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Multinationals Reviewing Tax Strategies across the Globe as Political Pressure Mounts

Multinationals Reviewing Tax Strategies across the Globe as Political Pressure Mounts
15 Apr 2010

"Tax Directors from a number of large multinational companies today recognised that, since the onset of the global economic crisis, it has become much tougher to stay on top of the effective tax rate across their businesses.{C}

A panel of Tax Directors, accompanied by tax experts from around the world and delegates at a global tax conference for multinational companies, held in Berlin by Taxand, today debated the future role of the Tax Director and the political pressure they are coming under to change their tax practices.

The debate quickly turned to the re-building of tax strategies decimated by the rapid onset of the global economic crisis and the need to act differently towards tax authorities around the world.

The panel quickly recognised that the key to the future of the tax function in multinational companies is to create and engage in an ongoing tax partnership with authorities, all the while accepting that the key operational and financial functions are fully concentrated on trying to generate cash in the business and the tax implications of that cash.

The Tax Directors on the panel also universally stressed the huge shift in importance of tax at the Board level of large companies. Board Directors including the Chief Executive and Finance Director have become aware of the political pressure on them to be seen to be good corporate citizens in each jurisdiction within which the company operates.

This prominence has meant that Boards no longer want to hear of the tax planning practices of old, with the use of low tax jurisdictions that were part of the OECD black and grey lists fully off the agenda as they look to protect the reputation of the company globally.

Board members are also clearly concerned about their accountability in the light of recent examples of directors being sued or even arrested on the back of tax practices that were once largely ignored or unofficially accepted by authorities.

Tax Directors are now walking a fine line to ensure that transparency is upheld alongside the best interests of the business and the panel recognised that there is a clear conflict of interest being battled as the Tax Director looks to ensure a favourable tax rate, to partner tax planning, tax avoidance and tax evasion with authorities and keep the shareholders happy.

Authorities world wide are increasingly making fewer distinctions between tax planning, avoidance and evasion and thus tax work is now very clearly about risk control within this new environment. All of this activity takes place in a new world of conflicting messages from authorities. On the one hand they want to claw-back revenue and tighten rules and on the other they are trying to lure multinationals to their shores with attractive tax policies. This leaves a wake of complex and confusing rules for Tax Directors to navigate their company through.

The panel also discussed that the political focus on tax means that the effective tax rate must now be agreed at Board level with the balance between good corporate citizenship and levels of tax effectiveness, more important than ever.

It was also stressed that the Heads of Tax should also be clearly engaged in the legislative process and look to influence the political process around tax codes in this new era of cooperation.

Put simply, the global rise in complexity has inevitably led to a rise in the required levels of documentation and preparation, using further resources and rapidly changing the role of the Tax Director. They must now work to simplify tax for the Board, work hard to partner with authorities around the world and look for ways to ensure that an attractive and fair effective tax rate is achieved. All the time working on the assumption that operations in each jurisdiction will be investigated at some point by the relevant tax authority..."

Frederic Donnedieu de Vabres, Chairman of Taxand

Media commentary released as a result of the Taxand 2010 Global Conference - Client Panel Discussion
How New Political Pressure is Affecting Multinationals' Tax Strategies
Three Taxand global clients joined Taxand moderators to discuss how multinationals are reviewing tax strategies across the globe in face of mounting political pressure. The changing role of the tax function; the need to cooperate further with authorities at the same time as generating cash within the business; the firm placement of tax on the Board agenda as governance increases and the difficulty of keeping up with ever-changing legislation worldwide were some of the issues covered.

For the synopsis of Taxand's 2010 Global Conference and presentations, visit our events pages.

Abigail Tarren
T. +44 20 7715 5243

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