in mind that, even if the M&A market has been stagnant during the crisis, the tax environment has not. There are numerous examples of jurisdictions where reforms will have a notable impact on how M&A arrangements should be best structured. A short list gives a flavor of the range of changes:

– The UK is reviewing its treatment of controlled foreign companies (CFCs), and a recent court ruling in favor of BAA plc permitted the deduc-tion of VAT on costs incurred relative to an acquisition;

– Several European jurisdictions – including Germany, Italy, Sweden and the UK – are reducing the deduct-

ibility of interest on loans related to M&A activity or restricting the ability of purchasers to load target companies with debt after a takeover;

– Switzerland will be removing stamp tax on the issuance of equity and certain debt funding structures, and will allow repatriation of capital contributions to equity without triggering dividend tax;

Focus Tax implications of M&A


companies (Circular 698) and has also brought in thin capitalization regulations. As a number of large multinationals have recently experienced, uncertainty over the law can potentially be as expensive in these markets as anywhere else.

Expertise in target countries must often go much deeper than the national level. In China, for example, every province has its own tax system with varying regulations in addition to national law.

“Tax law in China is supplemented by a large number of circulars and rulings that clarify the treatment that will be followed,” explains Aidan Stokes, the Global Leader of Ernst & Young’s Transaction Tax practice who has himself spent ten years living and working in various emerging markets. “The new corporate income tax law only came into effect in 2008 and while the State Administration of Taxation has been issuing implementation rules and circulars, this process is still evolving and the volume of precedents is still relatively limited. In addition, the local tax authorities who apply the law can have different interpretations of the rules – while the State Administration of Taxation is seeking to reduce these differences they do exist and investors should be aware that they need to understand the way rules are interpreted by the relevant local tax bureau.”

The risks associated with an acquisition will vary considerably from market to market. For a takeover in the United Kingdom, for example, among the important considerations would be whether a target had any points of dispute with the Inland Revenue or had taken any particular-ly aggressive tax positions.

A company planning an acquisition in certain jurisdictions, however, would need to pay more attention to different issues. “If you were to purchase a target in some emerging markets there may be a higher likelihood of tax fraud,” says Stokes. “You would want to look at that in far greater detail and do far more diligence.”

Stokes also highlights the need for local expertise: “If you have a UK company doing a deal in the UK, in-house tax experts will be all over what their advisors are doing because they know the business and tax implications,” he explains. “If the company wants to buy some-thing in a new market, though, the tax director is going to be far more reliant on advisors.”

The ongoing financial constraints in many economies represent another challenge for those putting together M&A deals. Typically, a key element of successful structuring is to make sure that interest on debt assumed as part of the merger or acquisition can be applied against taxable income. Now, however, Stokes points

out, “the amounts which banks will lend are lower, so the interest cost will be lower and companies will often consider more complex tax planning around the transaction.”

Another change to M&A practice arising out of current conditions is a greater focus on losses. Many of the likely and actual targets in the current market are businesses that have failed or are struggling because of the down-turn. The financial woes they have suffered, however painful, now figure much more promi-nently among the potential assets they bring to any deal. M&A advisors have noticed in some jurisdictions a growing interest among clients in the preservation and use for tax purposes of these losses by target firms.

The downturn has also had an indirect effect on the availability of in-house expertise to advise on the changing M&A environment. Legal functions at many companies have seen notice-able cuts in personnel as firms focus on cost. Moreover, those who might otherwise be dealing with M&A business have been moved onto other work as there are so few potential deals taking place. Although this shift is not a direct result of the decline in M&A, finding expertise, whether in-house or from outside the company, may be a greater challenge when deal levels return.

Such expertise, however, will be more neces-sary than ever no matter where one is operating or purchasing. An important reason for this is that the authorities will be scrutinizing tax planning arrangements much more carefully. “There will be increasing scrutiny of tax plan-ning arrangements. From a macro tax policy level, governments around the world need to raise money,” says Stokes.

This goes beyond the restructuring strategies associated with M&A deals. Transfer pricing is also becoming an area of growing concern. For example, the Australian Taxation Office recently hired 60 new specialists to make sure that large companies are correctly accounting for related-party transactions. China has also carried out a major revision in this area.

M&A activity is likely to rebound as the economic recovery becomes more stable. Many companies are now turning their attention to growth and transactions offer a quick way to gain access to markets, brands or expertise. But when activity returns, companies will find themselves planning deals in a noticeably different legal and taxation environment.

There will be changes resulting from a new macroeconomic environment, including greater competition for targets from companies in fast-growing markets. There will be greater scru-tiny from tax authorities on the structure of deals, as governments scramble to reduce fiscal deficits. Moreover, there will be legislative changes in many jurisdictions to consider, at a time when in-house expertise may have been squeezed by the broad focus on cost-cutting. Buyer beware, as the saying goes.


The world‘s two largest economies, the US and Japan, represented 57% of the Global Fortune 500 companies in 2000, but by 2009, their percentage had dropped to 42%.3 One contribu-ting factor may be that these two nations have the highest statutory corporate income tax rates in the world. China, meanwhile, has increased its share from around 2% of Fortune 500 companies in 2000 to over 7% in 2009, while Brazil and Venezuela represent emerging markets that have recently entered the list of countries that a Fortune 500 company calls home.

1%

27%

71.8%

6.7%

36.6%

56.7%

FDI Flows 1998 by region FDI Flows 2008 by region

Developing economiesTransition economiesDeveloped economies


Source: Economist Intelligence Unit Source: Economist Intelligence Unit

The world‘s two largest economies, the US and Japan, represented 57% of the Global Fortune 500 companies in 2000, but by 2009, their percentage had dropped to 42%.3 One contribu-ting factor may be that these two nations have the highest statutory corporate income tax rates in the world. China, meanwhile, has increased its share from around 2% of Fortune 500 companies in 2000 to over 7% in 2009, while Brazil and Venezuela represent emerging markets that have recently entered the list of countries that a Fortune 500 company calls home.

1%

27%

71.8%

6.7%

36.6%

56.7%

FDI Flows 1998 by region FDI Flows 2008 by region



Source: Economist Intelligence Unit Source: Economist Intelligence Unit

Authorities will be scrutinizing tax planning arrangements much more carefully



Martin Walbeck, Africa Tax Leader at Ernst & Young, interviews the Chairperson of a new international body that focuses on the discussion and development of taxation policy in Africa.

A forum for change

• Interview by Martin Walbeck

Taxation is essential to the smooth running of any economy and society, but it is

particularly important in develop-ing countries. Revenues collected can provide vital funds for upgrad-ing infrastructure, such as roads and ports, and for investing in healthcare and education systems. This helps to create an environment

that is conducive to long-term economic growth and foreign direct investment. In addition, the mobilization of domestic tax revenues helps developing countries to reduce dependence on

aid and make progress on the eradication of poverty as measured by the Millennium Devel-opment Goals.

The financial crisis has highlighted more than ever the need for developing countries to put in place effective and efficient state institutions. This is particularly true in Africa which, while not at the epicenter of the recent crisis, has been affected by a drop in exports and foreign direct investment. A more robust taxation system will offer some protection against these shortfalls, as well as helping to reduce the dependence of some African countries on overseas aid.

“Among the most pressing issues facing the African continent is to reduce dependence on

SummaryA robust taxation system is essential for economic growth in developing countries. With this in mind, a number of African states have formed the African Tax Administration Forum, an international body designed to share best practice on taxation. Over time, it is hoped that this will create a more predictable and certain tax system across the conti-nent, and promote econom-ic growth.

Focus tax union Africa

T01_p26_29_LEFT_DealingWithTaxAuthorties.indd 26 15.06.10 16:39


Credit: iStockphoto.com / Ruvan Boshoff

Low-lying cloud gathers over a stadium under construction in Cape Town

$125 700 000 000The current stock of foreign direct investment in South Africa stood at US$125.7bn in 2009, according to the CIA World Factbook. Estimates suggest that the country’s hosting of the 2010 World Cup could add half a percentage point to South Africa’s GDP growth this year



foreign assistance and indebtedness,” says Oupa Magashula, Commissioner of the South African Revenue Service in an interview with Martin Walbeck, Africa Tax Leader at Ernst & Young. “We need to focus more closely on enhancing

domestic revenues through broad-based taxa-tion. Experience has shown that this will both increase and enable greater predictability of revenues. It will also help to ensure that aid-funded investments are sustainable, and pre-pare for gradual exit from aid in the long term. So for this to take place, we simply have to strengthen state capacity to increase the mobili-zation of its own domestic resources.”

In addition to his role at the South African Revenue Service, Magashula is also the current Chairperson of the African Tax Administration Forum (ATAF), an international body represent-ing African member countries. Established in November 2009, ATAF aims to give new direc-tion for African tax policy and administration. The Forum will enable member countries to discuss the role of taxation in state-building and capacity development and to share best practice on taxation matters in the region.

The establishment of ATAF comes at a crucial time for the development of effective state institutions in Africa. Over the past few decades, tax has been somewhat neglected as a founda-tion for development. Where reform has been enacted, it has tended to focus on technical and administrative aspects of the system. Often, this has translated into a focus on taxes that are considered easier to collect, such as indirect tax-es on goods sold. There has also been a re-duction in direct taxes and insufficient attention paid to taxes on international trade.

“These reforms have had limited success in increasing the tax revenue of African countries,” explains Magashula. “It is, of course, essential to improve the technical and administrative aspects of taxation, especially improving the capacity of tax administrations and tackling corruption. However, by focusing exclusively on those aspects, the reforms have ignored the fact that taxation represents a political relationship between the state and society.”

Weaknesses in tax collection are a common problem in Africa. At the top end of society, a small number of large companies and wealthy individuals control the majority of the wealth and form the largest single proportion of taxable capacity. Sometimes, these taxpayers use their power and influence to evade payments. At the other end of society, the vast majority of the population has both low taxable capacity and very limited power and influence, particularly in rural areas. This means that the medium-sized

firms tend to be the main sources of taxable income. The challenge, says Magashula, is to adopt a broader-based approach to taxation that applies across society. “We have no choice but to spend our time on dealing equally with all the taxable sectors,” he says.

A frequent complaint among multinationals operating in Africa is that they find it difficult to contend with the variation of laws and practices across the continent. This can deter them from investing in the region and serve as a drag on long-term economic development. The problem is often made worse by a lack of clear guidance from governments over what is required for multinationals to meet specific obligations. For example, a company may set its transfer prices in line with OECD guidelines, but find that an African country in which it wants to invest does not apply equivalent practices.

Magashula says that an important goal of ATAF will be to improve the certainty on taxa-tion for multinational companies operating in Africa. “Multinationals will often confirm that they are happy to comply with their tax obliga-tions in the various countries in which they operate, but they emphasize that they require certainty in order to be able to properly plan their business so as to deliver value to their shareholders,” he says. “As an organization in which a large number of African countries are represented, ATAF will aim to assist multination-als in obtaining greater certainty by trying to establish as much consistency as possible among member countries with regard to key issues, whilst continuing to recognize individual countries’ domestic positions.”

To achieve this goal, ATAF plans to interact with multinationals in order to hear their concerns and, hopefully, provide assistance to member countries that will enable them to address these challenges and provide greater certainty to investors. “We also intend to hold forums with ATAF member countries to review possible tax barriers to trade which may exist within Africa, particularly where this is caused by uncertainty regarding tax administration in member countries,” adds Magashula.

There is also potential for ATAF to develop a peer review mechanism among member countries, which could be aimed, among other things, at reviewing and comparing a country’s tax attractiveness as an investment destination. This would include an examination of the country’s tax system to determine whether it is easy to understand, and whether there are mechanisms in place to give taxpayers certainty regarding the tax treatment of transactions prior to them being conducted.

Oupa Magashula has been the Commissioner of the South African Revenue Service since May 2009 and also holds the position of Chairperson of the African Tax Administration Forum. He has extensive experience in human resources and corporate relations from both the private and public sectors, having worked for companies such as Nampak, Sun International and Anglo Vaal Industries.

Sometimes, taxpayers use their power and influence to evade payments

Tax has been somewhat neglected as a foundation for development in Africa

Focus tax union Africa Credit: Peter Morey


MoroccoMauritaniaSenegalThe GambiaSierra LeoneLiberia

ZambiaNamibiaBotswanaSouth AfricaLesotho

UgandaKenyaRwanda

MalawiZimbabweMauritius

EgyptChadSudanEritrea

NigerGhanaNigeriaGabon


Magashula adds that ATAF will also examine possible ways of harmonizing taxes across member countries in order to minimize the extent to which taxpayers are inclined to pursue tax arbitrage. “A major part of this will be to encourage member countries to update their tax treaty networks, many of which date back to pre-colonial times,” he explains.

Another important objective of ATAF will be to share and disseminate best practice on tax administration among member countries. This will require careful consideration of the specific characteristics of key economies, as there is no single approach that has been identified for member countries to follow. “Many African tax administrations have developed effective strategies, but one always has to consider that countries’ economies differ, as do driving factors within their taxpayer population and culture of compliance,” says Magashula.

More important will be the existence of a forum in which experiences and challenges can be shared and discussed among member coun-tries. “We have recognized that we can learn much from one another,” says Magashula. “For example, tax administrations in countries such as Nigeria and Angola have more experience in dealing with oil revenue, while administrations such as SARS and the Tanzanian Revenue Authority can share more on taxation of the

mining sector. It is important that this sharing of experiences can only be descriptive, and not prescriptive. Each tax administration has to cut its own teeth in practice.”

The ATAF has much to achieve, but it repre-sents an important step in the development of taxation systems in Africa. Over time, it is hoped

that this process will enable member economies to reduce the reliance on aid, develop more robust and equitable tax systems and attract overseas investment.

“The raising of tax revenues is arguably the most central activity of any state,” concludes Magashula. “Revenue from taxation sustains the existence of the state, and provides the financial resources for all social and economic activity. Taxation therefore lies at the administrative heart of any government and provides the basis by which public goods are made available and effective regulation is implemented. In the same way, ATAF is committed to building tax administrations in Africa that will contribute significantly to the improvement of the lives of our peoples.”

Did you know?– In more than half of African

countries, tax revenue re presents less than 20% of GDP compared with 36% in OECD countries.

– Africa’s trade with China has multiplied tenfold since 2001, reaching over US$100bn in 2009.

– The rate of return on Foreign Direct Investments (FDI) is higher in Africa than anywhere else in the developing world.

www.africaneconomicoutlook.org

Revenue from taxation is what literally sustains the existence of the state

25 In November 2009, 25 African Tax Administra-tions signed an agreement, formally establishing the African Tax Administration Forum

9The ATAF is supported by nine development partner countries: France; Germany; Ireland; Japan; the Netherlands; Norway; Sweden; Switzerland and the United Kingdom

ATAF member states



• By Rob Mitchell

Debt is a double-edged sword. Used wisely, it can fund investment and growth, and boost returns for shareholders. But as the

global economic crisis has shown, excessive leverage in the financial system can have serious consequences. As a result, leverage ratios in financial institutions are now an important topic of discussion for policy-makers. But an area that has received less attention is the different tax treatment of debt and equity, and the extent to which this played a role in fuelling the crisis.

In the run-up to the crisis, many of the world’s leading banks increased their leverage ratios dramatically as they funded balance sheet expansion through higher levels of debt. Over the same period, private equity firms embarked on increasingly ambitious deals. According to the International Monetary Fund, the funds raised by private equity firms between 2003 and

2005 increased fivefold to approximately US$230bn. Many corporates also increased levels of debt on their balance sheets as they came under pressure from investors to generate private equity-like returns.

All things being equal, it should make little difference whether companies fund themselves by means of equity or debt. But all things are not equal – indeed, a tax deduction is available for interest on debt but not for dividends on equity, and many investors are not subject to tax. “The tax effect creates a distortion in the financing choices for companies,” says Meziane Lasfer, Professor of Finance at Cass Business School.

The IMF argues that this distortion was a contributing factor to the crisis. In a June 2009 paper, it noted that most tax systems have strong incentives for corporations to use debt rather than equity finance. It also alleged that biases in the tax system encouraged financial

Focus Financing the business Credit: Bloomberg / Getty Images

Dominique Strauss-Kahn, Managing Director of the International Monetary Fund

Debt in the firing lineThe financial crisis has caused some policy-makers to question whether the tax deductibility of interest on debt creates dangerous economic distortions.

T01_p30_31_LEFT_FinancingTheBusiness.indd 30 16.06.10 10:16

institutions to construct complex financial instruments and structures. “Tax distortions are likely to have contributed to the crisis by leading to levels of debt higher than would otherwise have been the case,” say the authors.

During good times, high levels of debt can help to boost financial returns. This was particu-larly true during the recent credit boom, when the cost of debt was low and its availability high. The beneficial tax treatment added to the attraction of gearing up balance sheets. “When the economy is performing well, higher levels of debt lead to higher profits for shareholders because the debt has stayed at a fixed interest rate,” says Prof. Lasfer. “But in a downturn, highly leveraged companies are much more likely to suffer and will tend to reduce their debt levels by swapping debt for equity, or paying back their debt using existing internal cash flow, or new cash generating strategies such as raising equity capital, asset sales or restructuring.”

In the financial sector, the proposed Basel III rules will force banks to increase their capital and liquidity buffers, and thereby bring down their leverage ratios. “There are lots of regulatory drivers towards having more equity capital in your business rather than debt capi-tal,” says Christopher Price, Head of Tax for Ernst & Young’s EMEIA Financial Services Tax Practice. Until recently, the issue of tax deductibility on interest attracted only limited attention among policy-makers. But the debate could be about to get more heated. “There is a discussion emerging on whether policy-makers should remove some of the attractiveness of debt as opposed to equity from a tax perspec-tive,” says Price. “Policy-makers are starting to ask whether it is right for companies to get a tax deduction for interest, but not a tax de - duction for dividends. They want to understand whether the differing tax treatment has an excessive influence on companies’ decision to increase their levels of debt.”

Broadly speaking, there are two options that governments can consider to achieve a more neutral position on the tax treatment of debt. The first is to provide tax allowances for dividends and capital gains to bring the position more in line with interest. Until 1997, exempt shareholders in the UK could recover some of the tax paid on the profits that gave rise to the dividend. In 2005, Belgium introduced a similar measure, called Notional Interest Deduc-tion, which enables companies to deduct a fictitious interest cost on equity from their tax

base. The problem with this approach is that it reduces the tax base and may require govern-ments to raise headline rates of corporation tax in order to compensate for the loss in revenues.

The second option is to remove the tax deductibility of interest and bring it into line with the treatment of dividends. One advantage of this approach is that it would raise tax revenues and give administrations the option to reduce headline corporate rates. Although experts disagree about the impact, one report, from Policy Exchange, a UK-based think tank, estimates that if taxation on debt interest raised £15.5bn for the UK tax authorities, then the corporation tax rate could be cut by 11%, from 28% to 17%.

But there are disadvantages with removing interest deductibility, too. There would be strong opposition to such a move from powerful busi-ness lobbies, such as the private equity industry, which have a vested interest in maintaining the current tax treatment of debt. “Any change in the deductibility of interest would be a real hammer blow to the private equity model,” says Price. “It requires this treatment under the economics of its transactions.”

And it is not only the private equity industry that would feel the pinch. Many corporates have built their capital structures on the assumption that tax will be deductible on interest, and an abrupt change in the rules could have a signifi-cant impact on their balance sheet.

Moreover, the revenues raised by eliminating the tax deductibility of interest could easily be offset by the loss of companies that decide to move to a tax environment that is more favor-able to their business model. “The rumors that the tax treatment of debt could be overhauled and restricted could have severe and unintend-ed consequences and should not be rushed as a piecemeal amendment,” says Michael Wistow, head of tax at Berwin Leighton Paisner. “The tax system needs to be coherent, globally competi-tive, clear and predictable and any major change should be subject to consultation and an impact assessment.”

Wholesale changes to the tax treatment of interest may not be imminent, but there are powerful voices arguing for a shift towards a more neutral position. As corporates turn their attention to growth strategies, as the private equity industry ponders its future, and as banks determine a more prudent approach to leverage, the issue is another layer of uncertainty with which the business world must now contend.

$ 5 000 000 000 000Over the next 36 months, nearly $5 trillion of bank debt is due to mature, according to the April 2010 Global Financial Stability Report from the IMF

The debt distortionA 2009 IMF paper entitled “Debt Bias and other Distortions” argued that tax biases favoring debt over equity finance are difficult to justify. It suggested that a more neutral approach to the taxation of debt and equity, for example by also allowing a deduction of an imputed equity cost, would help to address these distortions.


T01_p30_31_LEFT_FinancingTheBusiness.indd 31 16.06.10 10:16


Operators connect calls in an early telephone exchange

Management Stakeholder communication Credit: Keystone / Photopress-Archive / STR

T01_p32_35_LEFT_GettingToKnow.indd 32 15.06.10 14:52


• By Rodrigo Amaral

The aftermath of the global financial crisis has highlighted the need for board directors to be more involved with tax

affairs. Many will find this a daunting prospect. To the non-specialist, there are few aspects of business that appear as impenetrable as tax. The sheer volume of legislation, and the speed with which it changes, present a real challenge to directors who are keen to gain a better understanding of the company’s tax position. For multinational firms, the problem is com-pounded by the breadth of countries, and the range of tax jurisdictions, in which they operate.

The time and expertise required to get to grips with tax mean that the job has traditionally been left to the experts. When checking finan-cial accounts, investors and board members are presented with little information about tax. But this relaxed attitude towards corporate tax represents a risk for shareholders and may not be sustainable for long. As with other areas of corporate governance, regulators want to turn tax into a more transparent affair. And, at the same time, they expect board members to be more accountable for the company’s tax affairs. “Tax is a topic that no board can ignore,” says Jan Oosterveld, Professor of Entrepreneur-ship at IESE Business School and a former Group Management Committee Member at Royal Philips Electronics. “Tax is a very important factor in the bottom line of investment decisions that a company has to make. Normally, what

you see is that the audit committee spends a lot of time on tax but Chief Financial Officers are also having to learn to handle these issues.”

It is clear that there is growing pressure to improve communication on tax issues with both internal and external stakeholders. Currently, the most common way that public companies disclose tax affairs to stakeholders is via regulatory reporting, and the kind of informa-tion provided can be of limited depth. “The manner by which tax issues are presented in financial accounts has certainly improved in the past few years,” says Michael Devereux, the director of the Oxford Centre for Business Taxation at Saïd Business School. “But companies clearly have some way to go before it can be said that they present a very clear view of their tax affairs. Unless there is some kind of privately held presentation of tax issues to stakeholders, it is very difficult for them to grasp the tax position of a company.”

Richard Murphy, a founder of the Tax Justice Network, points out that the responsibility should not rest with management alone. “The investor community does not understand tax and this is a major problem,” he remarks. “And the fact that pressure for companies to commu-nicate better on tax has not existed previously is an indictment of how poor analysts have been.”

Once, tax was a topic that could safely be left to the specialists. But as the demand for greater disclosure from investors and regulators has grown, there is an increasing need for clear communication on tax issues with a variety of stakeholders.

Making connections with the business

SummaryThe rise of tax on the agenda emphasizes the need for clear and frequent communication between tax specialists and the broader stakeholder community. Investors are also requesting greater disclosure on tax and this is prompting scrutiny over disclosure and corporate governance processes. But it can sometimes be challenging to translate a complex concept into a simple message.


This is not to suggest, however, that effective communication on tax is easy. Many companies fear that commercially sensitive information could be disclosed along with the tax numbers, and would rather not shed light on the arrange-ments of their international businesses.

Changing such attitudes will demand not only pressure from regulators and investors, but also a cultural change within many companies to-wards greater transparency in corporate gover-nance. “It is possible to make tax affairs easier to understand, but not unless companies are willing to disclose information in a way that is useful,” says Murphy. “Today, any tax figures reported in financial results are pretty useless.” In the case of multinational firms, financial statements will disclose only aggregated global numbers that, in Murphy’s view, convey little information to investors and analysts.

A shift towards transparencyPressure to get boardrooms and investors more involved with tax affairs is mounting. The recent financial crisis has added support to the view that tax is too important an area of a company to be left to lawyers and accountants alone. A recent report by Ernst & Young on regulatory changes around the world has highlighted that authorities are engaged in making boards and audit committees more responsible for overseeing tax risk.

There is also some evidence that investors, still reeling from losses incurred in the early stages of the financial crisis, are developing a greater awareness and understanding of tax

strategies. An April 2010 discussion paper from the International Accounting Standards Board found that investors are looking for better access to tax information from multinational companies. The data could help them in two ways. First, it could enable investors to assess the performance of firms more accurately and second, it could provide insight into the poten-tial for governments to investigate a company for corruption. The paper refers to extractive industries alone, but it may prove indicative of trends in other sectors too.

Transparency in tax issues could also have a broader benefit on management rigor. After the shocks of the past few years, this is likely to be something of particular interest to investors. Some might be tempted to think that aggressive tax avoidance boosts results and, consequently, is beneficial to shareholders. But experts like Mihir Desai, a professor of finance at Harvard Business School, have found evidence that such practices not only tend to have a negative outcome over time, but also hide broader problems, such as management opportunism.

The Oxford Centre for Business Taxation has carried out research that shows how investors and other stakeholders tend to prefer compa-nies to stay broadly in line with their peers when it comes to tax liabilities. If these are reported at a level that looks too low in the context of the market, that might hint at the adoption of aggressive tax planning that could create poten-tial tax controversy. If liabilities are higher than those reported by a company’s peers, that could be an indicator of a lack of management rigor.


Jan Oosterveld is professor of entrepreneurship at IESE Business School. He was formerly a member of the Group Management Committee of Royal Philips Electronics

Gabriel Calcagno is tax director for the Latin American south region at multinational agricultural biotechnology corporation Monsanto

Richard Murphy is a founder of the Tax Justice Network and director of Tax Research LLP which undertakes work on taxation policy

Management Stakeholder communication


Either way, investors would be right to take a closer look. “Our research shows that compa-nies take the decision not to fall too much out of line with their rivals,” says Prof. Devereux.

Corporate governance and the trend towards greater transparency are not the only factors requiring better communication on tax. With even small businesses now able to operate globally, there is a growing need to understand the idiosyncrasies of multiple tax jurisdictions, and the impact of overseas operations on the tax position. This creates its own problems, particularly with ensuring clear communication between national subsidiaries and head office.

Communicating with headquartersGabriel Calcagno, the Head of Tax at the Argentinian subsidiary of Monsanto, the US agricultural giant, points to the challenge of explaining Argentina’s tax system to headquar-ters. “Monsanto has been in Argentina for a long time and we are used to the way things are done here,” he says. “But there are some topics that are never easy to explain because the context in the US or Europe is so different.”

In the United States for example, gray areas in tax legislation are eventually clarified in a way that gives companies certainty over what is permitted and what is forbidden. In Argentina, legislation moves in a much more idiosyncratic way. “We have lots of gray areas here and sometimes things depend on the interpretation by the tax authorities at a particular moment,” he says. “It is not easy to explain this uncertain-ty of the law to our American colleagues.”

This highlights the importance of procedures to ensure that information is shared widely in the organization. “We try to ensure that all the people who are making decisions receive proper information about the consequences and advan-tages that we may have from a tax perspective,” explains Calcagno. “In Monsanto, tax is a critical area, and we have procedures that make sure that decisions are made only after the tax people are consulted.”

The tax function at Monsanto hosts regular meetings with executives from other parts of the business. “We have weekly or fortnightly meetings with the manager of the finance team where we discuss, among other items, the tax news that should be considered by the different areas of the organization,” he explains.

The complex nature of tax issues means that considerable effort is required to get the mes-sage across. “We need to find ways to explain tax issues in a clear and concise manner,” says Calcagno. “If we only distribute the tax regula-tions to other people in the firm, it is the same as doing nothing at all. Additional work is re-quired to pick out the parts of regulations that are really relevant and to explain why this is the case in a way that is accessible.”

The difficulty is particularly acute in a country like Argentina, he says, because the situation can change very quickly. But regardless of location, it seems increasingly likely that more companies will have to follow Monsanto’s exam-ple. Around the world, tax is becoming a subject that must be accessible to and disseminated among a broader audience.


45The number of economies that made it easier for companies to pay their taxes between 2008 and 2009, according to the World Bank’s Doing Business report

96% The percentage of high-income countries that have implemented online tax filing and payment, also according to Doing Business

Enforcement trends highlight the importance of good relations with tax authorities

Tax administration leading practice

Cross-border/joint

enforcementissues

Accelerated issue

resolution

Increasedtransparency

Increasedsharing of

information by tax

authorities

Targetingspecific

situations/issues

Acceleration of audit

cycle

Joint audits

Raising riskto the

boardroom

Enforcement Trends


• Interview by Fergal Byrne

AMEC is a FTSE 100 energy services company that employs 22,000 people and has annual revenues of more than

£2.5bn. Since it was founded in 1848, AMEC had been primarily a construction company, but towards the end of the past decade, it was completing a transition to become a supplier of consultancy and engineering services to natural resources, energy and water companies around the world. When Karen Hayzen-Smith joined as Director of Tax and Treasury in 2007, she found a company that was in the latter stages of a substantial restructuring process. Here, she tells T Magazine about the steps she has taken to strengthen understanding of the tax function across the business.

T Magazine: What were your priorities when you fi rst took on the role of Director of Tax and Treasury?Karen Hayzen-Smith: The tax department had been heavily involved in restructuring and disposals when I arrived. Although I inherited a department that was in pretty good shape and my predecessor was highly regarded, the

changes in the business gave me the feeling that I had a clean slate and the opportunity to determine the tax strategy for the group. There are currently around 20 people in the AMEC tax

Management Tax and corporate strategy Credit: Courtesy of AMEC


Karen Hayzen-Smith of AMEC describes how tax has become an integral part of long-term corporate strategy.

Platform for the future of the tax function

AMECWith revenues of £2.5bn and a listing on the FTSE 100 index, AMEC is a major supplier of consultancy, engineering and project management services to the world’s natural resources, nuclear, clean energy, water and environmental sectors.

AMEC is the Duty Holder of the Dunlin cluster of oil production facilities, north-east of Shetland, UK.

13% EBITDA for 2009 at AMEC was 13% higher than the 2008 fi gure

There is a danger that the tax function can become an ivory tower removed from the business

T01_p36_37_LEFT_AMEC.indd 36 15.06.10 18:44

understand the business, and they need to really understand what we do. We try to take a proactive approach when communicating with commercial managers and fi nance managers, so

that they in turn are happy to approach us with tax questions.

Education workshops, organised by the tax department, are a key part of this communica-tion process to educate business managers about tax. The goal is to help the business units understand what we are doing from a tax perspective. It’s also an opportunity to make tax relevant to what they do – explaining the tax implications of contracts that the business team are working on, for example, or explaining the kinds of tax issues that they might come across when negotiating contracts.What would you change about your job if you could?It would be good if we could spend less time on compliance and tax reporting. That does not mean that these aspects of the role are not important, but the more effi cient we are, the more we can free up staff to spend time on providing value added tax advice and supporting the business units. I would like to see a move away from compliance towards a more front-end approach, which means that we need to develop a broader range of skills within the department as well as building relationships with the business units.What are the main benefi ts of an integrated tax function?This is an ongoing project for us, but there are lots of benefi ts from a better-integrated, better-understood tax function. On the fi nancial side, you see the benefi ts in terms of our tax effi ciency, tax rate savings and protection of tax attributes. We can maximize opportunities from a tax perspective, the way projects are structured, divestments and so on. If we can be part of the decision-making process at an early stage then we can clearly add value, which immediately impacts on earnings per share and cash fl ow.

One of my ongoing priorities is to reposition the tax department to become more customer-focused, in the same way that AMEC as a business is customer-focused. We want to make sure that we are providing the business units with the support they require, that we deliver a responsive and high-quality service and that we strive for best practice. We want to make tax broadly accessible, easy to understand and fi nd ways of effectively communicating tax issues to the business.

Credit: Simon Pope


department: nine in the UK with another nine tax specialists near Toronto in Canada, one person in Singapore focussed on growth regions of Asia and CIS, and another in Australia. This may appear relatively large when compared with some other companies, but the nature of the business demands this level of staffi ng with the majority of the team being there to support the business units. AMEC operates in some 40 countries around the world with a myriad of different tax systems, so there are plenty of challenges. You can usually fi nd a tax angle on most areas of the business.What is currently keeping you occupied?Acquisitions form a key part of AMEC’s strategy, and over the coming years this is likely to keep us busy. The company has cash on its balance sheet and the divisions – natural resources, power and process, and earth and environmen-tal – have acquisitions programs in place.

Tax is also seen as playing a role in the overall corporate strategy. At the end of 2009, Samir Brikho, the chief executive of AMEC, announced details of future growth plans, called Vision 2015, which aims to double earnings per share to greater than 100p by 2015. Tax effi -ciency is one of the four levers of this plan and more proactive management of the company’s tax affairs is required.How do you ensure effective communication with the board?Tax is a board-level issue at AMEC. Communica-tion with senior management is essential to ensure that the tax agenda is well understood at the highest levels of the company. It is impor-tant to communicate our tax strategy and objectives to the CFO and the board so that they can understand what we are trying to achieve and how the tax function can add value to the overall business.

We make regular presentations and provide updates on the company’s tax position. The fact that tax is a component of Vision 2015 helps to maintain focus. How do you build awareness of tax issues in the broader business?There is a danger that the tax department can become an ivory tower and be too far removed from the business. All too often, you see tax departments isolated from the operations and interacting only infrequently with divisional managers. I don’t think that’s the right model for a tax department today – and it’s not the way we wish to operate at AMEC. I have made a conscious effort to make sure that the tax department is as well integrated with the business as it can be and that its agenda is well understood across the group.

The tax function needs to be more connected with the business than ever before. As the business grows as a global company, complexity increases. This means that we need to really

BiographyKaren Hayzen-Smith is the Director of Tax and Treasury at AMEC. She has held the role since 2008. Prior to joining AMEC, Hayzen-Smith worked at Vodafone and Hanson.

We can be part of the decision-making process at an early stage and we can clearly add value

T01_p36_37_LEFT_AMEC.indd 37 15.06.10 14:51


Tax has often been a neglected part of the risk management agenda. But with the potential for controversy on the rise, a proactive, systematic approach to managing tax risk exposure is becoming vital.

Spotlight on risk

Management Tax risk management Credit: Justin Canning

• By Fergal Byrne

The risk of tax controversy – and the potential costs and consequences – have never been greater. Tax issues are

receiving more scrutiny then ever from the media, regulators and investors. At the same time, new legislation and increased collabora-tion among international tax administrations are placing companies’ approach to tax under a fierce spotlight.

In recent years, here has been a steady and inexorable march towards tax transparency. The Sarbanes-Oxley legislation in the US, and later FIN 48, has placed a burden of personal responsibility on company directors to be accountable for financial reporting. A similar approach is gradually being adopt-ed by other major tax administra-tions. In the UK, for example, senior accounting officer legisla-tion (SAO) requires a nominated director to certify annually that they have “appropriate tax ac-counting arrangements in place.” In the Netherlands, so called “horizontal monitoring” has em-phasized the importance of greater openness and transparency with the tax authorities.

“There is a clear trend towards transparency in many tax adminis-trations around the world,” says

Andrew Lee, EMEIA Leader for Tax Accounting and Risk Advisory Services at Ernst & Young. “Companies now have a window of opportunity to build the risk management frameworks, processes and controls to prepare for the day when they will be required to do so by legisla-tion. By putting such a framework in place, companies will be able to anticipate potential controversy issues, avoid unnecessary disputes and mitigate any risks that do arise.”

“Tax risk management is vitally important,” says Jim Marshall, former Tax Director of Cadbury. “It has tended to be a neglected part of a company’s tax agenda in the past. Business-

es can do things without always thinking about the tax consequences. If you are not managing your tax risk agenda proactively then you can have a big problem on your hands. And I am not talking about fancy tax planning schemes. You may be operating in a country with a difficult tax regime, or you just may not be meet-ing your tax compliance requirements.”

Tax risk and governance legislation has elevated tax risk management to a board-level issue. “Every CEO of a multinational

SummaryIt is no longer sufficient for companies to take a reactive approach to tax risk management. Instead, senior managers and boards need to work with tax directors and risk managers to put in place robust systems and processes that help them to plan for controversy before it happens. Tax risk management requires investment, but there is much to be gained from a best-practice approach.

Leading Practices:Based on observations from working with global com-panies, Ernst & Young has compiled a list of leading practices that businesses should consider to help them manage global tax controver-sy and risk more effectively:

1. Adopt a global approach to tax controversy and risk

2. Evaluate global systems and resources for tax risk management

3. Manage ongoing and potential controversies at a strategic level

4. Include global tax risk as a corporate governance issue

5. Stay connected with tax policy and legislative changes.

T01_p38_41_LEFT_RiskManagement.indd 38 15.06.10 19:31


Paul MortonHead of Group Tax, Reed Elsevier

How has the role of the tax director changed?The tax director has moved even further from being a “head office” function to becoming a “business partner.” A new relation-ship with the various revenue authorities is also important – again more like a partnership.What will be your main priority over the next year?The first is to manage the cash tax position as the business world emerges from recession and looks to accelerate investment. The second is to maintain a stable and sustainable effective tax rate in line with investor expectations.What change would you most like to see to the tax environment?I would like to see the United Kingdom encourage investment by remaining a highly competitive jurisdiction with an attractive tax environment.


format,” says Jos Beerepoot, Head of Group Taxation at Unilever. “We need for example to understand the needs of the board and audit committee and tailor the information according-ly. It can be a challenge to get a good under-standing of the information they need and that may be different for each company.”

Processes and documentationThe structure of the tax function, and the extent to which it is embedded within the business, have an important role to play in the identifica-tion of risk. If tax staff are deployed throughout the business and sit alongside managers, rather than being separated in an isolated function, they are able to see what is happening in the business from a tax perspective in real time. “It’s crucial to embed the risk management in the business operation activities and not become isolated,” says Beerepoot.

This decentralization of the tax function highlights the importance of robust processes, controls and reporting. It is one thing to have tax managers scattered about the business, but there is clearly a need for a network that en-ables information to be passed back to a central function. “This is a key component of a world-class tax organization,” says Joel Walters, Corporate Finance Director of Vodafone. “You have to spend a lot of time and attention on processes and controls. You need to make sure they are appropriate, that the technology does the job and that everyone as individuals is doing

company needs to know what their tax people are doing to identify and measure risk,” says Lee. “They need to know that the tax team are all doing the same thing, doing it the same way, and to the same degree of materiality; and they need to be confident that what they are being told is right. If a CEO is not sure if he or she can answer these questions, then they need to do the work to build the appropriate tax risk man-agement framework processes and controls.”

A formalized strategy is important in order to ensure a consistent point of view among the board, committees and senior management. This should include a timetable for senior man-agement to talk specifically about tax risk issues. The issue should also be on the agenda of a committee with some high-level supervisory oversight, such as the audit committee. “Com-panies should have guidelines to evaluate if any given tax planning strategy is right for the company or too risky,” says Lee. “Often, compa-nies say they have a formal strategy, but if you ask the head of the audit committee, the CFO or the board about tax risk you will get three different answers.”

Clear lines of reporting and information that is tailored to meet the needs of its audience are essential. It must be pitched at the right level and contain an appropriate level of detail for the audience. There should also be a common understanding about who in the company needs to be consulted when. “It’s important that all levels have the right information in the right


63% The percentage of business-es in emerging countries that see tougher enforce-ment action by tax authori-ties as a great or significant concern for business, according to a recent Ernst & Young survey. The proportion in developed countries was 39%

When does a tax issue become a risk?Risk perceptions are subjec-tive and this can make it difficult to set parameters around tax risk. A consistent approach is crucial and companies should be clear about how much risk they are willing to bear. “First, I would think about the effective tax rate that the company has and then I would look at the manage-ment of risk,” says Paul Morton, Head of Group Tax at Reed Elsevier. “It boils down to a question of what a corporate taxpayer wants to do to support its effective tax rate and what it feels is appropriate for its business.

It’s about finding the balance.”

One approach can be to benchmark the company against its peers. “It may not always be possible to calibrate the tax risk precisely,” says Patrick Mears of the law firm Allen and Overy. “But companies may, for example, decide that they would like to be in the middle of the herd in terms of tax risk. Or, that they are perfectly happy to go for something more aggressive from a tax planning perspec-tive, as long as it satisfies certain criteria, for example that there is a commercial as

well as tax reason for the transaction.”

For many, tax risk is generally defined in terms of “non-compliance with tax laws”. This could also refer to differences in perspective between the business and the tax authorities. But even this may be too narrow because it focuses on outcomes rather than the process by which the company identifies risk.

Tax risk is also becoming something of a moral issue. “It’s no longer just about whether companies are meeting their strict legal obligations,” says Anthony Fitzsimmons, Chair man of

Reputability, a consultancy focused on repu tation, crisis and risk management. “Increasingly there is a question whether tax avoid-ance, though legally permis-sible, is morally dubious. The question used simply to be: ‘Is it legal?’ Nowadays you also need to ask: ‘Is it right?’ This is about corpo-rate citizenship. There is no universal answer: it is a question of degree. But it could become a reputational issue, particularly for consumer facing companies, if their approach to tax avoidance is seen as too aggressive.”

Management Tax risk management



the right things. You have to have checks and balances, the right level of governance and senior oversight.” The focus on processes and controls that forms part of effective tax risk management means that there is an argument for closer collaboration between the tax func-tion and internal audit. “The best solution may be for tax and internal audit to work together, meshing the technical skills of the tax function with the process and controls experience of the internal audit department,” says Lee. “In this way, companies can manage and reduce the overall tax risk profile, as well as increase the competitive advantage of the business.”

Documentation has also become increasingly important. The Sarbanes-Oxley Act has been very influential in promoting the need for good records management, but more recent legisla-tion such as the senior accounting officer rules in the UK are likely to continue this theme. “It’s vitally important that we have good processes for documentation and that they are robust, efficient and subject to continuous improve-ment,” says Beerepoot.

Documentation is particularly relevant when it comes to transfer pricing, which can be a significant source of potential tax risk. Compa-nies need to make sure that policies concerning related-party transactions are fully up-to-date and are clearly documented. “It’s absolutely critical to have all the information in place for transfer pricing,” says Beerepoot. “There are several layers of information that you need to support the transfer pricing system. We rely as much as possible on information that is in the business. We use the formats developed by the European Joint Venture Transfer Pricing Forum and we apply this as much as we can on a global basis, adjusted for local needs.”

Communication with authoritiesCommunication with the tax authorities is an increasingly important area of tax risk manage-ment. “This has been a big area of change in recent years,” says Paul Morton, Head of Group Tax at Reed Elsevier. “In the new environment that is emerging, it can be invaluable to speak to the tax administration about specific queries or questions that you might have.”

Indeed, in a recent Ernst & Young survey of 350 tax directors and CFOs, over one-third of respondents said that they had increased their certainty over their tax position as a result of their relationship with key tax authorities. “At Unilever, we are very supportive of developing the concept of enhanced relationships,” says Beerepoot. “We have engaged in conversations with many tax authorities around the world and we have already developed these relationships with UK and Dutch authorities, in particular. They have been very productive relationships. In many countries, this type of interaction is in a relatively early stage of development. But we hope this is going to develop further and we are

certainly looking forward to having that kind of co-operation more frequently.”

The cost of tax controversy can be substan-tial. In purely financial terms, companies can find themselves liable to increased taxes and fines, which can sometimes lead to profit re-statements. The investor community is also paying increased attention to tax behavior. And there are major reputational risks to consider. “Getting it wrong on the reputation side just costs an awful lot of money and top manage-ment attention,” says Patrick Mears of the law firm Allen and Overy. “Management needs to be focusing on building the business rather than explaining to the public why they have not been a bad citizen.”

Costs and benefitsGood tax risk management inevitably consumes a large proportion of time and resources. A recent Ernst & Young survey of 541 tax executives from 18 countries shows that the majority of respondents now spend up to 20% of their time on tax risk issues. “There is a core of companies internationally that have already understood the importance of tax risk and have developed effective tax risk management systems proactively to deal with it,” says Lee.

At a time when companies are highly con-scious of cost, it can be difficult to make the case for increasing investment in tax risk man-agement. “A key element of tax risk manage-ment is getting good outside advice on key tax questions,” says Morton. “And this can be extremely expensive. Senior management recognizes that the tax department can’t do this without an appropriate budget.”

Conversely, companies that have a lower tax risk profile have much to gain. By demonstrating to tax authorities that they are managing their tax risk effectively, companies can avoid the time-consuming scrutiny of their affairs that higher-risk companies will experience. Compa-nies with lower risk profiles may enjoy lower compliance costs and greater tax certainty through faster tax resolution processes. And cash can be released from reserves.

All too often, however, it is the cost of the tax department that sticks in the mind of those that hold the purse strings, rather than the benefits that can be gained. “The cost of the tax depart-ment is an overhead of the company, and as such reduces operating profit, which is the figure that people focus on for a public compa-ny,” says Marshall. “Yet the benefits are after tax and the market doesn’t usually focus on this figure.” Given the range of tax risks that compa-nies now face, it is becoming incumbent on tax directors to make the case to the board that the appropriate resources are needed and that effective risk management adds value to the organisation. Risk management may be expen-sive in terms of resources, but the costs of getting it wrong can be much greater.

Source: Global survey of 350 CFOs and tax directors on tax controversy issues. Conducted by research firm TNS on behalf of Ernst & Young, September 2009.

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Tax controversy issues of significant priority to business

Data: Bureau of Labor Statistics

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Physician‘s Services

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Eyeglasses and Eyecare

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Spending sources: Private insurance accounts for the single biggest share.

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Reducing your business‘s tax administration and compliance costs

Staying connected to global tax policy developments and hot topics in your key tax jurisdictions

Building stronger, deeper trust and relationships with your key tax authorities

Developing tax risk systems and processes that take tax authority audit approaches into account

Reducing your business‘s risk profile in the eyes of tax authorities



Risk management forms an increasingly important part of the tax director‘s role. For Ian Brimicombe of AstraZeneca, this requires senior management support and close co-operation with the business. Interview by Fergal Byrne

A rigorous approach to managing risk

T Magazine: How is tax risk management important to AstraZeneca?Ian Brimicombe: Tax risk management is the AZ Global Tax Team’s most important activity. By tax risk I mean volatility in our tax charge, which is something the Group CFO wants to mitigate. Our goal, therefore, is to limit volatility of the tax charge and tax cash out flow in accordance with the group’s tax strategy and appetite for tax risk, which in our case is fairly low. So it’s critically important that we have effective processes in place to identify, measure and mitigate tax risks.What are the processes you have in place to manage tax risk?Every year we do a full tax risk assessment by reference to the company’s business’s operations and the broader economic and tax environment. To complete the assessment, we need to understand the business’ next strategic moves. Is it emerging markets? Is it new technologies? Is it outsourcing models? All of these things present different tax challenges and risks that need to be managed and if you don’t clearly map and understand these risks, then you’re not going to be able to manage the tax metrics of the group.

The analysis should produce a “heat map,” which indicates those risks that have the highest financial or reputational impact and the greatest likelihood of occurring. The key

challenge then is to produce prioritized actions. You have to get the prioritization right because you have got limited resources.

Our tax risk assessment also identifies opportunities because clearly when there is a business or tax policy change there is not only the possibility of greater risk, but also an opportunity to improve tax outcomes.

What role should senior management play in supporting tax risk management?It is important that the governance around tax is integrated within the overall framework for corporate governance in the company. The board and senior management need to approve a tax strategy and articulate their appetite for tax risk. That in turn will determine how much tax resource is needed and how to deploy it. In AstraZeneca we operate in line with a tax strategy approved by the board and a clear understanding of their appetite for tax risk. Doing something different, or taking significant risks of which the board is unaware, is just unacceptable.

The AstraZeneca Global Tax Team is subject to the same compliance and internal audit programmes as the rest of the business, to provide assurance to the board and audit committee that tax management is delivered to the required standards. The other key role of senior management is to support the work of the tax team to ensure business colleagues proactively build in tax outcomes when formu-lating their plans.How do you integrate tax risk management with general business planning?Over the past five years, tax risk management has become much more integrated into general business planning at AstraZeneca, and the tax team has become increasingly aligned with the business. When I first joined 16 years ago, the tax department was located at head office and focused mainly on compliance. Now out of a global team of 55 there is a handful in head office and the rest are deployed in our key business centers.

It’s important to have tax embedded in the business if you want to manage tax volatility in line with risk criteria set down by the board. For example, if someone in the commercial team opens an office in India without tax input then they may create an unnecessary tax risk. So we ensure that the tax team is co-located and aligned to business colleagues to ensure those

Management Interview with Ian Brimicombe

It’s vital that we have effective processes in place to identify, measure and mitigate tax risks

Ian Brimicombeis Head of Group Tax at AstraZeneca, the global pharmaceuticals company. Having trained at Coopers & Lybrand from 1986, Brimicombe moved to Zeneca plc in 1994. He has held his current position as Head of Group Tax since 2001. He is an AstraZeneca pensions’ trustee and a member of the 100 Group Fiscal Committee, which lobbies in the UK on industry-wide tax issues.

T01_p42_43_LEFT_IntiBrimicombe.indd 42 15.06.10 19:32


risks and opportunities are identified and managed effectively. The advice we provide should be built into the business decisions on a real-time basis. This means we don’t lag behind or have to firefight after the event.How formal do tax risk management processes need to be?Robust and formal processes are vitally impor-tant. New measures like the senior accounting officer (SAO) rules in the UK and analysis of uncertain tax positions in the US require more formality in processes and controls. I do not believe that we were generating inaccurate information before these regulations, but it would have been more difficult to provide the

necessary assurance in documentary evidence to prove that everything was working according to plan.

Under these new, governance-driven regulations, we are required to produce evidence that controls over tax are well designed and effective. For example, the UK’s SAO rules require clear documented processes and evidence of effective controls governing the production of UK entity accounts that deliver the right basis for an accurate tax return. Naturally rules of this nature that require senior management certification increase the level of formality needed in controlling accounting and tax information.

Credit: Justin Canning

Ian Brimicombe, AstraZeneca

7%In 2009, AstraZeneca reported a 7% revenue increase in constant currency terms to US$32.8bn

Ian BrimicombeHead of Group Tax, AstraZeneca

How has the role of the tax director changed over the past few years?The essential disciplines of tax accounting, compliance, governance and planning are now much more integrated with business processes including business strategy development, risk management, reporting and commercial operations. What will be your main priority over the next 12 months?My main goal is to develop our tax strategy to support business performance over the next five years. We must manage significant cross-border tax risks, support government tax policy initiatives, including controlled foreign companies reform and the United Kingdom patent box, and continue to develop the tax team’s technical and personal capabilities.

T01_p42_43_LEFT_IntiBrimicombe.indd 43 15.06.10 18:43


Jos BeerepootHead of Group Taxation, Unilever

How has the role of the tax director changed?There is much more focus on risk management and tax policy matters. At the same time, there is an increased focus on efficiency. What will be your main priority over the next 12 months?The tax function will mirror Unilever’s strong focus on the customer by supporting the development of the business models that will allow us to achieve our goals.How would you like to see the role of the tax director evolve?The role of the tax director evolves in the same direction as the business does in a context of competition, globalization and increased focus on sustainability. And that is how it should be.

T01_p44_47_LEFT_HighPerformanceTaxFunct.indd 44 15.06.10 18:25


The increasing profile of tax highlights the importance of leading and developing a tax function that delivers the best possible performance to the business.

A source of value

• By Fergal Byrne

Tax departments are being squeezed from every direction. On the one hand,

the external environment is becoming increasingly demanding. Tax directors face a constant flow of new legislation, tighter corpo-rate governance and accounting standards, greater scrutiny and enforcement from tax authorities and increasingly complex business operations. Yet at the same time, they must manage all this with reduced or, at best, static budgets.

Faced with the need to do more with less, the only solution is to develop a high-performance tax department that can assume all these responsibilities and deal with them effectively.

“There is an increased focus on what can be done to improve a company’s cash and earnings per share (EPS), to drive performance and minimize surprises,” says Joel Walters, Corpo-rate Finance Director of Vodafone. “The tax function has to be performing at the highest level in order to achieve this.” The performance of the tax function can have a significant impact

on the business. “If you don’t have a high- performing tax team, at the most basic level you may not be meeting your legal requirements,” says Jim Marshall, former Tax Director of Cadbury. “And you certainly won’t be maximiz-ing returns for the shareholders of the compa-ny.” Because tax accounts for a substantial proportion of the cost base, the tax function can play a significant role in cost-cutting initia-tives. “The income tax liability is on average one-third of profits, and VAT accounts for about 20% of overall throughput to the business,” says Albert Lee, co-leader of Ernst & Young’s EMEIA (Europe, Middle East, India and Africa) Tax Performance Advisory practice. “A high-per-

forming tax function enables the tax depart-ment to deliver more value to the business and its stakeholders.”

Although there is no clear consensus on the traits of a high-performance tax function, experts point to several common features. First, it has to add value, as well as addressing compli-

Credit: Justin Canning High-performance tax function Management

The performance of the tax function can have a significant impact on the broader business

SummaryTax is one of the most significant costs for any business. This highlights the importance of developing a tax function that is effective, well- resourced and managed, and given adequate support from managers at the top of the organization. There is a growing expectation that tax functions should add value to the business and engage more closely with the key strategic decisions being taken.


management High-performance tax function

ance and reporting issues. Second, it should be integrated within the business and able to play a more proactive role in decision-making. And third, it should provide support for business managers, communicate with them regularly and provide input for strategic planning.

Strategy and leadership A clear strategic plan for the tax department is the key foundation of a high-performance tax function, according to Marshall. “You need a clearly articulated long-term strategic vision for the tax department that is aligned with the business,” he explains. “This vision needs to have top management and board support. The board needs to know that the tax department understands the long-term strategic vision of the business. The board also needs to under-stand what the tax department can do to sup-port the business, and how it is going to manage the risks associated with tax strategy.”

Ian Brimicombe, Head of Group Tax at AstraZeneca, echoes the importance of senior management support. “At AstraZeneca, we have a very supportive board and a very supportive senior executive team. But you have to keep emphasizing the importance of the tax input for the decisions that are being made in the business. We have a program of engage-ment with the senior leaders in the organiza-tion. Our engagement is conducted almost under a service-level agreement, so we have a clear understanding as to what our mutual obligations are.”

Tax departments can often be isolated from the rest of the business and this causes prob-lems from a performance perspective. Research by CFO magazine suggests that the tax function scores well in terms of its compliance role but is less effective at supporting the day-to-day operations of the business. Lee says that the tax strategy needs to be aligned with the business in order to meet its needs better. “With in-

creased emphasis from the tax authorities on commercial purpose, the tax function needs to be integrated and totally attuned with the business strategy,” he says. “A lot of tax plan-ning is around supply chain models or transfer pricing but you can’t get transfer pricing right unless you really understand the business.”

Globalization is a big driver here, especially for large companies. “Companies are subject to continuous changes in different markets around the world,” says Jos Beerepoot, Head of Group Taxation at Unilever. “So tax needs to be embed-ded in the business and support the change. Tax tends to be national while multinationals tend to be regional or global.”

The CFO research suggests that, in many companies, the tax agenda may not be widely understood within the finance function, never mind within the company as a whole. Marshall emphasizes the importance of tax leadership and communication within the business. “In-creasingly, tax directors need to be able to take a leadership role,” he says. “Maybe 5 to 10 years ago, you could afford to sit in your office and come up with clever ideas to save money. But that’s not the way it works any more. You need leadership in the tax department — you need to be able to communicate to business people that you can add value to their agenda.”

Lee argues that tax directors need a broader range of capabilities today. “Tax directors need to be much more multi-skilled,” he says. “Not only do they need to understand tax account-ing, and all about indirect taxes, they need to get to grips with information systems and processes. And of course, they need commer-cial savvy — they really do need to understand their business and industry.”

Diplomacy skills are also important to make sure that the tax department gets the resources and respect that it needs. “You find that tax functions rarely get the appropriate resources for the amount of P&L they are managing,” says Lee. “One of the main reasons for this is that they are not very good at selling their worth, presenting their case and showing the value that they add to the business.”

Staffing and developing the tax functionGood people are the backbone of any high- performing business activity and this is also true of the tax department. “The tax department is going to struggle if you don’t have the right talent,” says Marshall. “You need to recruit the right people with the right skills.”

The desired profile of tax staff is changing. Technical skills remain important but there is an increasing need for people who understand the business and can communicate complex tax issues in a straightforward way. “The way I put it is that they need the ability to communicate in English and not in tax-speak,” says Marshall. “You can always find clever tax experts who can quote tax legislation chapter and verse to illustrate the point. But if you are speaking to someone in marketing, they are not aways going to be able to understand the legislation. They want it distilled into language that is familiar.”

High-performance tax teams use training, tied in with broader career development, to develop their staff. “Many tax people feel comfortable going on training courses because they tend to come from a background in law or accounting with big training departments,” says Marshall. “While it’s good to improve areas of expertise and develop technical skills, nothing can compare with career development, on-the-job training and giving good people the

46 T magazine issue 01

81%According to a 2006 survey by CFO Research Services, 81% of finance professionals said that their company’s tax department devoted most of its resources to tax compliance

61% A 2008 survey by Longview Solutions found that tax professionals spend 61% of their time allocated to data on collection and 39% on analysis

Technical skills remain important but there is a need for people who understand the business


__ Technology has a key role to play in developing a high-performance tax function, not least in automat-ing the more standard procedures and processes associated with com-pliance. A 2008 survey of financial professionals by Longview Solu-tions, a technology company, found that organizations spend nearly twice as much of their time in collecting data compared with the analysis.

“You don’t really want to waste expensive people running around trying to collect data,” says Brimicombe. “The less time you get tied up collecting and dealing with the basic data and information, the more you can focus on higher value services. Good technology and tax data systems are essential.”

Lee regards technology as an enabler but highlights the impor-tance of data quality and integrity, and the controls and processes around technology. “Many tax accountants rely heavily on spreadsheets for key data,” he explains. “Imperfect information is taken from the finance system that has to be reworked through a series of spreadsheets. This is inefficient and leads to additional errors creeping in. Improving the tax data quality by enhancing the tax data supply chain can minimize this type of ‘spreadsheet workaround’.”

Marshall believes that this is an area where tax departments need to do more. “I think that many tax departments are lagging behind other parts of the business when it comes to technology,” he says. “Good use of technology, including the use of outsourcing, is crucial. I can understand why some corporates are nervous. If you get the VAT wrong, for example, you have lots of regulatory issues. But I think now is the time to do it and companies that don’t may well find that they have problems in the near future.”

One issue that hampers the broader adoption of technology is the country-specific nature of tax systems and the lack of integration between them. “This makes it more difficult to commit to large invest-ments in automation and technol-ogy and to tailor a system to meet an organization’s needs,” says Beerepoot. “But I definitely see scope for the development and more intensive use of technology, which can allow us to be more efficient, particularly on the compliance side.”

The role of technology

Automation and information are key to high performance

Credit: iStockphoto.com

opportunity to get involved in more interesting projects.”

At AstraZeneca, training is focused on skills associated with communication, influencing and project management. “These additional skills, combined with technical knowledge, really allow the tax department to become a much more well-rounded business partner,” says Brimi-combe. “We’re very focused on the careers and career structures of a tax team. You can stay in tax and improve your technical skills – no one is going to complain about that. But if people have the ambition, if they aspire to do some different things, we provide scope for them to develop their skills and move from a tax-focused job to a business role.”

This more holistic approach to career development brings a range of benefits. “In the first place, it makes the tax department a more interesting place to work,” explains Brimi-combe. “And the tax function benefits from sending our tax-aware alumni into the organiza-tion. The more senior people in the company that understand tax, the better for the tax department.”

Feedback and incentivesTax experts emphasize the importance of incentivization, together with ongoing evalua-tion. “It is important to incentivize the tax team,” says Brimicombe. “We continuously seek feedback from the business as to whether we’re doing a good job — in terms of technical input, timely advice, business support, and the sup-portive engagement we want to provide.”

AstraZeneca uses a balanced scorecard approach to measuring the performance of the tax function. “We take pulse checks all the time in terms of the delivery of our outputs and we check with our stakeholders if we’re doing a good job,” says Brimicombe. “It isn’t just about the tax rate. It’s about the overall deliverables and engagement that we have. We offer a rounded service and that’s what we are incen-tivized on.”

A rigorous approach to performance mea-surement also allows companies to identify shortcomings and fix problems when they arise. “Tax departments need to understand how they could do better as individuals and as a team,” says Marshall. “Feedback through performance monitoring can really help to encourage the tax team and enable them to grow professionally.”

The roles and responsibilities of the tax function are being transformed. What was once primarily a support role that ensured that compliance and reporting obligations were met is gradually becoming more closely aligned with the business. Today, effective tax functions must demonstrate that they add value, both in financial terms through managing one of a company’s major costs, and by engaging with business managers in a proactive way that helps them to achieve their overall objectives.




The recent financial crisis has shaken the European Union to the core. It is now clear that putting Europe back on the road to

prosperity will take considerable fiscal consolida-tion and budgetary adjustments at a national level. This requires looking at possible ways of increasing revenues, in addition to cutting expenditure.

The design and implementation of the exit stra tegies offers a real opportunity to assess whether our tax systems are really fit for our 21st-century needs. Tax policies must have a wider focus than just revenue generation if we are to achieve long-term, sustainable growth. While clearly taxation systems need to support Member States’ budgetary needs, they must also be shaped to encourage employment and investment, and support a greener, more knowledge-based econo-my. Member States can achieve this through specific, incentive-based taxes, or by restructuring their tax systems to support these objectives. Each Member State will need to decide upon its own approach, on the basis of its own situation. How-ever, EU co-ordination will be crucial.

Recent events have shown just how interde-pendent Member States’ economies are. Divergent tax reforms will only result in new

constraints to the internal market and unaccept-able distortions in competition. Co-ordinated action on taxation would also offer national policy-makers crucial political support in tackling some of their biggest challenges. I am prepared to mobilize all tools at my disposal to help ensure that national tax policies are working in unison.

A strong, stable EU economy relies on a strong, functioning internal market in which businesses can realize their full potential. Taxation is like the oil in the machine of the internal market, and good tax policies are essential for its smooth function-ing. However, there are still too many tax obstacles clogging up the works.

I am convinced that we can improve taxation to make it cheaper and easier for businesses to operate across borders and to make the EU a more attractive market in which to invest. Tackling problems such as double taxation, discrimination and high compliance costs is therefore top of my priority list. To this end, the common consolidated corporate tax base (CCCTB) is just one of the many initiatives that I intend to pursue. By creating common EU rules, we could eliminate costly

mismatches between national systems and signi-ficantly reduce compliance costs for enterprises operating in more than one member state.

Reducing cross-border tax obstacles to venture capital investments is another important goal. Venture capital is a vital

source of growth for small and medium-sized enterprises, so we need to ensure that tax systems are not hampering access to financing. I also intend to initiate a review of the VAT system to create a more favorable environment for business, and simpler and more robust systems for Member States. Another growth-positive way of bolstering national budgets is to reinforce Member States’ ability to collect the revenues. To this end, the EU must step up its fight against tax fraud and evasion, and continue to lead the campaign for good governance internationally.

In our efforts to rebuild our economies, we cannot lose sight of wider objectives, such as our climate change commitments. The economic

leaders of the future will be those who combine high productivity with environmental efficiency. With this in mind, I believe that it is time to pursue a “green” taxation agenda, including the revision of the Energy Taxation Directive.

The path to economic stability and growth will not be easy, nor will the tax reforms that must pave this path. As with any major changes, it will take effort and commitment from all parties to bring about improvements. But I believe that there is a new momentum behind the European tax agenda, fuelled by the recognition that we cannot reach our objectives by maintaining the status quo, nor by acting in isolation. If we harness this momentum, and work closely together as a Union, I truly be-lieve that we can deliver quality taxation that is fair to citizens, businesses and Member States, pre-serves the European social model and contributes to innovative, future-oriented growth.

By Algirdas ŠemetaEuropean Commissioner for Taxation, Customs, Anti-fraud and Audit

Co-ordination is the key to European tax reform

Outlook The policy picture

BiographyAlgirdas Šemeta was ap pointed the European Commissioner respon-sible for taxation, customs, anti-fraud and audit in 2010. In this role, he is responsible for policies that can actively contribute to developing a highly competitive, social market economy, which fully exploits the benefits of the internal market. Prior to his current role, he has twice been the Minister of Finance for the Republic of Lithu-ania, between 1997 and 1999 and between 2008 and 2009. He has also been the Chairman of the Securities Commission in Lithuania.

T01_p48_49_LEFT_Outlook_Semata.indd 48 15.06.10 14:50

Credit: Reuters / Francois Lenoir


Algirdas Šemeta, European Commissioner

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Publications


Preview__ In Issue 2 of T Magazine, which will also be published as an insert in the Financial Times, we focus on corporate migration. Companies have long moved their headquarters, or substantial parts of their business, to another country in order to get closer to markets, resources or to gain a competitive advantage. Moving overseas is, in many respects, a logical outcome of globalization. But in recent years, this trend has accelerated, thanks in part to technology and the increased potential for mobility. In this issue, we will examine current trends in corporate migration, and assess how they might change over the years ahead in light of recent economic developments.

Topics covered will include:

• The legal, accounting and regulatory steps associated with a successful move

• Dealing with stakeholders across the business, including IT, HR, finance and tax

• The effect of corporate migration on reputation

• The government perspective: how do policy-makers ensure that there is the right mix of factors to attract and retain corporates?

Tax Policy and Controversy BriefingA quarterly review of global tax policy and controversy developments

Business redefined A look at the global trends that are

changing the world of business

Tax administration without bordersNavigating the changing global tax controversy and risk management landscape

Tax Policy and Controversy BriefingIn this paper, we look at dispute resolution practices that are emerging in the post financial crisis landscape. Including insights from clients who have experienced these processes and tax administrators who run them, the study will include full data on pre- and post-filing processes in more than 25 countries.

Business redefined: A look at the global trends that are changing the world of businessEach year, we combine our deep knowledge with that of top business leaders to explore the forces that will shape the business world. This year, we have identified six trends that will redefine business success in the next decade. Is your organi-zation prepared?

Tax administration without bordersThe past year has seen a dra-matic increase in tax legislation and regulatory reforms in virtually every jurisdiction around the world. This report highlights the forces that have been driving unprecedented change in the global tax land-scape and the impact that resulting increases in tax controversy and risk manage-ment are having on companies.

Waking up to the new economyErnst & Young’s 2010 European attractiveness survey finds that Europe is perceived as lacking clarity in direction or the necessary commitment and speed to adapt. Our interviews with business leaders, all in search of their next investment opportunities, indicate that Europe needs a wake-up call if it is not to lose ground to its more dynamic competitors.

Ernst & Young's 2010 European attractiveness survey

Waking up to the new economy

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Contacts

Contact for subscription:

[email protected]

CommentsIf you would like to contact the editorial team of T Magazine, please send an email to [email protected]

WebsiteDiscover additional content, interactive features and the latest tax news at T Magazine online. Please visitwww.ey.com/tmagazine for updates.


Ernst & YoungAssurance | Tax | Transactions | Advisory

About Ernst & Young

Ernst & Young is a global leader in assur-ance, tax, transaction and advisory servic-es. Worldwide, our 144,000 people are united by our shared values and an unwav-ering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

Ernst & Young refers to the global organi-zation of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK com-pany limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com.

About Ernst & Young’s Tax services

Your business will only achieve its true potential if you build it on strong founda-tions and grow it in a sustainable way. At Ernst & Young, we believe that managing your tax obligations responsibly and proactively can make a critical difference. Our global teams of talented people bring you technical knowledge, business experi-ence and consistent methodologies, all built on our unwavering commitment to quality service — wherever you are and whatever tax services you need.

Effective compliance and open, transpar-ent reporting are the foundations of a successful tax function. Tax strategies that align with the needs of your business and recognize the potential of change are crucial to sustainable growth. So we create highly networked teams who can advise on

planning, compliance and reporting and maintain effective tax authority relation-ships — wherever you operate. You can access our technical networks across the globe to work with you to reduce ineffi-ciencies, mitigate risk and improve oppor-tunity. Our 25,000 tax people, in over 135 countries, are committed to giving you the quality, consistency and customization you need to support your tax function. It’s how Ernst & Young makes a difference.

© 2010 EYGM Limited. All Rights Reserved.EMEIA no. DL0289

This publication contains information in summary form and is therefore intended for general guidance only. It is not intend-ed to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

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The world is getting smaller, but this doesn’t mean global tax issues are getting any simpler. That’s why we have over 22,000 tax professionals in more than 140 countries working to provide your business with a holistic view of your tax obligations and opportunities. This means, no matter where you’re doing business, you benefit from tax advice and support that helps your organization achieve its full potential.

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