Cost of the tax function versus tax liability

In their recent tax review Ernst and Young explore the question of whether corporates should be looking hard at the cost of the tax function or the tax cost of the business.

Cost of the Tax Function

For a large number of organizations, this year has brought significant headcount reductions within Group functions. However, does it make sense for companies to adopt this strategy within tax? Definitely not - but why is this the case?

• EY identify that, in the world’s largest businesses, 50% have less than 25 people in the tax department globally. This is a very small number when we are talking about a corporate tax liability that is approximately one third of profits.
• Tax departments traditionally rely on colleagues within the finance function to assist with compliance and tax reporting. With a shrinking finance function it is likely that the tax department will become increasingly stretched.

Reducing the Tax Cost

The tax function can lower the tax cost and thus generate cash by reducing or deferring taxable income and by increasing or accelerating deductions. Anti-avoidance legislation means that all tax planning requires a valid commercial rationale. As a result of the economic conditions, corporates are undergoing restructurings and reorganisations that provide significant opportunities for tax planning. EY also point out that tax authorities around the globe are reforming tax laws in light of the global recession.

Surely all this means that the tax department will be even more stretched in months to come?

The Interim Solution

We are in a position where the tax function is under increasing pressure and yet is often unable to recruit the resource it needs.

Maven Partners believe that we will see an increased demand for experienced tax interim professionals who can come in and add value to the cash tax position of the company.

Mary Driscoll is Head of the Interim Practice at Maven Partners.

marydriscoll@mavenpartners.co.uk

+44 (0)207 061 6420

Rob Stephenson is Head of the Tax Recruitment Practice at Maven Partners.

robstephenson@mavenpartners.co.uk

+44 (0)207 061 6421

Tax Recruitment - the demand for specialist tax professionals is set to rise

Tax recruitment is a tough place to work at the moment. We are in a recession. Credit has been crunched. Taxes have been cut. Corporate belts have been tightened. People have been made redundant. Costs have been controlled. Recruitment budgets have been slashed.

However, Maven Partners is an optimistic and positive business. We believe that the worst is over and that the economy is on the road to recovery. The Financial Times recently reported that the UK Economy will face a "shorter and shallower" recession than for much of the rest of Europe. Two areas where we are set to witness a rise in demand for tax professionals are indirect taxes and transfer pricing. This is positive news for all those operating in the field of tax recruitment.

Indirect Tax Recruitment

KPMG suggests in its Global Indirect Tax Brief that "Many jurisdictions are using VAT, customs duty and other indirect taxes as fiscal stimulus tools to target specific industries or domestic economic objectives." A number of tax jurisdictions, including the UK, have been focusing on the issue of cross border services looking at the extent to which these services may be outside the scope of local VAT with a view to imposing charges.

KPMG believes that compliance management and the use of technology tools will important issues for corporates to address.

At Maven Partners we believe that the demand for global indirect tax professionals will rise in the coming months.

Transfer Pricing Recruitment

This month we saw Dixon Stores Group International pay HMRC £52.7m to settle a long running dispute over transfer pricing.

Last month the Obama Administration detailed plans to raise $210bn over 10 years by curbing "loopholes" in the US tax regime allowing companies investing overseas to gain "an unfair advantage" over those investing in the US. This refers to income shifting schemes and alleged abuses of the transfer pricing regime whereby the company can defer taxes on profits earned overseas indefinitely.

Experienced transfer pricing professionals can expect to witness a rising global demand for their talents.

Rob Stephenson is a Managing Partner at Maven Partners, a specialist tax recruitment business.

robstephenson@mavenpartners.co.uk