Tax directors are under pressure during this economic downturn. Business managers are looking to them to manage their departments as efficiently as possible. Companies are striving to generate cash from anywhere and then to hold on to it while the economy is weak.
For this month's cover story, Joanna Faith speaks to tax directors about how they are managing their departments in these times. Some, for example in the UK, are looking to see if they are due any unexpected refunds because of tax litigation, others are paying more attention to how they deal with indirect taxes. More are using external advisers only at the final stages of a matter. At the same time, it's not all fire-fighting. The state of the economy is presenting tax directors with an opportunity to show the business managers what value they can bring to the company.
The sticky economy does raise other issues, which, admittedly, are also valid to address when times are good. What should the relationship be between taxpayers and tax authorities? Are revenue officials simply collectors of the taxes due under the law? Or are they there to facilitate the operation of business? Should they be giving companies every chance to develop and prosper by formulating and implementing tax rules that are easy to comply with? We've heard phrases such as 'we're all in this together' a lot this year, particularly as a recession has become probable. Does that go for tax authorities and taxpayers too?
Surely the answer to these questions is that the relationship between the two should be the same at all times. Taxpayers should abide by the law and the tax rules should help them do that. In particularly difficult times officials may be able to make tax management easier. For example, in October the IRS in the US introduced relief for intra-group lending.
Creating a tax system which encourages taxpayers to contribute to the national purse is the ideal. One which, unwittingly, incentivises them to avoid tax is not. Trust is the ingredient that binds it all together. Officials have to be sure that, after proper consultation on any new or amended rules, taxpayers will pay what's due at the right time. At the same time, taxpayers need to be happy that the tax system won't be subject to sudden changes or make impossible demands of them as to try to comply with their obligations.
Ralph Cunningham
Managing editor, International Tax Review
