What knowledge and skills do you think are needed in tomorrow’s most effective tax leaders?
First and foremost, a passion for establishing, developing, and leading a team of high-value-add professionals. The members of their team should reflect a diversity of backgrounds, skills, and proficiencies. The team members should also be flexible and adapt well to the constant change in their industry and how tax rules apply and are enforced. Thus, a core part of the effective tax leader is the same people knowledge and skills that any effective leader should have.
Second, given the evolutionary, sometimes revolutionary, change in tax jurisdictional concepts and boundaries, a true thirst for new knowledge in all areas of taxation, regardless of type of tax will be critical. While no leader can be expert in all areas, a clear working knowledge is important.
Third, tomorrow’s tax leaders will need to embrace and be fully aligned with their company’s business strategies and all aspects of its business model, past, present and under development for the future. Tax operates in the dimensions of planning (future), compliance (present), tax inspections (past) and financial reporting (which embodies elements of past, present and future).
Fourth, tomorrow’s tax leaders will be required to be conversant in and leverage enterprise software platforms to provide the real-time information that will support the best planning, compliance, financial reporting, and tax inspection. In addition, the growing requirements by tax authorities for real-time information compels the need for expertise, because the protections of “latency”, in terms of access by revenue authorities to information on paper or in stored data that would only be provided during tax inspections after compliance has been completed, are diminishing and will continue to diminish.
What effect do you see the TCJA having on the international operations of U.S. companies and what strategy is your firm using to prepare?
Generally speaking, the policy thrust of the TCJA was to encourage US-based investment to develop and produce in the U.S. for sales in the U.S. and abroad and “level the playing field” with respect to taxation of other non-U.S. multinationals’ cross-border activity. As enacted, with a series of refinements and changes designed to prevent base erosion or raise revenue to offset the reduction in the corporate income tax rate, these policy incentives have been blunted and for some taxpayers dramatically curtailed.
In addition, complex regulations are required to implement the provisions that impact international operations. Many of those regulations have been released in proposed form and there are more expected later in 2019, whether in proposed form or finalization of those already released in proposed form.
Given that international operations often entail complex supply chains and significant capital investments and the uncertainty that lingers over TJCA as these rules are developed, the effect has probably been more of a “wait and see” with tentative steps in the directions intended by the policy incentives, than any significant and dramatic change of direction.
McCormick’s growth strategy is based on three key areas — 1/3 growth in our base portfolio core products, 1/3 from new products and 1/3 growth by acquisition by product innovation. Our planning strategies support this three-part strategy and take into account TJCA changes — the benefits and the detriments — to inform the business decisions. The McCormick business strategy leads and the tax planning aligns to the strategy and seeks to optimize the return under the applicable rules. Evidence of our responsible tax policy and the Board’s oversight of our approach is laid out in the McCormick U.K. Tax Strategy, highlighting our approach of transparency, not secrecy, and alignment of taxation with commercial value creation, not migration of value.
Assuming the taxation of digital activity is going to happen, what is the most equitable and efficient form for such a tax structure?
In my personal view, I am supportive of the ongoing tax policy dialogue and discussion in the context of the OECD’s “Inclusive Framework” to work through issues, which is following the OECD BEPS Action Item 1 direction of not “ring-fencing” digital activity. While many elements of digital activity appear to be novel, significant elements of the business models in which this “digital activity” occurs are not novel at all. Whether sales of advertisements, transfer of goods, providing services, or licensing intellectual property conducted in “digital space”, the underlying transactions remain the same that have been governed by an international tax system that has developed over the past 100-plus years.
The most equitable and efficient form of taxation will build upon this current rule structure, which has been in a state of evolution over this period to avoid “double taxation” and has been extensively refined in the recent past to address aggressive tax-rule arbitrage and other circumstances of “double no-tax.” The concepts developed within this historical context and embodied in a myriad of income tax treaties reflect an established framework that can be modified to address unique attributes.
Equitable and efficient approaches need to take into account the substantial existing cross-border investments made under the historical regimes. A change to a radically new system that does not take this into account would likely create disincentives for future investment and development. Equitable and efficient adaptations to those aspects of the “digital” economy that may be unique is preferable, such as recognizing creation of local marketing intangibles from local markets or the “network effects” of local customers or software users, while retaining concepts such as the arm’s-length principle and well-established approaches to address double taxation such as mutual agreement procedures to resolve jurisdictional conflicts.