Tax teams under pressure to invest in technology, says new survey

BY Fraser Tennant

The continued globalisation and digitalisation of tax is putting tax professionals under pressure to invest in new technologies, according to a new survey by Thomson Reuters.

In its ‘2019 European Tax Technology Survey’ – which polled 438 tax teams across a wide range of industries, including banking, manufacturing and services – Thomson Reuters reveals that 98 percent of tax professionals plan to invest in tax technology over the next 12 months, compared to only 54 percent in 2018. Moreover, the main driver behind the anticipated investment is the rise in digitally capable tax authorities.

Recognising the need for increased efficiency for internal processes and workflow, 45 percent of survey respondents said that they had started or have plans to implement digital tax filing and compliance for new standards such as MTD and Standard Audit File for Tax (SAF-T) – the international standard for the electronic exchange of reliable accounting data, as defined by the Organisation for Economic Co-operation and Development (OECD).

Key findings from the survey include: (i) 76 percent of senior tax executives have seen an increase in attention on tax compliance and planning at board level; (ii) 28 percent of tax teams plan to increase spend significantly in the next 12 months – mainly to address the needs of digital tax reporting; (iii) managing compliance across multiple jurisdictions continues to be the biggest challenge, although preparing for Brexit had also significantly increased in importance; and (iv) 89 percent consider tax technology as strategic to the success of their tax function, although only 39 percent have a tax technology strategy.

“The survey indicates that many tax departments are looking to centralise and manage compliance across multiple jurisdictions, in response to the continued globalisation and digitalisation of tax,” said Steve Smith, proposition lead, corporates at Thomson Reuters. “The interest in new technologies also suggests that tax departments are recognising that the deployment of tax technology can help increase efficiencies, reduce human error and deliver a consistent and manageable way of addressing these new tax regulations.”

In addition, the survey found that there is an appetite within tax departments to adopt in-house technology, rather than outsource, suggesting a desire to take control of the digital tax transformation process.

Mr Smith concluded: “It is inevitable we will see more jurisdictions following suit in the coming years, and multi-national corporations need to be prepared to address these requirements with future-proofed technology solutions.”

Report: 2019 European Tax Technology Survey

Businesses lax on tax transparency – EY

BY Richard Summerfield

In the face of increased regulatory pressure from the OECD, the European Commission and various national governments, tax transparency is becoming an extremely important issue. However, many companies lack the systems and resources to adequately respond to these new global tax disclosure and transparency requirements, according to a report from EY.

The report, ‘A new mountain to climb: tax reputation risk, growing transparency demands and the importance of data readiness’, surveyed 962 tax and finance executives across 27 distinct jurisdictions. It found that more than two-thirds of those surveyed believe that they would require additional resources to gather and provide the information required following the introduction of the OECD's base erosion and profit shifting project, and increasing government clampdowns on tax avoidance.

Though many of those firms surveyed believe that they are unable to meet their tax transparency obligations, interest in tax transparency in the corporate boardroom has never been higher.

According to EY, 83 percent of executives surveyed said they regularly brief the chief executive or chief financial officer on issues of tax reputation risk. Forty-three percent of executives regularly brief their audit committee. And 89 percent said they are somewhat or significantly concerned about media coverage as to how much companies pay in taxes.

“We are at a critical stage as the global tax environment evolves,” said Jay Nibbe, EY’s global vice chair of tax. "Increasing transparency readiness presents an opportunity not only to comply with new disclosure demands but also to proactively work to mitigate reputation risk. Getting prepared will require some additional investment in technology, data extraction capabilities, and new skills in people resources. It also involves increased awareness on how you think about your tax position, and how it could be perceived by a wide range of stakeholders.”

If companies hope to achieve compliance, internal tax professionals may need to change the way they report, track information related to the taxes they pay, and realign their IT systems accordingly.

Report: Businesses must augment tax transparency readiness to mitigate increasing reputation risk

HSBC in tax dodging scandal

BY Richard Summerfield

British banking group HSBC Bank plc is facing potential legal action in both the US and the UK over claims that the bank conspired with clients of its Swiss subsidiary, helping them avoid paying tax in the run up to the financial crisis.

According to a number of leaked bank account files, HSBC helped over 100,000 clients across 203 countries to hide around $118bn worth of assets. The documentation, which was leaked to a number of global media outlets, has sparked an outpouring of outrage across Europe, the US and elsewhere. Though the relevant tax authorities have had access to the leaked files since 2010, HSBC’s misconduct is only now being made public.

Prosecutors in the US have begun to intensify their investigations into HSBC’s conduct given the revelations, and are now looking into allegations that the bank may also have manipulated currency rates as part of its wider malfeasance. The US Department of Justice may also choose to re-evaluate the $1.9bn deferred prosecution agreement reached with the bank in 2012 as a result of the leak. In the UK, the bank may face possible criminal charges.

In many respects, the HSBC revelations are indicative of a dubious culture permeating the banking sector, and the latest revelations will do little to convince the public that banking and financial institutions can be trusted. With many of the wounds from the financial crisis still raw, HSBC’s alleged collusion with tax dodging clients will undoubtedly provide a significant setback for those attempting to clean up the industry’s image. As the UK’s general election is mere months away, the issues of tax avoidance and corporate misconduct are likely to remain high on the political agenda in the short term.

Given the potentially damaging nature of the revelations, HSBC has moved swiftly to calm the quickening storm. In a statement the bank said, “We acknowledge that the compliance culture and standards of due diligence in HSBC’s Swiss private bank, as well as the industry in general, were significantly lower than they are today. At the same time, HSBC was run in a more federated way than it is today and decisions were frequently taken at a country level.”

News: HSBC could face U.S. legal action over Swiss accounts

Tax concerns secondary in medical mega-deal

BY Matt Atkins

The latest in a string of healthcare mega-deals has been driven by potential synergies rather than tax considerations, according to executives behind the transaction.

On 15 June, US medical device maker Medtronic Inc announced it had agreed to acquire Ireland’s Covidien Plc for $42.9bn in cash and stock. The purchase will see Medtronic move its executive base to Ireland, reducing its overall tax burden. However, a complimentary strategy with Covidien on medical technology has motivated the deal, rather than tax savings, says Medronic CEO, Omar Ishrak. “This acquisition will allow Medtronic to reach more patients, in more ways and in more places. Our expertise and portfolio of services will allow us to serve our customers more efficiently and better address the demands of the current healthcare marketplace.”

The acquisition of Covidien will significantly advance Medtronic’s position as a leader in medical technology and services. The combined company will have a comprehensive product portfolio, a diversified growth profile and broad geographic reach, with 87,000 employees in more than 150 countries. The deal will create a close competitor in size to the medical device business of industry leader Johnson & Johnson Co.

The deal has raised concerns surrounding the number of US firms striking deals that slash their tax bills. While historically quite rare, the acquisition of companies aimed at lowering corporate tax rates is becoming increasingly common. Pfizer’s recently failed bid for AstraZeneca, for instance, has served to refocus attention on so called ‘inversions’. Currently, two Congress bills, along with a White House proposal, are aiming to make the practice more difficult, though neither has gained much traction. This could change if further US firms try to exploit the loophole.

While the deal has sparked debate for all the wrong reasons, it has been welcomed by the Irish firm. “Covidien and Medtronic, when combined, will provide patients, physicians and hospitals with a compelling portfolio of offerings that will help improve care and surgical performance,” said José E. Almeida, Covidien's chairman, president and chief executive. “This transaction provides our shareholders with immediate value and the opportunity to participate in the significant upside potential of the combined organisation.”

The transaction has been approved by the boards of both companies.

Press release: Medtronic to Acquire Covidien for $42.9 billion in Cash and Stock

EU Court of Justice rejects UK challenge

BY Richard Summerfield

The European Court of Justice has rejected the UK’s legal challenge to the introduction of a financial transactions tax (FTT). The Court’s decision on 30 April dealt a blow to London's efforts to stop a levy that may adversely affect its status as Europe’s financial centre.

Extra-territorial

As the proposal has not yet been agreed by the 11 European countries, including France and Germany, which intend to implement the tax, the UK’s case was restricted to simply challenging the right of the countries to proceed with the bill. The Court found against the UK, claiming “the contested decision does no more than authorise the establishment of enhanced cooperation, but does not contain any substantive element on the FTT itself.”

Although the UK will not sign up to the FTT, which has been dubbed the ‘Robin Hood’ tax by some, the ruling is still likely to affect the UK, as the FTT is intended to have extra-territorial effects.

Fragmented

The UK’s objection to the FTT is predicated on ensuring the EU's single market does not become fragmented between the countries inside and outside the eurozone. However, a spokesman for the UK Treasury added that the court’s decision “confirms the UK will be able to challenge the final proposal for a FTT if it is not in our national interest”.

In its ruling the Court did not comment on the merits of the UK’s challenge. Accordingly it seems likely that the UK will further challenge the finalised FTT.

Premature

However, critics of the UK’s objection, as well as the Court itself, noted the challenge seemed premature given that the nature of the tax has yet to be confirmed. The levy is intended to raise public funds and discourage speculative trading by taxing the transactions of shares, currencies and bonds.

Furthermore, some analysts have stated that the UK’s objection to the FTT is merely another attempt to defend the city’s ‘rich square mile’, a reference to London's financial quarter. France and Germany in particular have championed the tax – policy-makers in both countries believe that the implementation of the FTT will go some way toward forcing the financial sector bear some of the costs and responsibility for the economic crisis. It will also serve to dampen speculation on the European bonds and derivatives markets.

Press release: Court of Justice of the European Union