Global mining and metals tax survey. From backroom to boardroom. The CFO perspective at a glance

Transcription

1 Global mining and metals tax survey From backroom to boardroom The CFO perspective at a glance

2 The CFO perspective at a glance We want to help you get to the insight you need as quickly as possible. This is one of a series that summarizes the key findings from Ernst & Young reports from the perspective of the CFO and future finance leader. What is Global mining and metals tax survey about? In the second half of 2012, Ernst & Young surveyed most of the tax directors from the top 40 global mining and metals houses to examine the challenges they are facing. The particular areas of focus identified were resource nationalism, tax risk management, tax planning and transfer pricing. Here, we also discuss how tax, as an increasing proportion of total cost in the mining and metals sector, is becoming a more strategic driver of business decisions.

3 Key findings Resource nationalism The importance of resource nationalism has transformed the role of the tax director from being largely compliance focused to more strategic and commercial. Two-thirds of tax directors now say that they are engaged in responding to proposed or actual resource nationalism, and 72% name dealing with tax authorities as their top challenge. Aligning the tax agenda with the business agenda With the increase in tax take through resource nationalism, tax has become a larger proportion of the mining and metals companies total cost, making tax planning a key component of cost reduction and cash maximization. Tax needs a more active role in mine plan optimization. Among respondents, 54% emphasized the importance of tax planning to improve cash flow. A growing wave of mining tax controversy Nearly three-quarters of tax directors in mining and metals companies have experienced a rise in the volume or aggressiveness of tax audits. Not surprisingly, 40% indicated that transfer pricing is high on the radar of revenue authorities. We would expect this to be the case with increasing enforcement across the world, following the financial crisis, and in line with the increase in resource nationalism activity. Raising revenue often appears to be more of a focus than points of tax principle.

4 Transfer pricing is an area of opportunity as well as risk Best-in-class companies are moving from being run as multinationals to being truly global, integrated organizations with an optimized tax profile. However, new government initiatives to ensure that transfer pricing and other cross-border structuring is not undermining their own revenue streams means that it has to be done carefully. The rise of conservatism The majority of tax directors indicate that their approach is conservative. In 2009, they described it as assertive. Rising resource nationalism, a focus on cash savings, globalization and the rise in controversy are all contributing to this shift. While this caution is understandable, it may be that striking more of a balance with a more assertive stance would lead to better tax outcomes. A more strategic role Among our respondents, 36% of tax directors say they felt more engaged at board level than when the survey was conducted in To ensure that they retain their regular seat at the board table, tax directors must ensure that they have the right economic understanding to manage the commercial dynamics of tax policy, be able to participate in the public debate about tax policy, and conduct strategic thinking in tax planning around the mine plan.

5 Implications for CFOs Ensure that tax functions have the right skills and capabilities. CFOs must ensure that tax functions have the right skills and capabilities to deal with a highly demanding and dynamic environment. They should encourage tax teams to be proactive in streamlining processes, to ensure that more can be achieved with the same or fewer resources. They should also ensure that they are able to implement sophisticated transfer pricing solutions. And, in the light of their more strategic role, tax directors should be able to increase their engagement and visibility with the board of directors, providing the board and audit committee with regular reports regarding the tax implications of specific business decisions. CFOs also need to ensure that their tax teams have the skills and involvement in mine planning. Adopt a global approach to tax planning and the management of risk and controversy. Mining and metals companies need to take a global approach to tax risk and controversy management, because tax administrators are increasingly taking a global view of them. For CFOs, this means thinking about tax operating models to ensure that there is a global overview, together with local knowledge of a fast-changing and dynamic tax environment. When making investment decisions, CFOs and their tax directors must be able to advise on the appropriate level of tax in countries based on comparative investment profiles, and be able to respond to an assessment of tax risk in a particular jurisdiction.

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7 Respond to the growing global challenge of resource nationalism. CFOs and their tax teams must think broadly about how to address the challenge of resource nationalism. Increasingly, they must possess economic and public policy skills, including participation in industry bodies, lobbying through formal channels and engaging in discourse with policy-makers to educate them about returns to the host jurisdiction and what miners can bring to the community. They must have a clear view of policy trade-offs and what impact they will have on project valuations. More broadly, CFOs must ensure that they adopt more transparent approaches to their relationships with governments, ensure robust compliance and build effective relationships with public policy decision-makers. Ensure best practice on transfer pricing. In light of government action around transfer pricing, CFOs need to ensure that tax functions are not complacent about their risk exposure as it changes over time. Together with the tax director, they need to pursue more certainty and evaluate advance pricing agreements (APA) more than ever to manage the geographic footprint of transfer pricing requirements, as well as the additional risk of adjustments and penalties. They should also adopt new approaches to consistent global documentation and benchmarking to remain efficient and cost-effective.

8 Adopt a proactive approach to aligning tax planning and risk management with strategic decision-making. CFOs need to work with tax directors to ensure that there is greater certainty in place to enable more effective long-term planning. They should look at ways of releasing significant amounts of cash from the provision, taking advantage of government incentives, resolving issues in a timelier manner, and freeing up the best people to manage complex tax controversies and litigation. Efforts should also be made to reduce compliance costs and apply technology to enable better use of resources. By improving interaction with other departments, the tax team should also be able to identify more tax planning opportunities and demonstrate the value of tax to the organization. Further reading Mergers, acquisitions and capital raising in mining and metals: 2012 trends, 2013 outlook, Ernst & Young, General Anti-Avoidance Rule (GAAR) rising Mapping tax enforcement s evolution, Ernst & Young, For a copy of the full report, please visit

9 Other insights for the CFO Global mining and metals tax survey is one of a number of studies that provide insight relating to the CFO role represented by the wheel below. For more on these insights, please go to or contact your local Ernst & Young representative. Developing business strategy DEVELOPMENT marketplace Communicating to the external Developing and defining the overall strategy for your organization Representing the organization s progress on strategic goals to external stakeholders Funding organizational strategy 5 6 Funding, enabling and executing strategy set by the CEO The CFO s role 4 Trusting the numbers Ensuring business decisions are grounded in sound financial criteria ENABLEMENT Leading key initiatives in finance that support overall strategic goals Providing insight and analysis to support the CEO and other senior managers Getting your house in order EXECUTION Providing insight

10 Ernst & Young Assurance Tax Transactions Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit EYGM Limited. All Rights Reserved. EYG no. AU1593 In line with Ernst & Young s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content. This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor. ED None EMEIA MAS