The rising importance of investing in your Tax presence

Ektaa Kumar 14.02.2019

It is now crucial that tax functions are both a technical and commercial business partner. How can a company's CFO justify the investment?

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The rising importance of investing in your Tax presence

As globalisation accelerates, Tax issues have become all the more complex and relevant to an organisation’s business and commercial strategy. Simultaneously, companies face increased demands from the tax authorities for more information at a faster pace; demands that are set to increase throughout 2019, with the arrival of Tax Transparency issues, the practicalities of SAO sign-off, topical structural reform and, particularly, the inevitable changes that will be implemented during Brexit.

In light of these constant changes, it is vital for tax to be both a technical and commercial business partner. Often this requires a business building out a first-time in-house tax function, or the restructuring of an existing one. Whether a stand-alone tax function or a greenfield site, the question remains - How can the CFO justify this investment?

Investing in your Tax presence

Justifying further investment in the tax function

Government legislation now requires all large businesses to publish their tax strategy online and free of charge. Companies need to respond in a clear and thoughtful way to this, bearing in mind that the audience of stakeholders is wider than ever before: Not only tax authorities and governments, but also regulators, investors, non-governmental organisations, the media and the general public. External perceptions of how a company manages its tax affairs can have real impacts on its well-being and reputation. This stakeholder visibility over tax affairs and strategy looks set to continue, meaning that managing reputational risk must be a top priority for any large business. Risk continues to be a key theme as we head into 2019 with increased focus around reputation, managing and introducing documentation measures to avoid this exposure.

This has led to a clear fixation of Tax Transparency in the market, and active debate around paying ‘fair tax’, which has raised the bar in terms of expectations of the level of tax information provided by multinational companies. It is expected many organisations will respond with a greater degree of disclosure and accessibility. With the need for more robust risk control frameworks around tax, it is increasingly important for tax to partner with the business. In response, we’ve seen a rise in companies making fundamental shifts in the treatment of their current outsourced arrangement tax affairs and within existing tax functions, restructuring, reskilling and ultimately altering the DNA to ensure that they are set up to meet these new requirements. In short, companies must look not only for technical expertise, but also for strong commercial acumen and understanding.

The key to constructing a business case for building out or restructuring a tax presence is in diversifying the business perception of tax away from a function that only minimises risk and towards being noticed as a place that can add significant value to the business. While the former should most certainly not be overlooked, particularly in light of the increasingly important need to identify, analyse and mitigate tax risk, CFOs without an in-house tax presence have concurrently sought to evaluate whether their current outsourced arrangement still suits the more complex demands that are placed upon them. Companies are, as a high priority, working on striking a balance between competing concerns to ensure that they remain compliant whilst still adding value. This has led to a marked shift in the way tax is perceived externally.

What are the benefits of bringing a tax function in-house?

In the current economic climate, the outsourcing model is notably expensive for many businesses. The professional firms’ fees are significant, causing a marked trend across medium to large sized companies towards bringing various parts of their tax function in-house. Aside from the financial cost, what are the other benefits?

  • Economic factors weigh heavily on companies driving initiatives of considerable cost savings and budget constraints; internal resources and compliance come at a relatively fixed and predictable cost.
  • Continuity & convenience are important. Having an in-house tax team with thorough knowledge of the business and a more aligned understanding of its specific needs and operational issues is very beneficial. An in-house tax team can act quickly and efficiently to the changing environment of a business, from acquisitions to diversifying product offerings and exploring new markets. An external professional adviser can only advise on what they know and the facts they are given of a particular situation, however an in-house tax presence will not only be able to unearth any non-compliant issues but also lend toward unlocking opportunities based on their experience of the business.
  • With increased accountability of CFOs toward the accuracy of tax computations under SAO legislation, the individual responsible is required to personally certify that their company’s systems are fit for purpose of reporting taxes. CFOs have found considerable benefits when having an in-house resource with whom they can work closely.

Building an in-house tax capability is a big and positive step for organisations, however, there are a few challenges to overcome. With businesses reducing staff headcount, there may be issues around approval of additional resources. In addition, businesses may not want to go through the arbitrary process of recruiting tax professionals because they perceive the talent pool to be relatively scarce.

Benefits of bringing a tax function in-house

However, this is not the case; we have seen a significant rise in candidates wanting to move in-house and further their career within a dynamic, fast-growth business. This has resulted in the talent pool available across industries diversifying. In addition, with the more complex and varied environment that in-house tax brings to an individual’s career, we often find the opportunity to establish or join a developing function as one of the most sought after areas of the market.

For those organisations who believe that establishing a new in-house tax function may be an ambitious step from where they currently are, a strong interim tax resource can sometimes bridge the gap without taking on long term risk. With the required tax expertise, this person can often bring real experience and skills to a team that may be under resourced. With an objective perspective, an interim solution can spot areas of weakness and may be able to suggest innovative solutions to contribute to immediate tax savings and cover any potential risks.

For more information, please contact Ektaa Kumar.

Ektaa Kumar's picture
Head of Tax Interim
ekumar@morganmckinley.co.uk