We first consider perhaps the most obvious link between an organisation’s personnel and BEPS: people as both a BEPS “risk”, and as an enabler of tax efficiencies in the post-BEPS environment.
The activity and location of individuals working within an organisation will be a significant factor in determining a group’s tax footprint. If the activities are not properly understood and monitored, the group can quickly find itself facing a complex tax compliance exercise and increased tax risk profile. This is especially important for those organisations with a large number of internationally mobile employees, for example, those with senior executives and market-facing representatives who travel frequently, and carry on business overseas. Where this has become a way of life in an organisation, and indeed critical to the development and expansion of the business, it can be challenging to introduce and embed policies that employees may see as imposing boundaries and restrictions. Clearly there is a balance to be struck and an exercise in weighing up the tax cost against the impact on the business.
On the other side of the coin, substance supports the desired tax treatment, for example the group’s tax profile can be proactively managed by co-locating appropriate people with the right skill set and responsibilities with valuable assets or activities, perhaps in a lower tax jurisdiction. In a post BEPS world this requires real and demonstrable change, and the impact on individuals asked to relocate or change their roles should not be under-estimated.
Read more from our series on BEPS
The next layer to consider is the role of people within the tax function, and indeed the broader finance function. As the various strands of the BEPS project start to move into place, the practical impact on multinationals becomes clearer. For some, it may be that the increased reporting requirements will demand more from the finance function, or perhaps some additional specialist transfer pricing support. For others, it may be an increase in the number and frequency of cross-border tax disputes, or the need to communicate the group’s tax approach more regularly and to a much broader range of stakeholders.
In order to both manage the obligations and risks that BEPS compliance will bring and optimise opportunities, head office functions will need to adjust and continue to adapt. Here not only will it be critical that the tax function keeps pace with the changing tax landscape, but that it provides the necessary support and guidance to the wider functions which will have an increasingly important supporting role. There will also be a very real need to communicate and explain the practical impact of BEPS driven changes to those working within the organisation.
Finally, we look to the strategic level. A business can live or die on its reputation alone, and increasingly, tax is becoming a key driver of reputation. How your executives work to manage the group’s tax profile in this new landscape will be critical in enhancing the brand and image of the group.
One of the most widely reported aspects of the BEPS initiative is the increasing focus on transparency and reporting of financial data to tax authorities around the world. This may yet extend further, with the EU continuing to put public country by country reporting high on the agenda. A company’s tax affairs will be increasingly open to public scrutiny – which could directly impact reputation and public profile. There will be work to do to mitigate future risks, and importantly, in clearly explaining the tax profile to the broader stakeholder base.
The bigger picture is that tax is fast becoming the latest CSR metric. Having a clear, comprehensive and sustainable tax strategy can provide your group with the reputational edge, and some may also argue, is what is expected of business in today’s world. As the changes to the corporate tax landscape become established, expect to see much more of your tax colleagues as they play an increasingly vital role in managing the effects of this change on the business and communicating its impact with wider stakeholders.
Julie Hughff, tax partner at KPMG