to condense the maelstrom of tax changes into something
digestible for the board
The only thing tax departments can be certain about is that
tax uncertainty is growing. Those that negotiate it well can
become very successful, and those that are caught out or delay
excessively often suffer financial loss.
Four months before leaving the EU, the UK’s
plans for doing so are still far from settled. The
EU’s Anti-Tax Avoidance Directive (ATAD) comes
into force on January 1 2019, but several member states
haven’t yet released their domestic
interpretations of it. The US Tax Cuts and Jobs Act contained
last-minute, hand-written additions as it was passed just days
before its effective date. Governments around the world also
want to tax the digital economy but can’t decide
how to do it.
"It’s a crucial topic for tax teams to think
about, everybody needs to be ready," Alan MacPherson, group
head of tax at mining company Anglo American, tells
International Tax Review. "Uncertainty is the new
"The technical stuff is normally okay," adds another head of
tax. "It’s the volume of change and the compliance
it brings [that] is rising all the time."
Know your opponent
The first step to tackling problems is understanding them
and, where there’s uncertainty, that means
planning for different eventualities.
Anglo American, which is the world’s largest
exporter of platinum and also owns diamond company De Beers,
works in many non-OECD countries. It is important for the
company to keep an eye on how each of these countries is
approaching the BEPS project.
Key to MacPherson’s role is "trying to work out
where the world appears to be going, not waiting for change but
anticipating change", he says. "If there’s a
situation we know is going to come under pressure, we try to
get there in advance. [It’s about] getting ahead
of any difficult audits, pre-resolution of disputes and having
conversations with governments and tax authorities."
The managing director of tax at a real estate company says
their company is facing multiple threats in the EU.
"In the UK there’s been lots of changes in
taxation of capital gains for offshore investors," he tells
ITR. "The principal challenge is trying to manage our
way through. There’s greater clarity that came out
in the Finance Bill earlier this month, but
there’s still some uncertainty."
"In France there’s been some changes in the tax
treaty with Luxembourg," he adds. "That’s impacted
us more in terms of we know what’s coming but not
when it will be implemented."
He says that his first port of call is setting out different
courses of action for each problem, and then assessing their
"The first thing is trying to compute the impact by running
different sensitivities, to figure out the worst- and best-case
"Worst case is you can do nothing," he explains. "You just
have to take the hit, update all of our underwriting to reflect
the hit. Best case is there is something we can do, compute the
savings and what it would cost to get us to there."
Explaining to the board
The job of a tax director is not only to ensure the company
is tax compliant, but to keep leadership informed of tax risks
and opportunities moving forward – this includes
explaining multiple possible impacts, and pitching for
investment in the tax department when necessary.
"I think it’s a question of trying to be
transparent with [the board] in the first place, indicating if
there is an opportunity, gauging their risk rating/appetite and
the uncertainties to manage people’s
expectations," says the real estate company tax director.
"If I’m uncertain about [changes] I
can’t really tell them there’s a
certain way through," adds another in-house tax executive.
"Management understand what you’re saying, but
it’s not a nice, solid conversation about what we
need to do and where we need to go."
Uncertainty and the existence of many possible futures can
have the additional consequence of making resource discussions
more complicated, too. "The trouble when you have so many
possibilities to go to senior management with is you say 'this
is what I need’, knowing full well that two days
later it could be a completely different menu
you’re picking from," says the tax chief of a top
Dialogue gets you ahead of the game
MacPherson emphasises the importance of transparency and
open dialogue with governments and tax authorities, with whom
he and his team discuss Anglo American’s tax model
and the way it may change in the future. "We try to be open
about when we’ll have to have challenging
conversations," he says.
"There are some assumptions about the way that different
countries engage with taxpayers, with businesses," he
continues. "We try to just be ourselves and our approach is to
be open, to be transparent and to have dialogue. There
aren’t many places that don’t engage
with you when you have that approach."
"Sometimes local advisers will tell you you’re
being brave, or that you’re sticking your head
above the parapet so to speak, but we have to be open and if
that’s a risk it is one we [are prepared to]
Limbering up for change
The most important resource for MacPherson when it comes to
dealing with uncertainty is his tax team of around 75
professionals. Anglo American is active in around 40 countries,
and has tax staff in 11 of them.
"One of most important things is making sure people
aren’t only capable of dealing with one
country’s tax system," he says.
"[We deal with that by] seconding people to other countries,
moving people around our global team, making sure we have a mix
of people from different countries in each of our offices, and
by encouraging people to branch out and not over-rely on
technical knowledge of one country."
"Being well resourced is crucial," he adds. "When you get
fundamental issues in a country where it’s
difficult to get really good help from advisors, you need your
own people. Advisors can take up some of the slack but on most
important issues you want your own people doing it."
The challenges of a small team
Of course, this isn’t possible for all
companies. The main impediment to planning for uncertainty is
budget constraints, says the fintech tax director. His company,
like most, faces compliance challenges on numerous fronts, most
notably in the indirect tax sphere around the EU, and around
the UK’s Making Tax Digital plans.
He is also particularly concerned about what a change of
government in the UK could mean – proposals by
Jeremy Corbyn’s opposition Labour Party to
remove the withholding tax exemption on euro bonds would have a
big impact on the way the company brings debt to the UK for
"It’s the volume of change which is making the
uncertainty greatest because it’s really hard to
work out what the plan is moving forward," he says.
"You don’t have an endless budget to flex
resource around, you’re stuck with what
you’ve got and you’re trying to
prioritise exactly what you need. Ultimately, no one wants to
give you extra but all the compliance costs are going up."
This company’s tax team is staffed by less than
10 people, spread across the US, UK and India – and a
headcount freeze just after two members of the team left due to
normal attrition recently pushed this number even lower.
The only way to ensure compliance, therefore, is longer
hours – a
common theme for tax departments in 2018.
However, being short-staffed is one thing that makes dealing
with short lead times for new legislation particularly
"The lead time is very challenging. It’s not
too bad in the UK, you have time to explain to people and put
things into a different budget cycle, but some of the changes
around Europe happen much quicker," says the tax director,
whose company is owned by a private equity firm.
An often-discussed answer to some of these problems is
automation, which can free up workers from compliance-based
work, giving them more time for higher-value tasks.
"When you can’t predict what
you’re going to do next year, it’s
important to have a flexible team that is able to work in
different ways in different countries," says MacPherson. [We do
that by making sure they are] freed up from predictable
compliance work and repetitive tasks."
Although automation doesn’t solve uncertainty,
it can help put companies in a better position to react to
changes. At companies like the aforementioned fintech business,
it can even be a way to keep an under-resourced tax team
"That’s what we’d have to do to
maintain the status quo, as automation becomes more important.
Automation works if you’ve got control of data.
We’re not too bad at that –
we’re not great, but we’re certainly
not anywhere near the bottom."
"We’ve got the opportunity, and if we can get
the one-off investment into that, which is probably the better
answer for us, it would move us forward. But at the same time,
the uncertainty is that you’ve got to know that
it’s going to do everything you need it to