Taxes are increasingly being discussed at board level: Jane McCormick

Also says, tax directors need to be connected with what is going on outside

Jane McCormick, partner, global head of tax, KPMG, shares with Sudipto Dey her insights on how businesses could prepare for a fragmented and changing global tax landscape. Edited excerpts
 

How does the global tax landscape look like in the backdrop of Brexit, the Trump factor, and the anti-globalisation sentiment?

The phrase we have been using is fragmentation and change. There is a view that Base Erosion and Profit Shifting (BEPS) marks the high-water mark of the globalisation of tax policy. We are now moving to a situation of more fragmentation and change at national levels. So, rather than going to a more harmonised, consistent, and coherent international tax system, we are probably going to have more fragmentation and confusion. 

How should industry prepare for such a scenario?

Companies, more than anything else, want certainty. So, the three biggest things companies need to prepare for are: Change, change and change. Tax directors need to be connected with what is going on outside. They have to be good in scenario planning. 

You see corporate boardrooms discussing tax and tax implications more than before in 2017?

Absolutely. Taxes and their impact are increasingly being discussed at the board level. There are two things that are driving that. One, there is a call from civil society for companies to be transparent and responsible about what they do with tax. So, tax is not just a financial issue, but it is about the perception of the business and has reputational risks. The other thing is that because of all these changes tax is not something that can only be dealt with in the finance function. Developments like Brexit and the tax (reform) proposals in the United States will have a significant impact on business and will call upon people to re-work business strategies. That elevates tax to be a business issue discussed at the board level. 

Coming to Brexit, how should companies prepare for it?

The biggest issue is whether Brexit also means leaving the single European market as that is what drives a lot of tax. Unless new arrangements are negotiated, it looks like the UK will leave the market. As a fallout there will be tariffs across Europe and customs procedures. The business most affected is financial services. We are already seeing some banks move part of their business to Europe. From a tax perspective, tariffs and customs procedures are the biggest concerns for businesses. The main thing companies need to do is modelling to see how the impact hits the supply chain. Businesses cannot risk waiting for two years to figure out the impact on their supply chain. 

How will the tax reforms proposed by the US president impact the global tax scenario?

It could be one of the most significant tax reforms the world has seen in terms of impact — it could tear up the global agreement on how you deal with taxes. 
 

The most common reaction of businesses is to wait for reforms to come and then react to the situation. But Brexit or the tax reforms in the US have such a significant impact on business that one cannot afford to wait (for it to happen). Corporate tax rates have been going down across the world. There is some degree of tax competition among countries in relation to the headline rates. However, whenever the rates go down, this is invariably followed by a broadening of the (tax) base. 

At the same time, competition on tax rates becomes important only when all other factors are similar. Tax rate is just one of the things that make an investment destination attractive.