Businesses can access global markets quickly – but to be successful they will have to navigate our modern corporate international tax environment. BDO Global Head of Tax, Robert Aziz, shares his perspectives on what matters when dealing with cross-border tax today. This article summarises the highlights from an interview for the Business Debate #Global Thought Leaders 2019 series. You can watch the full video here:
Today’s market place is truly global. Companies (whether start-ups or established businesses) that are innovating on a global scale have to address a complex tax landscape both domestically and globally.
Tax authorities believe that tax should be levied where value is created. Today, the key concept in value creation is who is responsible in the business for doing what and from where. This means that tax liabilities are a function of what is happening in a business at an operational level. In our experience, having tax objectives that do not fit with how a business actually needs to operate is not a recipe for success.
Tax advisers need to understand both business models and tax law and they need to be able to think about risk appetite and reputational impact. At BDO we believe in empowering our people to say what they think, not just what they know. Our aim is to be able to say “This is what I would do if I were you”. This is not just a commitment to a decision maker. It also means that we are comfortable in helping a client to implement that decision and we will defend it resolutely should that be necessary on a client’s behalf.
Technology is now playing a vital role when it comes to tax matters. Businesses need to use technology to help gather and maintain tax data from their business activity, and to do so cost-effectively. We have tax technology experts who can help clients review technology tools (both our own and third party tools).
There is huge pressure on businesses today to report large amounts of tax data, and to do so accurately and on a timely basis. Technology is part of the solution to this, but so is a proper tax governance framework. It is much better to get it right first time than to be forced to correct it under investigation. The latter can not only give rise to interest and penalties but can also take up significant amounts of management time to deal with.
One of the current hot topics in the world of corporate international tax is a digital services tax levying tax where the customer is present and not just where the business carries on its value creating activity (see the UK and France articles in this edition). As such, it is a step further in the thinking behind what a fair and workable tax system should look like in our modern global economy – where it is possible to make money from a distance (and therefore avoid paying taxes in countries where a business has plenty of customers but no local profit making activity). This needs a global solution to be workable.
The debate on what a fair and workable global tax system should look like in our modern global economy often starts from the premise that some of the world’s largest companies pay relatively little tax. This is unfortunate because the law has changed significantly in the last few years, and so what may have been possible to lower taxes around the world in the past is not likely to be possible now. In addition, this starting point often overlooks the fact that governments around the world do offer legitimate tax incentives to attract businesses, and to take advantage of such incentives will require a genuine investment from companies to establish sufficient operational substance in that territory.
Our advice would always be to focus on your own business model and what needs to happen to make that a success. The tax profile can be optimised around that model. If done properly, this should lead to a competitive and sustainable global tax rate – and one that businesses would be proud to defend under enquiry.