Aligning business needs Partnering with a global tax vendor 26 29 October 2014
Aligning business needs Partnering with a global tax vendor Bayer AG, CoE Mobility Management
Agenda Bayer - Setting the Scene Arriving at Bayer - Our Story Plan of Action 2013 Partnering Together Reflection - Our Lessons Learned Page 3 Aligning Business Needs - Partnering with a Global Tax Vendor October 2014
115,487 employees Full year sales: 40.2 billion 289 subsidiaries R&D expenditures: 3.2 billion As of December 31, 2013 / Employees: June 30, 2014 Page 4 Aligning Business Needs - Partnering with a Global Tax Vendor October 2014
Innovation at Bayer Addressing Unmet Market Needs Challenges Our Approach Innovation Highlights Increased demand in growth markets, higher life expectancy, increasing requirements on healthcare industry Growing need for food, feed and renewable resources Bayer HealthCare: Improving the health of people and animals; break-through innovation for diseases with a high medical need Bayer CropScience: Solutions tailored to customer requirements, from seed to shelf Important launches: Xarelto Eylea Stivarga Important launches: Alion Poncho / Votivo Xpro family Increasing quality of life, scarcer resources Bayer MaterialScience: New applications for high-tech materials and leading-edge processes technology Process advances: Using CO 2 as a component of synthesis Oxygen-depolarized cathode technology for the production of chlorine from salt In line with our mission Bayer: Science For A Better Life Page 5 Aligning Business Needs - Partnering with a Global Tax Vendor October 2014
Bayer Mobility Set Up Bayer Int. Mobility Network BIMN HR//direct Int l Mobility Center of Expertise (CoE) Brookfield GRS Expatriate Local Mobility Contact Manager Home/ Host HR//BP Home/ Host Page 6 Aligning Business Needs - Partnering with a Global Tax Vendor October 2014
Time for Alignment Bayer is the most valuable DAX 30 company and has very clear objectives and strong values In order to meet our business objectives we will need a more diverse management team, continued international growth especially into new territories and a continuous focus on being compliant. Mobility is a key enabler and a tool primarily used to develop our top talent The increased focus on Diversity has seen a shift away from primarily German outbounds. More than 50% of all expats do not have Germany as their home country and 25% of our expats are female. Page 7 Aligning Business Needs - Partnering with a Global Tax Vendor October 2014
Arriving at Bayer - 2012
Situation June 2012 Tax was the only mobility service Bayer did not manage Centrally Responsibility for compliance sat with F&A and specific expatriate tax challenges in Germany were supervised by Head of Income Tax. In the countries we have Local Mobility Contacts who handle the day to day expat topics which included dealing with any tax issues and selecting the local vendor together with local procurement. HR//Direct Team Mobility is the primary contact for expats and their favourite topic was tax.. Under the Directive International Mobility, Bayer offers a Tax Equalization and covers the topic of taxes for expats in 3 brief paragraphs. Page 9 Aligning Business Needs - Partnering with a Global Tax Vendor October 2014
Policy Extract Global Directive 4.3.3 Taxation A tax equalization policy will apply and Bayer will be responsible for meeting the cost for all actual home and host country taxes on company-earned income during the assignment in the host country. This includes all additional net benefits granted according to the Global Directive. The employee is responsible for any taxes on personal outside income in home and host countries (including any stock options or shares or other LTI payments). The employee is responsible for complying with tax-filing regulations at the host and home locations, as well as the filing of tax returns. 4.3.3.1 Home country tax return support Bayer will support the cost for the preparation of the home country income tax returns and taxreimbursement calculations in the years of departure and return by a company-designated tax consultant. If tax authorities in the employee s home country require a tax return to be filed on companyearned income during residency abroad (e.g. United States, Poland), Bayer will reimburse reasonable costs related to the preparation of home country income tax returns. The tax service is not intended to provide in-depth personal tax or financial planning, which remains the personal responsibility of the employee. 4.3.3.2 Host country tax return support Bayer will reimburse company-designated tax consultant fees for preparing host country income tax returns. In certain cases tax filings may be restricted to arrival and departure years. Page 10 Aligning Business Needs - Partnering with a Global Tax Vendor October 2014
Vendor Review Top 20 Host Countries Host Country Expat No. Tax Vender Host Country Expat No. Tax Vender China China BMS 126 100 In House EY Spain 15 EY USA 201 Deloitte Thailand 14 Local Vendor Germany US Inbounds 90 80 Mix Deloitte Great Britain 12 Deloitte Switzerland 68 Deloitte Russia 12 EY Singapore 62 Deloitte Argentina 11 In House France 51 KPMG Australia 11 Local Vendor Brazil 33 Deloitte India 10 KPMG Belgium 26 Deloitte Morocco 10 In House Mexico 26 In House Columbia 9 Local Vendor Japan 17 Local Vendor Poland 8 Deloitte A mix of vendors prevents global coordination and adds unnecessary complexity to an already complex matter before even considering possible risks. Page 11 Aligning Business Needs - Partnering with a Global Tax Vendor October 2014
Plan of Action 2013
Challenges with the Situation There were a number of major challenges with the situation including, but not limited to, the following: No Global oversight on mobility tax compliance No real knowledge of potential risks or opportunities within the mobility program Confused and often contradictory advice from vendors not familiar with expat issues or Bayer expat policy - examples include assisting expats to change tax class in Germany to take advantage of the net guarantee. Deductions and exemptions claimed against taxes paid by Bayer but refunded to the expats Inconsistent service levels and support to expats (reflected in HR Surveys) Concern raised by expats that they are not sure their tax affairs are in order Page 13 Aligning Business Needs - Partnering with a Global Tax Vendor October 2014
Challenges with the Situation No standard Tax Reconciliation Calculation existed to ensure Bayer didn t over/under pay host taxes Expats have complex tax affairs and the basic assumption was that the expat is usually tax resident in the host country only even though Countries are making it harder to break tax residency Dual careers means families are split more often and home is in multiple locations US nationals/greencard Holders not employed by Bayer in the US may not have been managed correctly The expatriate population was much more diverse than when the policy had been set up. Expat tax is a specialist domain, can it really be handled in-house as it is in a number of countries including China? Equally do local vendors truly understand expat issues and how to manage tax equalized employees? Page 14 Aligning Business Needs - Partnering with a Global Tax Vendor October 2014
Challenges with the Situation Many countries are simply providing tax support to all outbounds just in case e.g.: Argentina Denmark France While others provided no true support an inequality across an important population Services provided in Germany were not expensive but did not take a holistic view of the situation and may not have been ideal for expats. High cost of services sourced elsewhere as there was no room to leverage economies of scale. Local procurement and local HR were burdened with sourcing support locally without fully understanding the requirements main focus is on lowest price which usually limits service provision. Page 15 Aligning Business Needs - Partnering with a Global Tax Vendor October 2014
Looking for additional value Risk & Compliance Management Standard processes Ease of program administration and increased transparency Additional value Compliance in all locations Filing positions are aligned, tax exemptions and tax credits are ensured Risks will be communicated to Bayer Global Bayer standards and policies are complied with globally Global standardized and seamless processes Clearly defined and aligned scope Single point of contact for Bayer Mobility Management Globally consistent coordination through the vendor s coordination team Overview of global cost, risk and potential savings Ease of information exchange for Bayer and the expats through use of global technology (eroom, myeyonline etc.): information only needs to be provided once Report regarding filing status, reimbursments to Bayer etc. Qualified advisor familiar with Bayer for special topics Multidisciplinary experts in all global mobility areas including social security, immigration, assignment management, relocation Best practice solutions and thought leadership Consistent treatment of Bayer policies Page 16 Aligning Business Needs - Partnering with a Global Tax Vendor October 2014
Proposed Solution Market Practice Bayer needed to manage the tax compliance of the Mobility program on a global scale to ensure consistent execution and have true governance of our Global Directive. Bayer has a very advanced approach to managing Global Mobility but unlike our peers in the DAX we were one of very few who had not outsourced the tax piece. Action Needed Identify who is responsible for tax compliance within the mobility program, more than a full time job. Determine the scope of services needed Manage an RFP Select a global tax vendor who managers the entire program for Bayer. In many multinational companies responsibility for the day to day management of the tax vendor is in the mobility function, supported by Corporate tax for policy and strategic vendor management and when decisions need to be made. Page 17 Aligning Business Needs - Partnering with a Global Tax Vendor October 2014
Scope of Services A detailed scope of services would need to be identified and would form the basis for the RfP but typically we would need the following: Exit Briefing expat and vendor discuss the tax implication of the assignment Arrival Briefing expat and vendor discuss host tax affairs after arrival Host Country Tax Return & Assessment Review; home return in transfer years Annual Tax Reconciliation prepared for every assignee to ensure Bayer has covered it s responsibility and recovered any refunds. The host entity would be responsible for the cost as today but it would be coordinated and managed centrally. Page 18 Aligning Business Needs - Partnering with a Global Tax Vendor October 2014
Going For It. An RfP was held and a process that will typically take 3 months to complete from initiation to selection of the correct vendor. Transition from current arrangement to the new vendor would take a further 3 months transition is a product the vendor will sell with their proposal. A Global Vendor could be in place to manage the 2013 compliance season which starts in 2014. Costs could be billed centrally to HR//Direct and dispersed to each host location leveraging the existing processes in place for other vendors. Key elements required from a vendor: Global Coordination of all services Fixed fee for standard services Excellent technology to support the entire service delivery VIP services for executives Page 19 Aligning Business Needs - Partnering with a Global Tax Vendor October 2014
High level timelines Soft Kick off April 2012 start internal discussions. Decision & Kick off End of May 2013. Issue RfP July 2013 Send out to the potential vendors with clear timelines Decision Sept. 2013 Select Vendor - best fit - best price - best solution Transition Oct. 2013 Finalize approach Country Roll ins Soft go live with new moves Full Go Live January 2014 Transition complete. Comms. With in HR/Tax/Finance and establish project team & key stakeholders. Scoping June 2013 Meet with stakeholders and agree scope needed and draft RfP. Response Deadline August 2013 Receipt of written offers Speak to references. Beauty Parade Sept. 2013 Orals vendors present to Bayer Comms. Oct. 2013 Global Communication of change. Issue Consent forms 2013 Tax Season Feb 2014 Tax Organizers deployed.. Live communication with relevant stakeholders and active change management throughout Page 20 Aligning Business Needs - Partnering with a Global Tax Vendor October 2014
Partnering together
Partnering with a Tax Vendor Bayer will needed a vendor manager responsible for: Ensuring successful transition Continued service delivery and annual reviews Responsible for additional service requests globally Oversight and control of billing and budget Interface with Tax/HR department The position could be in Tax but also in HR but can be a split role in both. Within HR//Direct we needed a dedicated tax resource to support the vendor manager and act as day to day partner for the vendors central coordination team LMC s continue to be the local contact for tax matters but now connected through the global vendor and no longer faced with taking decisions on tax positions, policy interpretation and fee discussions. Page 22 Aligning Business Needs - Partnering with a Global Tax Vendor October 2014
Benefits of Good Partnering In addition to resolving many of the challenges noted above Bayer was able to benefit from the following: Reduced complexity one vendor managed centrally rather than multiple disconnected vendors. Regular Reporting on tax costs, risks and opportunities of entire mobility program Access to the best possible client service teams (we can choose which partners we want on the account) Access to expat tax/compliance trainings for the mobility team Potential to extend the scope of services to Executive Management International Local Hires could also be rolled into the program for a limited period of time Potential to leverage additional services such as compensation accumulation and social security management Page 23 Aligning Business Needs - Partnering with a Global Tax Vendor October 2014
Reflection Lessons Learned to date
Was it worth it This week marks the first year of partnering together and it has been an intense year and we have learned so much: More time spent with the countries would have helped establish the true needs the scope we defined is great but many places offered much more, needed help with payroll and struggled with basics that were assumed under control. Although Tax Equalization was in the policy no one knew what this meant some paid all host taxes, many did nothing and others only did something if the expat asked! Without a new mobility policy we have simply defined a new Tax Reconciliation Guide together which establishes a standard approach we can apply globally. Cost savings have been achieved in the following areas: Refunds belonging to Bayer are calculated and paid to Bayer Tax reconciliations are executed in a consistent manner, no windfalls for the expatriates The possibility to double dipping (through claiming child allowances reflected in hypo or taking mortgage deductions when getting home owner assistance) are now minimzed We have had a sparring partner to test ideas and get an understanding of our issues around the world. Page 25 Aligning Business Needs - Partnering with a Global Tax Vendor October 2014
Benefits of Partnering We have built a good partnership and have regular and open discussion and debate Fostered through regular presence days, calls and meetings. Key locations have been visited and we have joint webcasts with our respective networks Developed over coffee in our Life Café We have extended the partnership to our Global Relocation Vendor and by working as OneHR on reviewing and transforming our mobility operating model. Key to the success has been building our partnership on our LIFE values and together we have started building a better working world!. Page 26 Aligning Business Needs - Partnering with a Global Tax Vendor October 2014
Thank you!