Strategizing International Tax Best Practices – by Keith Brockman

Archive for September, 2013

Talent challenge, a time for extraordinary leadership: PwC global CEO survey

This timely survey concludes that it is time to take control, due to a required change in the existing mindset within many organizations.  The survey included 1,330 interviews with CEOs in 68 countries.  The traditional approaches to engagement, performance, reward and people issues are becoming less relevant in today’s changing environment.

http://www.pwc.be/en_BE/be/publications/2013/the_talent_challenge_a_time_for_extraordinary_leadership_-_final.pdf

Observations from the survey include the following:

  • CEOs in Africa are very confident about growth in 2013, although availability of skills is a problem.
  • A coherent talent strategy, building on the employer brand, should be embedded in the organization’s DNA.
  • Key growth areas for operations: Latin America, South East Asia, Middle East, South Asia and Africa.
  • 77% of CEOs will alter their approach to talent management, and 23% were planning a significant change.
  • Existing people strategy is not fit for purpose.
  • Employees should feel involved in the business as a key pillar of engagement, although 66% of staff were not actively encouraged to be involved in decision-making.
  • Today’s business leaders need to cope with crisis, understand risk and be comfortable with change.
  • Rebuilding trust with employees by creating the right culture and behaviors is a fundamental pillar for shaping the business.

The survey provides valuable insight into today’s leadership challenge for developing, and retaining, superior talent.

 

 

Action is not optional: Risk Management Study

This informative study by Accenture is based on a survey of 446 organizations, with the phrase “Action is not optional” as a key driver for its insights.

http://www.accenture.com/Microsites/risk-management-research/2013/Documents/download/Reports/Accenture-Risk-Management-Research-For-An-Era-Of-Greater-Uncertainty-Report.pdf

The value of this study is initially revealed in the Contents, including the following topics:

  1. Current market pressures
  2. Becoming a high-performance risk organization
  3. Risk management talent
  4. Four things to do differently:
  • Treat risk management as a people game
  • Look ahead, as new risks are relentless
  • Manage compliance through a transformational lens
  • Focus on insight, not just data and analytics

Key excerpts from the study:

  • It is easy to say what the risks are, but if you do not have the instruments to see them or hear them coming, that is a problem.
  • 96% of risk management owners now report directly to the CEO.
  • “Risk Masters” are organizations with highly developed risk capabilities, likely to have a CRO, active Board involvement, adequate resources and budgets, integration of risk management in strategic decision-making, focus on strategic and emerging risk, talented staff and training programs and are ahead of the curve in using risk analytics.
  • Weighted priority on compliance requirements ahead of business value and newer hazards.
  • Risk management ownership is an executive board-level position, moving from the CFO to the CRO and CEO.
  • The goal is to infuse risk management comprehensively into business processes.
  • The least developed risk capability is risk organization and governance.
  • HIgh-performance risk management organizations have a people strategy of identifying, training and rewarding risk management talent.
  • Focusing on the “next war” may require a strategic plan for the risk management function, an integrated approach and direct involvement of senior management.

All Multinationals should have a prioritized objective for global risk management, and this study is instrumental in developing “Risk Masters” capabilities.

TEI’s comments: OECD Draft Handbook on Transfer Pricing Risk Assessment

Tax Executives Institute (TEI) has provided comments to the OECD Draft Handbook on Transfer Pricing Risk Assessment, for which the relevant links are provided for reference.  A link to TEI is also included in the Recommended Links page of this blog.

http://www.oecd.org/ctp/transfer-pricing/Draft-Handbook-TP-Risk-Assessment-ENG.pdf

http://www.tei.org/news/Documents/TEI%20Comments%20-%20OECD%20Draft%20Handbook%20on%20Transfer%20Pricing%20Risk%20Assessment%20-%20FINAL%20to%20OECD%2011%20September%202013.pdf

These comments are useful in comprehending the complexity of transfer pricing risks and documentation concerns, especially against the backdrop of OECD’s recent White Paper on Transfer Pricing Documentation (31 July post) and its Revised Draft for the Transfer Pricing of Intangibles (3 August post).  International tax executives should review OECD’s proposals and public comments from TEI and other organizations to develop a risk framework for new transfer pricing challenges and country-specific initiatives.

OECD Exchange of tax information portal

As a follow up to the OECD G20 Report post on 8 September, information about the Exchange of Tax Information Portal is provided for further reference.  The respective jurisdiction can be selected, with agreements available via PDF files.  This site will be even more useful as countries complete the relevant Peer 1 and Peer 2 reviews.

The Exchange of Tax Information Portal is an initiative of the Global Forum on Transparency and Exchange of Information for Tax Purposes.  The Global Forum conducts peer reviews of its member jurisdictions’ ability to co-operate with other tax administrations in accordance with the internationally agreed standard. The standard provides for exchange of information on request where it is foreseeably relevant to the administration and enforcement of the domestic tax laws of the requesting jurisdiction. Effective exchange of information requires that jurisdictions ensure information is available, that it can be obtained by the tax authorities and that there are mechanisms in place allowing for the exchange of that information. The Global Forum’s peer review process examines both the legal and regulatory aspects of exchange (Phase 1 reviews) and the exchange of information in practice (Phase 2). The EOI Portal will track the development of these peer reviews, including changes that jurisdiction’s make in response to the Global Forum’s recommendations.  The Portal can be accessed from the following link:

http://www.eoi-tax.org/jurisdictions/AR

The Exchange of Tax Information Portal site should be used, and shared, for valuable reference on this important and current initiative.

OECD G20 Report & Best Practice Analogies

OECD’s report to the G20 leaders in St. Petersburg, Russia is attached for reference, consisting of a Progress Report to the G20 in Part I, and details of the OECD Base Erosion and Profit Shifting (BEPS) Action Plan and offshore tax evasion efforts in Part II.  This posting will capture some highlights from the report, and pose analogies for Best Practices in alignment with the OECD’s initiatives.  The report may be accessed at:

http://www.oecd.org/tax/SG-report-G20-Leaders-StPetersburg.pdf

The Introduction provides commentary on “legal tax avoidance,” renewed demands for greater transparency, calling for all taxpayers to pay their fair share, and completion of a global model for automatic exchange of information by 2014.

Initiatives of the Global Forum on Transparency and Exchange of Information (the Global Forum) have resulted in 119  jurisdictions committed to standards of transparency and exchange of information.  Best Practices includes communicating  results of the Global Forum to global and regional tax teams, and business leaders, to ensure that global consistency of information is being provided to tax authorities.  

The Global Forum promotes exchange of information via a monitoring and peer review process.  The process includes Phase 1 reviews, examining a jurisdiction’s legal framework for exchange of information, and Phase 2 reviews that examine information exchange in practice.  How well does the exchange of information process work for Multinational Enterprises (MNEs)?  Is this report, with a schedule of subsequent discussions on its impact, automatically sent to all tax team members, or is each individual personally responsible for accessing, reading and comprehending the report, including Phase 1 and Phase 2 reviews?

Peer reviews result in recommendations for improvement, with all jurisdictions required to provide follow-up reports describing actions taken. Re: global audits, are recommendations for improvement provided during, and after, the audit, with action steps documented?

The Global Forum has organized four training seminars in 2012, and five training seminars this year, in addition to implementation toolkits.  Appendix 4 of Part 1 provides a listing of members and observers, inherently resulting in potential impacts for these proposals beyond the OECD member countries.  How many training forums and business tools have been provided by MNEs in the last two years to review the ongoing trend of global tax proposals?

Part 2 lists the 15 activities of the BEPS Action Plan to be addressed by all relevant stakeholders.  For analogy, has the MNE also listed those same activities, addressing potential impacts, risk quantifications and expected actions for each of the proposals, including a relevant timeline and accountability?  Are all international tax team members and business leaders aware of the BEPS Action Plan?

Automatic exchange of information is becoming the norm, versus the exception, for tax authorities around the world.  How are tax changes, audit queries, changes in tax laws, etc., communicated within the MNE enterprise quickly and efficiently?  Is  a tax newsletter communicated to the global business, addressing areas of focus and learning?

Annex 2 of the Progress Report outlines a model of multilateral automatic exchange of information designed to implement a step change in transparency.    This section is useful in addressing future legislative changes, draft model competent authority agreements, legal / confidentiality concerns, and legal bases for the exchange of information.  MNEs should track public comments and future changes of OECD member countries and observers to address these initiatives.

The highlights of the OECD G20 Report, and suggested comments for Best Practices, are meant to promote creative thought and reflection to effectively plan for the rapid evolution of change in the international tax arena.

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