Traditionally, visibility and scrutiny of a company’s tax position was limited to a small number of interested parties who used disclosures in annual reports to garner what insight they could. In the last few years, that position has changed dramatically. The Panama and Paradise papers, along with numerous news headlines, have led to Boards taking a much closer interest in tax and its impact on reputational risk.
Internal responses include reassessing historic tax positions taken as well as defining the company’s risk appetite, policies and operating models to support future tax planning decisions. Externally, companies now need to comply with tax transparency requirements (such as country-by-country reporting which will be required in Singapore from this year) as well as to consider if they should voluntarily publish additional tax information to manage stakeholder perceptions.
From our perspective, the role of the company’s tax function has changed irreversibly as a result. The tax team now needs to manage complex risk management issues. At the same time, the tax team is coming under renewed pressure from the business to support commercial objectives.
The current impetus
There is an increasing demand for multinational companies (MNCs) to make public their approach to tax. The UK, for example, has recently introduced rules that require relevant companies to publish their tax strategies online, and a number of Singapore headquartered MNCs with UK subsidiaries will be affected by these rules. In Australia, the Tax Transparency Code encourages large Australian businesses to report a country-by-country breakdown of their tax information, with the Australian Tax Office stating that if voluntary uptake is slow, they will look to make reporting mandatory.
Another matter of increasing concern for MNCs is the risk associated with their tax strategy. Major contributors to these risks include changes in global tax legislation such as the OECD’s Base Erosion and Profit Shifting (BEPS) actions and the reputation damage that can occur if companies are viewed as not paying their fair share of tax.
Increasing tax governance and transparency
Our experience tells us that many MNCs have put together formal written tax policies in recent years to address the heightened interest and concerns. These can cover topics such as the company’s tax risk appetite, their approach to dealing with tax authorities and the internal controls over tax processes, as well as the way in which the senior management oversees tax activities. That said, there is still a majority of MNCs that have not drafted such policies, let alone embedded them successfully across the organisation. This is particularly the case for Asia Pacific headquartered organisations, where only a handful of MNCs have a tax policy that has been signed-off by the Board.
To respond to the demand for more tax information to be made public, some MNCs have already started to pre-empt statutory requirements by publishing their tax policies and commenting on tax in publications such as their Corporate Social Responsibility reports. The requirement for private disclosure of “Country-by-Country Reporting” to tax authorities under the BEPS initiative is also prompting organisations to consider their tax transparency strategy. However, businesses in Asia Pacific, including Singapore, (other than in certain industries, for example, extractives) have been relatively slow to adopt any voluntary disclosure of tax information.
Key issues for Singapore-headquartered MNCs
Many Singapore-led MNCs will have operations in countries at the forefront of this increase in regulation, such as the UK and Australia, and must therefore ensure their local subsidiaries are complying with relevant rules. Closer to home, the Inland Revenue Authority of Singapore is also pushing for greater governance with regimes such as the Assisted Compliance Assurance Programme and a focus on data analytics to help assess the risk associated with the companies’ tax filings. Malaysia is also getting in on the act with the recent announcement of the introduction of the MyCAP regime. These measures mean that Singapore MNCs need to learn from experiences overseas to ensure tax processes and controls up to scratch across the group’s operations.
With the additional pressures on tax, MNCs are finding that traditional tax processes are no longer efficient and able to meet the demands of stakeholders. Many are looking to technology to improve process efficiency and deliver enhanced risk management, as well as visibility and insight into tax calculations. Budgets currently set aside for technology usage in the tax functions, however, are still low, particularly in Asia Pacific and Singapore. There is a need to increase investment in order to reap the benefits available from traditional as well as new technology opportunities.
A number of organisations are beginning to perform trials around emerging technologies such as Robotic Process Automation (RPA) and Cognitive Learning for the tax function. RPA has potential applications to perform repetitive activities that traditionally requires significant manual effort, such as filing tax submissions to the revenue authorities. Cognitive Learning has been utilised by some to understand and apply tax legislation and case law. The use of these technology solutions can reduce costs and improve the quality of tax processes but perhaps most pertinently, free up time for tax professionals to focus on managing the additional risks that are arising through increased stakeholder scrutiny over tax.
Centralising or coordinating tax processes
Since 2010, we have noticed a marked shift towards greater global and regional coordination of tax activity with some businesses performing more tax compliance and reporting processes centrally in shared service centres and centres of excellence. There has also been greater demand for global outsourcing engagements, where historically, regional or global head office teams may have delegated outsourcing decisions to local finance teams.
Such centralisation, or coordination, of activity can help organisations to enforce global tax policies and prepare for media scrutiny of the group’s brand, as opposed to the individual entity or country tax positions which are legally more significant. Single global or regional outsourcing contracts also give the company greater purchasing power and efficiencies from working with single points of contact rather than working with multiple tax advisors.
These changes can be a major cultural shift for some Singapore and other Asian businesses that have previously operated a decentralised approach to management and pose change management challenges for those responsible for implementation. For instance, the headquarter tax team may need to start enforcing greater influence on local decision making as well as allocating budget at functional rather than business unit or country level for tax management.
MNCs in the US and Europe have already made significant progress on this transformational journey. A number of Asian groups have started recognising the need to address this new environment, but there is much still to do for MNCs in the region and in Singapore in terms of responsible tax management.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.
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Piyus is a tax management consulting partner in Deloitte South East Asia and leads the Deloitte Global Tax Center Asia (GTCA), based in Singapore. He has over 17 years’ experience in providing corporate tax and tax management consulting services.
The GTCA provides centralised management and coordination of tax and statutory account compliance obligations in the Asia Pacific region as well advising clients on tax risk, strategy and technology.
Piyus also has significant experience in leading transition for regional tax compliance engagements with a particular focus on relationship management, technology and process improvement for tax compliance and reporting.
James is a Director in Deloitte’s Tax Management Consulting team with 12 years’ experience advising organisations on their tax management frameworks. He relocated to Singapore in early 2016, from Deloitte in London, to join the Deloitte Global Tax Center Asia, responding to the increased business focus on tax management strategy and operations in the region.
James has a particular interest in tax operating models and works with CFOs, FDs and Tax Directors to review and improve their tax function operations. He has significant experience in tax technology selection and implementation; tax governance advice; and tax resourcing model design.