Headline Verdana Bold Managing tax Balancing current challenge with future promise The EYE, Amsterdam, 30 November - 1 December 2016
James Tooley, Deloitte UK Marvin de Ridder, Deloitte Netherlands Aligning tax and business strategy to drive results
Contents Current environment 6 The changing face of tax within the business 7 Setting strategic direction 9 Clear communication 14 Tax operating model 16 3
Aligning tax and business strategy to drive results (driving efficiency/cost control) In this session we will discuss: The changing face of tax in the business Case studies around how tax leaders have engaged stakeholders to set their strategic direction to respond The ways in which organisations have adapted their tax operating model (e.g., resourcing, tax technologies, risk management) to drive results 4
Poll question 1 As a percentage, how often is the tax function involved in strategic decision making by your group with the C-suite (e.g., operating model changes, acquisition plans, budgeting) 0% - 25% 25% - 50% 50% - 75% 75% - 100% 5
Current environment Making sound tax decisions as businesses change their commercial and operational models in a disrupted world is challenging. Doing this in a world of unprecedented scrutiny upon tax affairs of corporations, while the international tax system goes through a period of transformation, including demands to be transparent, is even harder. Tax has escalated to become a priority area of focus for CEOs and Boards. Leading organisations are responding to this with confidence; setting a strategy which flexes to meet the business changing needs and putting in the place the right people, processes and systems to enable them to deliver more with less. 6
The changing face of tax within the business Traditional role Enhancing the tax function for greater impact Planning Reporting The company s tax and finance profile Emerging additional expectations Process, technology and data management People Sustainability and efficiency Strategic partnering across the organisation Managing Business partnering Clear communication Leading strategic initiatives Transform for greater impact Derived from over 700 Deloitte stakeholder interviews, including CFOs, in preparation for Deloitte Tax Executive Transition Labs. 7
Business Partnering What and where are our biggest tax risks? How do we monitor global compliance What would a 5bp increase in our ETR mean for us? What is the total cost of my tax function? 8
Setting strategic direction Four faces model How does the tax department lead in the rest of the organisation in terms of tax cost and tax risk? Leading Edge Threshold Performance What value do I deliver for the organisation through the tax department to support long-term superior business performance? Tax Function CFO Focus Triangle Do I have the right risk model to protect and preserve organisational assets and accurately report on financial positions and operations? How do I operate a tax department that effectively delivers value while managing risks? 9
Setting strategic direction Poll question 2 How often do you engage in conversations around strategic tax matters with your top management? Never, we only discuss specific tax matters as they arise Sometimes when there is time to spare at the end of a meeting Tax strategy and policy meetings are organised regularly with key stakeholders of the organisation 10
Setting strategic direction Tax strategy alignment to wider business vision and mission Vision: organisational view of world today and opportunities for tomorrow Mission: outlines identity of organisation Strategy: plan to achieve desired future state 1 2 Input high-level business goals Business objectives Business objective e.g., Achieving superior business results by stretching our capabilities. Business objective 2 Clear adherence to the sustainable principle and to the Company s societal responsibility Align tax goals to business goals Tax goals/priorities Tax goals e.g., Achieve top quartile performance across the tax function activities. Tax goals Full tax compliance Tax risk appetite that reflects the Company s societal and ecological responsibility Indicate how we will measure success of the goals Key performance indicators (KPIs) KPIs e.g., Total cost of overall tax function reduced from prior year by X%. Total number of FTEs X, as in line with external benchmarks. KPIs % returns filed on time Number of open tax authority audits Tax authority risk rating Value of interest/penalties arising from tax authority audits 11
Setting strategic direction Strategy Pyramid Short term corporate goals Total Shareholder Return (TSR) Corporate strategy Radical cost reduction Top line growth through innovation Cost reductions Operational excellence Reduce environmental footprint Governance and control Top-line growth Sustainable business Innovative products Tax Drivers Efficient tax operations Tax optimisation (of projects) Tax transparency and corporate social responsibility Strengthening tax governance and risk management M&A and divestment support Sustainable tax planning Focus on R&D incentives Tax Actions Sourcing of tax activities (in-, co-, outsourcing) Standardise tax processes Optimise TP existing operations Tax reporting efficiencies through smart-sap (automation) Optimise TP design Create overview on global tax position by country-bycountry reporting (minimisation reputational damage) Implement sustainable tax risk management framework Enrich governance and accountability model for tax Integrate target operating model for tax in acquired companies Standardise tax guidance process including DD activities Cash tax forecasting Efficient cash repatriation Dividend policy Align debt-toequity levels to tax planning Fiscal support on R&D incentives for growth areas 12
Setting strategic direction Case study Tax function aims: Comply with tax obligations on time and accurately Be a valued strategic partner for internal stakeholders Protect and optimise value through efficient planning of taxes, within the stated risk mandate Effectively influence national and international tax policies Design fundamentals: A Board endorsed tax strategy A cost effective tax function structure Major risks are well understood Function with clearly defined competencies and technical skills A stakeholder engagement plan A strong process for evaluating tax planning ideas Global technology plan 13
Clear communication Case study: business objectives aligned with tax goals Business objective: achieving superior business results by stretching our capabilities Tax goals: achieve top quartile performance across the tax function activities Tax priorities Aim 1 2 3 4 5 Tax Provision Process Tax Structure Treasury BEPS Acquisitions Get it right, no surprises Improve process efficiency Stabilise and secure tax rate Avoid unforeseen Country X tax charges Manage TP and global flows Financing/hybrid Structure Provide early input to acquisitions 6 Business As Usual Deliver tax metrics in line with Executive mgmt. targets Actions Reduce risks by hiring new tax accountant/ training Increase efficiency through automation Maximise benefit from recent ruling Assess the long term structure and de-risk reliance on Country Y Execute operational TP project Work with advisors to develop repatriation strategies Actively manage cash taxes Finalise 2015 TP documentation Consider financing alternatives Be close to CEO, CFO, and deal team to understand targets, location, etc. 2016 Performance ETR (PETR) = 15% - 16% 2017-18 PETR (mgmt. target) = high teens Manage cash tax rate at/below PETR Timing Gradual improvements overtime Next 6 months (design of future structure) Ongoing (TP) December 20XX / Ongoing December 20XX TP Documentation June 20XX hybrid structure As required Ongoing 14
Clear communication Case study: measure progress against goals STATUS Ahead On Track At Risk Delayed IMPACT Very High Medium High Low Initiative Tax Provision Tax Structure Treasury BEPS Acquisitions BAU Status Priority Key Accomplishments / Updates / Opportunities Impact Tax Provision Process Tax Structure Treasury BEPS Responded to SEC Comment Letter (review closed in Q4). Hired X as Country X Tax Accounting Manager. Process brought in-house; replaced external service provider. Q3 tax provision in line with forecasted rate at end of Q2. Formal ruling of XXX received from the Country Y Ruling Commission on [date]. The deemed royalty rate is 9.5%, providing $18.7m tax benefit booked in 2016. [Tax Firm] appointed to consider structuring ideas. Restructuring plan developed for Country W to extract cash at 5% WHT rather than current 10%. $3m ABS service charge implemented re Country Z (mitigates 20% Indian distribution tax). TP interviews in progress. TP master file to be completed in 2016. Country by country report produced and to be automated in Q4. Corporate governance re the CV/BV reviewed and to be strengthened. Acquisitions BAU Q3 Milestones 12/7 XX Ruling obtained Integration plan developed for xx. IT resources required to complete integration; other priorities may cause delay. Country W 2014/15 VAT audit formally closed. VAT assessment of $31m deferred pending agreement of German tax authorities. Country X / Y 2015 tax returns submitted. Country W HNTE ruling submitted. Merger of Development into GmbH, providing $1m tax benefit. July August September 18/8 X VAT audit closed 25/8 Reply to SEC Comment Letter 29/8 W HNTE ruling submitted 5/9 Country X tax return submitted 12/9 appeal filed 20/9 Country Y tax return submitted 26/9 28/9 Hired [Name] W merger 15
Enhancing the tax function for greater impact Tax operating model Layers Components Scope and design Delivery model In-house teams Service providers Systems Information and data Organisation and operations Roles and responsibilities Risk management Global/local Standardised/bespoke Centralised/de-centralised Single/integrated Tax/Finance On-shore/Near-shore/Off-shore Permanent/temporary Insource/outsource Multiple/single Off the shelf/bespoke Automated/manual Central records/local records Multi-source/central source Stakeholders/delivery obligations Strategic/operational Informal/formal Framework/ad-hoc Transparency/no visibility Tax/Business Design principles High-level design Business case for change Roadmap for implementation and execution 16
Maturity model What is the current state and what is the to-be state of the local tax functions? Stage 1 Stage 2 Stage 3 Stage 4 Information and Technology Data architecture not integrated Little automation Use common platforms Reduced manual entry and adjustments Reconciliation and financial analysis processes are executed quickly Able to rely upon integrated and automated information Integrated systems Customisable Automated and accessible through Finance/Tax portals Structure and Organisation Processes not defined and inadequate Independent tax department Processes informally and inconsistently defined Not integrated across the organisation Limited communication and coordination between business units Processes defined and integrated Errors not traceable to an owner Relatively centralised Strong coordination between business units Processes defined and communicated Integrated: assigned to owners across the business Centralised and cost effective High synergy between different business units Policies and Procedures Not well developed Informal Ineffective Defined for preparing financial/tax information Inconsistently executed Integrated Not completely automated Integrated Automated and accurate Talent and People Data gathering focused Tax roles and responsibilities are not differentiated Broad skills are recognised Requires cross functional training Adequately trained Resources are deployed appropriately according to skills and business needs Continuously trained Focused on data analysis Proactively manages key business decisions Highly specialised and deployed appropriately 2016 Deloitte The Netherlands 17
Case study: transforming global compliance 30% + Client goals Simplify service delivery across geographically dispersed offices Establish a single point of contact for global compliance services Standardise the tax compliance processes Safeguard quality and actively manage compliance risk Deliver cost savings of at least 30% to the business through the streamlined delivery of compliance services Partner with a single supplier who can provide a full suite of support services Process People Technology Knowledge 18
Faculty Marvin de Ridder, Deloitte Netherlands Director mderidder@deloitte.nl +31 (0) 882882101 James Tooley, Deloitte UK Director jtooley@deloitte.co.uk +44 20 7007 6105 19
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