- So good morning.
Good morning, if I could
just have your attention
as we come back to the program.
My name is Josh Blank.
I'm a professor here at NYU Law School.
And I'm also the Faculty Director
of the Graduate Tax Program.
On behalf of the Graduate Tax Program,
I'd just like to first welcome
you all back from the break,
but also on behalf of the Tax Program,
thank KPMG for hosting this annual event.
For the past 16 years,
this event has been one
of the true highlights
of our academic year by bringing together
so many practitioners,
government officials, students,
and tax academics.
This lecture series allows
us to think about a timely
and important tax topic from practical
and theoretical perspectives.
As we're coming back from the break
and also just like to
take a moment especially,
to acknowledge and thank Larry Pollack
for of all the work that he's done
to put this event together,
and if we could just take a
moment to acknowledge Larry.
(clapping)
I can tell you from personal experience
over the last six or seven years
of working with Larry on this event,
that Larry loves NYU and he really loves
the NYU/KPMG Annual Lecture Series,
and so we thank Larry and his whole team
for organizing this event.
This event, by the way, is
one of the only programs,
I think, that NYU Law School hosts
that every year, closes
in terms of registration.
This room only holds 450 people.
Every year, Larry is looking for new ways
to improve the series.
We do have a Skirball
Center for Performing Arts
that has a theater which holds 850 people,
so maybe by the 20th NYU/KPMG Lecture,
we can reach that venue.
Who knows.
And also I should acknowledge
the fact that this series
has expanded over the years.
Last December, we were
thrilled to co-host this event
in San Francisco, when
we were able to reconnect
with many of our alumni
and other tax practitioners
in the Bay Area for this
program later in the year.
So thank you for all of
your work on this program.
I would just, for a couple of moments,
tell you a little bit about
what's going on at NYU.
The Tax Program is as strong as ever.
This has been a really
exciting year for us
because it is the 70th year
of the Graduate Tax Program,
and the 20th year of the
International Tax Program.
We just hosted, on March 24th,
an anniversary celebration
to commemorate both of those events.
And I know many of you were
there with us at that program.
If you're enjoying today's program,
we invite you and hope that you can attend
some of the many programs
that we host during the year,
specifically, I'll just mention
that starting in June of this year,
NYU Law School and the
Graduate Tax Program
will be co-hosting a global
series of conferences on BEPS.
We will be co-hosting this series
with the Amsterdam Center for Tax Law,
the University of Sao Paolo,
and the Central University
of Finance and Economics
in Beijing.
The first conference will take place
on June 1st in Amsterdam.
On October 28th, we'll host
a day-long conference on BEPS
here at NYU,
and then in 2017, we'll host
two more conferences in Beijing
and Sao Paolo.
Those dates we'll have soon.
Many of our events are posted
on the NYU Law Tax blog,
and if you're alumni of the program,
you should be receiving
announcements about
our different events and
we invite you to come back
to the Law School whenever you're free.
I'd also like to just take
a moment, on that note,
to acknowledge many of our
alumni who are here today.
Our alumni support the
Graduate Tax Program
and the International Tax Program
by teaching as adjuncts
in both of our programs,
speaking on panels at the Law School,
mentoring our students
and supporting activities
of both programs through
financial commitments
through the Wallace-Lyon-Eustace fund.
You and your passion for our programs
is really what's the core foundation
of the Tax Program at
NYU and distinguishes us
from all other programs.
So thank you for all of your support.
Thank you for KPMG for
co-hosting this event,
and enjoy the rest of today's events.
I'll now turn the program back to Larry
to introduce the next panel.
Thank you very much.
- Thank you, Josh, for those kind words
which are very much appreciated.
As the global tax landscape is evolving,
so are the functions, the
focus, and the visibility
of corporate tax departments
of multinational enterprises.
Our next panel includes senior officers
representing corporate America
from various industries
who will share their perspectives
and discuss the additional
skills that may be required
of corporate tax executives of the future.
This panel is going to be
moderated by Brett Weaver of KPMG.
Brett is an international
tax partner of KPMG,
based in Seattle.
Brett's practice focuses
primarily on the technology
and the telecommunications
space and on Cloud computing.
Brett is the partner in charge of
KPMG's Tax Transparency Services
and of the West area
International Tax practice.
Please join me in welcoming
our corporate panelists today.
Harris Horowitz, Global
Head of Tax for Blackrock.
Kanthi Srikanta, Vice President
of Tax Operations at IBM.
Joe Vaccaro, Senior Vice President
and Global Tax Director for Metlife.
And Louise Weingrod, Vice
President Global Taxation
at Johnson & Johnson.
Brett, over to you.
- Thanks, Larry.
Appreciate the introduction
and we look forward to the
panel discussion today.
I'm confident you'll find
it to be of interest.
I think the prior panel
sessions really did a great job
of setting the stage for what
we want to discuss today.
And particularly in this
setting, at the Law School,
that many of you here that are students,
I would say, listen up because
we're going to talk about
really the skillsets and
the unique challenges
of running a tax department in the future,
and I think there'll be some
interesting things there,
frankly, for all of us.
But with that, we'd like to just go ahead
and jump into this very
question that is our subject
which is thinking about the future,
and what are the requirements
for the tax department
of major multinational companies
addressing these issues.
And much of what we've
heard in the prior panels
are really captured in this slide,
and so I don't intend to
spend a lot of time here.
But I do think it's interesting,
as you look at the changing environment
and we probably have seen more
change in the last few years
than we did see in maybe the
couple of decades before that,
but you look at the massive changes
around political and social
issues addressing tax,
tax being mainstream issues
in a number of different countries.
And when has that happened
for decades prior to that,
in terms of any of our careers.
So certainly, an increased
emphasis from a social
and political perspective around tax,
and the underlying issues
with large multinationals,
and how they do business around the globe.
As we look at information,
communication and technology,
that has really grown.
It's really also been,
as you think about it,
a significant impact on
large multinationals,
and again, how they do business.
Information is available to almost anyone.
Again, NGOs, customers, others
can publish information,
comments, et cetera, about companies,
particularly about how they do business.
We look at these issues of how quickly
information's made available.
You look at Lux Leaks, as
we've talked about earlier,
and the Panama leaks, et cetera,
this has really changed the game,
not only in terms of information
that's widely available,
but these new technologies
and how they actually impact business.
And you look at the convergence across
what has traditionally
been separate industries
and we see now this convergence
amongst all industries.
I think it's interesting,
those of you who are watching
the news, to even today,
a lot of discussions about Netflix stock,
as they have their release et cetera.
And part of that story
was the fact that Amazon
is one of the new competitors.
And it isn't that interesting
as you stop to think about it
that Amazon, originally,
resells books online.
And here they are with
their original programming
around media and content
and emerging as a competitor
against Netflix.
So we see all these things
starting to come together.
You see traditional manufacturers,
manufacturers of jet airline engines
that actually can do
maintenance of those engines
remotely over the internet.
So we're seeing all these things
change the way companies do business,
change the way governments
think about they wish to
and should tax
multinational organizations.
You look at digitization and
how that impacts business.
I saw a video that was
presented by a client
not too long ago where they
were actually 3D printing a car.
Some assembly required.
But you could actually do that.
Think about that, no longer,
would you be necessarily
shipping an automobile
across multiple jurisdictions
that again, it's the basic
supplies to 3D print that thing.
So very interesting if you think about
how this changes companies,
how we think about rights to taxation,
and in similar issues as we
look at this third pillar,
the economic issues that
underline the story.
And as we look at these issues of
some of the higher tax countries
that are really putting pressure
on lower tax jurisdictions
in terms of substance, and
a lot of that is really
this tug and war, in terms
of rights to taxation.
We've seen that with the rise of
source country taxation as well.
And just an underlying
theme in what we see today
in terms of, ultimately, who should bear
the burden of taxation.
And an interesting question
that doesn't seem to get a lot of airplay,
but it's out there,
which is if there's
more burden of taxation
that should be borne by multinationals,
does it stop there?
Or somehow at the end of the day,
does that move on to consumers as well?
So here's the environment
and when we get to the panel,
we'll have them kind of
address, to some extent,
what you view the future to actually be.
Is that now?
Is it a few years from now?
Is it 10 years from now?
But we want to frame that discussion
around what the panel's identified
as these five key areas,
five challenges.
You'll see the fifth one,
it really kind of goes
across the top four,
and that's where we're
thinking about the organization
to deal with these challenges.
But as we look at the
rapid change of the rules
across the globe and
getting our arms around
controlling that risk,
as we look at the reputational brand,
recognition issues that were
addressed in the first panel,
also in just compliance.
It seems that the price
tag for compliance failures
has risen significantly in
the last couple of years.
And a lot of that burden comes back to
corporate tax departments
to really figure out
how we get our arms around
the compliance complexities,
and actually build processes
and have the necessary tools
to ensure that we do comply.
And then this idea of integration,
that probably more so than ever,
we want to cover this issue
that the tax department
needs to be integrated into the business
and the stakeholders.
So let's jump into our panel discussion.
And Kanthi, maybe I'll turn first to you,
to start our discussion here
around controlling risk.
I mean how does your company
get their arms around
all these rapid changes?
- It's an interesting question
and I like what you have on the chart
that will happen to the rule of law.
So there's been a lot that's
going on in the past few years.
So we have the OECD BEPS Project.
A lot of discussions, a lot
of guidelines came out of it.
And then we saw that UK
came out with its own law,
not totally aligned with
all those guidelines.
And then now you have
EU which is coming out
with the directives which
are not completely aligned
or agreed to by the countries
in the OECD BEPS Project.
So in all this, the big question
if you have the responsibility
to have the right reporting
on the financial statements,
is how do you measure this
uncertainty that's going on.
And obviously, we don't have the answers.
We have to wait how the
rule of law turns out to be
in the different countries.
But in the meantime, it's a challenge.
Then of course, there are other things
like the transit pricing.
So at least there we have some idea
of where the future is going.
And the one-sided transit pricing,
if anybody has one-side transit pricing
based on which they're justifying a return
to a specific country,
that's not going to hold anymore,
or at least you're going to need to have
some kind of a global profits plate,
or some corroborative
method to substantiate
this one-sided transit
pricing if we did have it.
So at least there is certainty,
but the question is there
is a lot of work to be done
before you actually know the answer,
whether you have enough justification.
Then there is the
country-by-country reporting,
which there was a lot
of discussion earlier
this morning in the panel,
and as much as we would
all like to believe
that it will be confidential,
and say it does not remain confidential,
and I guess, forgetting all
the information about revenue
and the tax exposures,
there are some business
competitive information,
like our labor structure, which probably
is going to become public,
because if it does become public.
So those are risks that we have
to manage within the company
and I guess from a
competitiveness perspective,
which I don't have the
answers of how to manage it,
but these are things that worry us
when we're talking about managing risks.
And lastly, controversy with
all this going on in the world,
companies like, say, IBM,
we are boots on the ground
in many, many countries and
we pay taxes everywhere,
we are probably going to
get swept up in this wave
of changing environment in
how tax authorities view us,
view multinationals, not just us, IBM,
or some other company.
And we just have to be prepared,
how to deal with this new controversial,
controversy environment
which was not the same,
I mean just dealing with
UK HMRC is different now
than it was a couple of years
ago, or even a year ago.
So these are all environment changes.
No answers, but these are
things we're worrying about,
how to figure out how do
you end up controlling risk
or how do you think about
risk in this new environment.
I don't know if my panelists have--
- I'll just add one thing
on the controversy point,
I think it's an excellent point.
Metlife the same way, so we do business in
multiple, multiple countries,
and there's an issue
about being consistent on your positions
across jurisdictions.
And there's not always
a consistent application
of general principles to
these types of issues.
So I think there is a risk of making sure
you're managing, people
think of controversies
as dealing with the IRS on your issues,
but when you look at multiple countries,
and managing these sort of
relationships and issues,
with the tax regulator and
the non-tax regulators,
I think it's an increasing risk.
Especially an environment where countries
are looking for revenue.
So I think that's something
that we monitor very closely.
- I think there's a huge
challenge and opportunity
to develop an outside-in perspective
where we step out of our
technical tax expertise
which may tell us our pricing is correct.
Our pricing is sound.
We've done the work to follow the rules
and we start to understand
that from the perspective
of many governments, certainly NGOs,
the question is not what
are the technical rules,
tell you the answer is,
but how come you have so
much revenue in this country
and you don't pay more tax?
They ignore the fact or don't understand
or can't understand the fact
that you invested heavily
to develop the product
or the service somewhere,
you've perhaps invested
heavily to make the product
or service somewhere else,
and those countries deserve
remuneration for that.
And they focus very
consistently on revenue only,
and that's an entirely
different perspective
that we as tax people will have
because it's technically irrelevant.
And we have to understand that
in order to be prepared to
address and respond successfully.
So the rules of the game, I
mean, we may feel very confident
we all follow the rules of the game,
but the outside perspective
is quite different.
- Is changing.
- Yep.
- Yeah, interestingly,
just kind of picking up
on the topic that the
panel's discussing here,
as we're looking at that issue of
jurisdiction's right to tax income,
and certainly the country-by-country
reports are going to
only add fuel to the fire in terms of,
well, here's the revenue
or here's the employees.
So we have this new standard
out of BEPS actions point eight through 10
about transfer pricing,
some would say it's a clarification.
I would call it new.
But the quote we have up
here on the slide as well,
that US Treasury seems
to have been fairly vocal
about the view that existing
transfer pricing regulations
encompass these principles.
How do you deal with
that, on the one side,
you have a pretty significant
body of US regulations
around transfer pricing,
and we have kind of where
the world seems to be going,
how do you balance, and
coming back to that issue,
do the US regulations really
speak to issues such as BEPS
and how do you deal with that
in terms of your transfer pricing?
Anyone want to take that one on?
- I don't think anybody
has an answer for that yet.
- Well, I mean, and I think
we don't have an answer
in part because the US rules
are pretty broad and comprehensive,
and if implied and enforced,
you'd think they would cover
what needs to be covered.
Right, but that doesn't address
why do I have large revenues
in a developing country where
I don't develop a product
or make the product, and
I only pay tax on profit,
which is a small percentage of revenues.
That doesn't address that
fundamental question.
- Yeah, and I think it
really does get back
to the issue of value creation.
And certainly the company
will have their story,
about what value creation is,
in that profits are aligned
with where value is created,
but I think that's the challenge,
that many of the governments
will have a different perspective
that what's happening
here in my jurisdiction
is actually extremely valuable.
- And I think the value creation
is getting more and more
clarity, or if you will,
definition around what makes
sense in the BEPS Project
as much as we might say the US regulations
say the same thing,
I think there is more clarity now,
which might be nobody paid attention to,
which we will have to start
paying attention to, I think.
So that's where all the
differences are coming up
with the fact that there's
more identification,
OK, where are you making the product,
where are you designing the product,
where are you developing the product.
- Yeah, great point, Kanthi.
Well, let's move onto one
of our other key challenges
we're going to spend some time on,
and that's brand reputation.
And I'll turn to you, Louise,
I mean, certainly with Johnson & Johnson,
the success of your company has
been the trust that you have
from consumers and probably even
throughout the supply chain,
what role does tax play
in such a valuable brand and reputation?
- Sure, so it's Johnson & Johnson
is both the name of the
company and one of the larger,
more valuable trust marks in the world.
And so protecting the reputation
when you're a consumer-facing company,
is an extremely key priority.
I think every company
cares about its reputation,
should care about its reputation,
for many reasons, including
employee engagement.
But when the consumer's
decision to buy has a lot to do
with trusting, whether
you're good for their baby,
or good for their skin, or whatever,
becomes an extremely high priority.
Now, we have the somewhat unique privilege
of also being a pharmaceutical
and medical device company.
So in addition to the consumer products,
we're also a highly
government regulated company
which means that as a pharm company,
we're one of the prime,
a US pharm company,
we're one of the prime targets
of a lot of international initiatives.
We're US, which makes us a bad guy.
We're a US multinational, I should say,
which makes us a bad guy,
and a pharm company makes us a bad guy.
So we've got the
combination of a big target
and huge concern about not
only doing the right thing,
but also how that plays to the public,
in terms of reputation.
And what that means is that
really any news headlines
having to do with tax are
probably not good news headlines.
What we've noticed is that
as soon as tax comes up
in public hearings, anywhere in the world
that holds public hearings on tax,
or in NGO-type documents,
or sometimes even among our
presidential candidates,
there's a very quick
line from tax to pricing,
if you're a pharmaceutical company
and the government is involved
in either setting pricing
or subsidizing individuals,
to other behaviors that
are considered negative.
Maybe class action law suits.
Maybe environmental.
Very, very quick line.
So tax becomes the initial focus.
Accusation of, you're ripping us off,
to statement around, why is that,
when we are setting pricing,
or helping to help people
afford your products,
to, aren't you really a bad actor.
And this came up even in January
when one of our candidates
who might be the leading
republican candidate,
made a comment about
another pharm company,
that at the time, was planning to invert,
and another company whose
name included Johnson,
and noted that because these
two companies are inverting,
they have no business
talking about pricing.
So we weren't even the right
target of that nasty comment,
and we still got the quick link
from tax inversion to pricing.
So it's a very challenging area
and it's not what you're
taught in law school.
At least when I went to law school.
We focused on trying
to understand the law,
trying to see around the corner
to where the law is going.
As a tax professional,
you think a lot about
not only complying with the law,
but what's the most appropriate
way to comply with the law,
and also achieve a return
for your shareholders.
We're not trained to think
about communications and media
and not fully trained to think
about government affairs.
And what this whole international
seismic shift has led to
is a tremendous need,
not to become an expert
in those areas, but to know enough,
and in a company, to have
very, very strong partnership
with people who are
doing digital listening,
to keep an eye on what's going
on in terms of reputation,
with the communications
people who help you speak out.
Actually if they're here today,
they might not like what I'm saying.
I don't think they are.
With government affairs,
with law department,
with everyone connected to
the sorts of accusations
and sorts of impacts that come from
tax being in the headlines.
So it's a different world.
- Thanks, Louise.
Yeah, go ahead, Harris.
- I think those were terrific comments.
For law students in the room,
you're going to not need
to know your tax law,
but you're also going to need
to be a great communicator
because the world of tax uncertainty
is just getting much more difficult.
Whether it's because of BEPS,
what's happening in the US,
or in the media, you're
going to need to be
a very effective communicator.
Being effective communicator internally,
to the topic we just discussed about risk,
what is the risk?
Sometimes you won't have a clear answer.
People need a number, you
don't have the number.
It could be anywhere from zero
to a number that could
bankrupt the company,
to communicating to the public,
and thinking about what you do today,
how it might be portrayed
in three years from now,
when that line has changed.
Some of us can recall tax shelters.
We never thought we had them,
and then they became public.
We had them, and you've done
your planning three years ago,
and now they're suddenly
bad before they were good.
And no disparagement
to some of the tax bar,
but a lot of us got opinions
that said it's good.
It's good from a technical perspective,
assuming all the reps worked out,
but it may not be good from
a public persona perspective.
I guess one tip that
we had taken on board,
is to be very active in policy setting,
which is to sort of also think about
going backwards a bit,
what are governments thinking about,
what are they concerned about,
is there a medium to solve those problems,
while at the same time,
getting a more certain
and fair result for the general public.
That doesn't mean that
tax is a moral obligation
but I think tax people need
to be more communicative
and they also need to be more
involved in policy setting,
in a sense to make our
own bed and be comfortable
that we can live in that bed as well.
- Thanks, Harris.
Final comment?
- Just I think what Harris just said
is terribly important,
both because we care about
what the policy is and
have unique perspectives
that will impact it, and also because
one of the positive aspects
of managing reputation
is to show up and to show up
to government authorities,
to show up to the OECD,
to show up to the EU,
to show up to regional authorities,
as people interested in
achieving the right solutions,
not just for your own company,
but for your business and for workers,
and to show up as partners in that.
So it's very important.
- That's a great point and I would add,
from the adviser's side, I see that,
that many of, and all of
you here on the panel,
actually your companies,
you've been very active
from that responsibility
perspective of being at the table,
trying to work through very
important issues on both sides
and get to an answer that makes sense.
- And one thing I'd like to add,
what Harris said in terms of
the ability to communicate
simply, clearly is very important.
And like Louise said before,
it's one thing for Johnson & Johnson
that they have a lot of
consumer relationship,
or consumers have an
impact on the company,
even if you don't, you need to have that.
So there is no future in
being a tax professional
where you say, OK, if I do this,
maybe I don't have to
have all these skills.
I can just do a tax
job, a tax research job.
It's not there.
I think in the future, it's
really this combination
of how good you are technically,
how can you communicate.
In any industry you go,
in any profession you are,
in a pharm or whatever,
you need that skill.
So it's a very important point.
- Yeah, thanks, Kanthi.
And I'm sure when we
get to the final topic
we want to cover in terms of
the tax organization skillset,
that's going to come up again.
So let's move onto getting
our arms around compliance.
Certainly, we talked about a lot of,
a number of key risk areas.
Everywhere from the
technical, very complex rules,
to the reputations, and
identifying stakeholders,
very complex and I would say,
significantly different
environment for VP of tax
to deal with all these issues.
And so how do you do it?
Joe, let's turn to you.
- So compliance is sort of a
funny word in the tax lexicon.
So I think if you say 15, 20 years ago,
I think compliance meant
you're filing your tax return.
It's your 1120 to the IRS.
So I was here, so if I
was working on compliance
in my first job, that meant
I left my class upstairs
at about 8 o'clock, I had
to go back to the office
to work on somebody's tax return
and miss Monday night football,
whatever else I wanted
to be doing that time.
So I think today, if you
look at this, though,
this is illustrative of the way tax
is getting more complicated.
We're talking about compliance,
which really includes
this rapidly changing
regulatory environment,
and how do companies work into that
and fit into this framework to make sure
we're complying with the rules.
And so this slide talks about
enterprise risk management.
I think that's a huge deal for enterprise.
It's becoming a bigger corporate function
in big multinationals.
And tax certainly has to feed into that
and be integrated into that.
I think you'll see boards
and audit committees
increasingly more
interested in tax issues.
I know I've seen that personally,
where we're presenting
to the audit committee
on what we think the tax
issues are for the company,
currently and in the
future, what our risks are.
We've talked a bit about CbC
and BEPS and some other things,
so there's these anti-abuse
rules that are out.
There's these additional
reporting requirements
that are out.
There's a concern we mentioned
before about confidentiality,
which is important.
You think about transfer
pricing, which is a big issue
that every country's worried about.
There's indirect taxes
and new types of taxes
that countries are applying.
And so for the tax department,
it's really important to able
to get your arms around that,
to have the right controls over that,
and to have your tax operating
model ready to address that.
And by tax operating model, I mean,
you either have resources on the ground
who are able to deal with those issues
and communicate them up,
or you co-source or you use a firm.
But you really have to
be able to understand
what that issue in France is,
from your desk in the US, or New York,
because the last thing you want
is something to sort of pop up
and you're getting the
question coming down,
that communication should come up.
And Harris' point before in communication,
I think it's, I'll say it again,
it's critical in these things
to be able to communicate these
risks to senior management,
to the board, and to be
able to do it in a way
that's clear and concise and
that people can understand.
I'm sure Harris and I
could talk after this
for an hour about some of this stuff
and he might be slightly interested,
but I can tell you for sure,
if you're talking to a non-tax person,
they have a pretty
small window of patience
about how much technical detail you want.
So you really have to be able
to do the elevator speech.
Or pretend you're telling
your 10-year-old son about it.
That's sort of the framework I try to do,
and you can't mention code sections
unless you absolutely have to.
So I do think we've all said it,
the communication, especially
in this environment
where people are very busy
and there's a million things going on,
you have to be able to sort of
put into bite size morsel here,
here's what's important, here's
sort of the tax exposure,
here's the number, and I can
give you more information
if you want it.
And for these compliance
risks, I think it's critical.
And I guess, just the
last point I'll make here
on transactions and high risk,
I mean, we've all been involved in
different forms of transactions.
There's a tax element to all of that,
and it's important that we
get the right tax answer.
But I think you have
to, in this environment,
look at again, what's the
reputational risk, if you will,
or what are the regulatory aspects of it,
or the business aspects.
I can tell you from my
personal experience,
we do even like an internal restructuring
which is done for pure business reasons,
or management reporting reasons.
You really have to keep an eye
on what the local regulators,
both tax and non-tax,
have to say about that.
And it adds time to transactions
but it's something you
have to line up in advance,
or you're going to have problems later.
- Thanks, Joe.
Just taking off of your comments,
it's always been my view
that prior to Sarbanes-Oxley,
tax was certainly just a black box.
And that's just kind of my
view, as you typically see.
Sarbanes-Oxley came in
and so more processes,
and controls around tax,
but even there, it's
kind of my view that, OK,
senior management, as long
as we're clicking along
with all the processes and controls,
it must be good.
And now we're moving into an age
where I think I better really understand
what's happening in tax.
So question for the panel,
are you seeing more of an integration
with the overall enterprise
risk management approach
within your organizations,
and you're working more closely
with maybe chief risk officers et cetera,
where really it's more transparency,
and you're integrated overall
from an enterprise risk
management perspective?
I don't if any, Harris.
- I mean, Brett, definitely,
the chief risk officer,
he's my best buddy on tax.
And before that, he just sort of knew
the individual tax rates.
But yes, it is a significant concern
because one of the
uncertainty in the scale.
I mean in our business, we have products,
so we might,
we're straight multinational
performing services,
but we also have a whole bunch of products
and those products, their scale is greater
than that of our company,
and so we need to worry
about what's happening
on that side of the fence,
even though it doesn't really show up,
hopefully, yet on our balance sheet.
So yes, I think, there's
really a two-way street here,
in that tax should be at the table
around enterprise risk management
because it is significant.
For many service companies, it's probably
the second or third largest
cost that a company has.
And two, you really have to worry about
you need to know enough so
you're assessing your risks,
because if the business
is transforming itself
and you don't know that,
you're already behind the eight ball.
Because the kind of transfer
pricing that you had,
I tell some of our
transfer pricing people,
don't smoke what you make,
which is don't be so convinced
that what you've done
fits all the rules
because someone else with a clean eye
might look at it and say,
that has no philosophical strength to it,
it doesn't make sense.
You're starting from the wrong premise.
So I think enterprise risk
is definitely an issue.
Just generally on Joe's
comment around compliance risk,
compliance is getting
harder and more difficult,
the bar is certainly being raised
and I think the issue for
tax departments in the future
is how do you do all of that efficiently.
And I think it's a significant
challenge to tax departments
because I don't think senior management,
they appreciate how much more difficult
compliance has become
and how important it is.
If you look at
country-by-country reporting,
right, you have 30, 40 controversies
just lined up in the next couple of years.
So how do you really do compliance right,
but do it efficiently?
I don't have the answer,
but that's for the future.
- All right, well, thank you, Harris.
In the interest of time
in covering our topics,
you all right with that?
Quick comment, go ahead, Kanthi.
I never want to cut you off.
- On the monitoring developments,
it's an interesting point.
I mean we have country tax
teams in a lot of countries
who do filter up information
of the changes that are coming through.
But we also, after the
OECD Project kicked off,
we put a team together whose
main, I guess, objective
is to go around making sure
they catch up on all the,
there's thousands of pages that come out
from the BEPS Project,
to go over it and see
how it applies to us,
in specific our facts,
and then kind of filter
up and have discussions
with the management team to figure out
what our next step should be.
So we are, on the point
that you made, Joe,
before on communication is very important,
we come up with different ways to keep up
and have the communication flowing
and the analysis flowing all around.
- Thanks, Kanthi.
I'm picking up on a theme
here of communication skills
and the fact that actually
tax is making friends.
People want to be your friend now, Harris.
- They know what we do.
Now, they know what we do.
- Big changes.
- Yeah, good and bad.
- Well, speaking of bad,
I mean you kind of teed
that topic up, Harris,
of working with the business.
And as I was thinking
about this one, by the way,
I was just thinking the
substance of change,
there's been a little bit
of discussions already
around the new 385 rules.
So in the day, Treasury just
does what they need to do
and sends the money over here,
and you knew what the tax
consequences of that was.
If it's dead, you get a deduction.
How do you deal with
all these uncertainties
and deal with these business partners
around these significant tax issues,
the way it keeps evolving?
- I think in terms of integration,
the basics are still there.
You need to have a good sense
of who your stakeholders are.
You need to develop a two-way
means of communication,
that is you're just not going to them,
they're also coming to you.
They're thinking of you
when they're doing things
or thinking about things.
You also want to ensure
that you have the right seat
at the right table at
the right point in time,
whether it's an enterprise risk committee
or some other governance structure.
And you also want to ensure
that you communicate well.
Simply, but also that you
don't communicate so simply
that the parties that you're
talking to think it's no risk,
or that there aren't trade-offs
that have to be thought through.
I mean we can save a lot in taxes,
if you're willing to put the
brand, the reputation at risk.
If you're willing, this
is the classic APP23,
if you're willing to keep
the earnings offshore,
we can keep a low tax rate.
So those are trade-offs.
So those are basics and I think
we'll just have to do better at that,
and I think the tax
department of the future
will need to be even more
ingrained in the business.
I mean some trends are concerning,
in terms of integration.
I think many of us,
through what's happened,
starting really probably
in the '80s, through today,
you have greater
access to information
on an immediate basis,
plus you have very strong
and tight supply chains,
and value chains.
Is BEPS and it's progeny
really, anti-integration,
is it going to cause
countries to sort of think
at what's going on in their
country very myopically,
and say, you can't run
an integrated business.
You should be on a profit split,
and we're all going to argue about
40 different country's view
of how do you split value.
So that's one issue
that I think the future
tax department's going
to need to think about.
And the second one, is
obviously technology.
You can be doing business
everywhere, but doing it nowhere.
And the issue there is for
very tech-focused companies,
and I think all of our companies,
even if they're aligned,
are increasingly going to
be using things on the web.
The issue is even BEPS,
they gave up on action 1,
in my mind.
There's nothing really came out of that
except it's the beginnings of a study.
Most of the other actions,
I think, are more concrete,
and give government something to work on.
But being able to, if
you're a technologist,
and you're sitting in San Francisco,
and you want to set up a new company,
you go to Ireland and set it up
and you do everything you would've done.
So that's not a bad inversion,
but that's exactly what US tax
policy is telling you to do.
So I think those trends are
going to make integration
even more difficult, but it is happening,
despite tax.
And we need to be prepared for that.
- Thanks, Harris.
Great comments and there's some excellent
take-home points there.
I wish we had more time to
spend some time on that,
but I want to get to the last topic here,
and give each of our panel
members an opportunity
to speak to this issue,
which is taking into account
everything we just talked about.
What skills and resources,
both from a technology process,
human capital, who do you
need for the tax organization
in the future to deal with these issues?
What does a best in class
organization look like
and Kanthi, maybe we'll
start with you to kick it off
and we'll go through the panel,
and hopefully save a little
bit of time for questions.
- Yeah, I'm going to do it quickly
because we touched on this a lot,
but I'm going to pick the one
that's very close to my heart
which is technology and process.
So it's very important to get to a point
where some of the compliance
that Joe mentioned before,
and Harris, that it happens a
little bit more automatically
instead of with a lot of supervision.
And a lot of time is spent on analytics
and almost predictive.
There's a lot of tools like
everybody has heard about
Watson in IBM, it can do a
lot of predictive analytics
on data that's fed into it.
So I would like to see
us spending more time
on feeding data into tools like those,
and figuring out more futuristic visions
of where things are going,
instead of spending a lot of time
on how to calculate depreciation.
Do you see what I mean?
So I think those are the kind of things,
to me, are very important
if we want to get to
the next level of being
this tax department
which has under control, all the basics,
and actually is looking
into the future a lot more.
So that's the one I'm going to pick.
- Perfect, and actually Kanthi,
we would have been disappointed
if you didn't pick technology,
and mentioning Watson,
improving all these processes.
Yeah, it's perfect.
All right, Louise, your thoughts.
- Well, I agree with that
and my thought is that what
a tax organization has,
in terms of assets, are people
and some value in technology.
Hopefully, more as we go forward,
but just focusing on the
people for the moment,
it feels right now, like it
must have been an easy thing
to have a tax organization in the past,
because all your people had to do
was to be kind of good technically,
and good diligent workers,
and a little creative.
And that was a good tax organization.
And now as we've been discussing,
your people have to have those skillsets
plus communications, technology,
partnering, the ability
to see beyond corners,
the ability to see from perspectives
that have nothing to
do with technical text,
there's this whole other range of needs
that we have in people,
in leadership-type needs,
and so it's become much more important
to have exceptional people
who you're continuously train
and stretching, making sure they stay
good tax technical experts,
or else the whole thing falls apart,
but that you have all
these other skillsets.
It makes for a very diverse
group of people in the future,
in the tax department.
At J&J, the tax department
used to be filled with tax people.
Now, we have IT people with us,
we have finance people who
are experts in process,
we have change management
communications people,
with all sorts of other
skillsets that become necessary--
- And these are part of
the tax group, right?
There's the tax department, tax control,
or some of those types of things.
- They need to be.
- Great, thanks, Louise.
Harris, your comments.
- I agree that you're going
to need to be multi-tasked,
but at the end of the day,
you're still at the bottom of this chain.
You still need to be a
competent tax professional.
And I think you also need,
especially if you work
in a cross-border context,
to be what our chairman would
call as a global citizen.
You have to be sensitive to
what's going on elsewhere.
Obviously, there's a lot
more going on in Europe
about tax abuse and tax evasion
than there is in the States.
And when you're speaking
to your people overseas,
and the business folks,
they're reading everything
in "The Guardian" about that,
you have to think globally.
And I think you also need to think about
being a consistent learner.
You have to learn from your mistakes.
You have to be sensitive
to how other people,
other firms are solving problems.
I think it takes a much
better professional, now,
than it did five or 10 years ago.
And five, 10 years from now,
you'll have a completely,
I think, new wave skillset.
And hopefully, we're all developing
those leaders of the future
who can appear before audit committees
who can speak on policy matters,
who can creatively plan, who can make sure
they can get the financial
statements right,
and who can do it all efficiently.
That's easy.
- Sounds like a small task.
- Yes, small task.
- Joe, tell us how we do that.
- Yes, I'll just echo a
couple of the same thoughts.
I mean at the end of the day,
you want good leaders
and good communicators
and people who can be very diverse,
you still have to file a tax return,
you still have to make sure
your financials are right.
And there's planning and
controversy and things.
You have to make sure you
have a level of competence
which is what Harris said.
I guess the other part which I've seen
and it sort of ebbs and flows,
is just a resource constraint.
So there's always a budget,
there's always activity on the budget,
and it's always difficult
to get the right people,
in the right place.
There's always a demand for
resources across the enterprise,
and so I think part of the
job of a senior tax person
is to be able to communicate
to senior management
why you need these resources,
how you need them, what the risks are.
So it gets back to the
same communication point.
But I do think it's important
to have the right people
monitoring and working on these things.
At the end of the day, it's a risk-reward.
You're putting money
into the tax department
to make sure you're efficient
on all these issues.
- Great point, Joe, thank you.
We have roughly five minutes
that we'd like to open up to
the audience for questions.
So any questions?
We'd be happy to field them.
I guess, well, Sean.
- [Sean] (speaks off microphone)
So my question was on getting rulings.
Is this something that you
guys are still thinking about
as an important part of
the way you manage risk
or is now with the exposure
and particularly the
publication of these rulings,
is that going to make it
less likely to go for this?
So how do you approach that whole area?
- I think rulings are two kinds.
I think on the APA kind of arrangements,
if you call them a ruling,
I think those are still OK.
I mean you're just
trying to get a certainty
on your pricing arrangement,
which I think would
continue into the future.
The kind of rulings you
are referring to, Sean,
are mostly the rulings
where you have some kind of
beneficial tax arrangement
with that specific country.
Now, that's really not
about certainty, isn't it?
It's more about planning around
your effective tax rate probably.
So I would say the first
kind is still very relevant
unless people have other
views which I think
are going to get more and more important
in this world of uncertainty
we are entering into now.
So that's just my view.
- Well, one comment on that is that
part of the dynamic that we're
not particularly focusing on
as we're from businesses, is how tough
the current environment
is for taxing authorities
around the world, who are
often coming under attack
in the political process
in their own country.
Maybe one version of that is
the IRS being underfunded,
there's a little bit
different story with the IRS.
But for example, in Australia
where the government
certainly is in a swirl of controversy,
the APA process has pretty
much ground to a halt
and I think it's in part
because it's very hard
for the government, even
on APAs that are completely
non-controversial, to
grant them right now.
So we're in a transitional
period with BEPS
and with things it's
spawned where the ability
of at least some governments
to function efficiently
is impacted and it's difficult.
So in the past, you would
always get an APA in Australia.
At this point, you may choose
not to spend two, three years,
trying to renew your APA
that's non-controversial.
So it's a changing practice.
- Other questions in the audience?
Yes.
- [Man] Are you getting
pressure from senior leadership
in light of everything that's
going on around the world
to continue to reduce your tax rate,
maintain your tax rate,
or, oh my God, keep us out of the papers?
- Great question.
Who wants to field that one? (laughing)
- I'll take that.
I mean, senior management wants,
let's say, a low tax
rate without a problem.
So they want their cake and eat it too,
and I think the tax director
and the tax department's job
is to sort of indicate what
the trade-offs might be,
have a reasoned discussion,
think about what it might look like,
bring in your Corp Comms Group.
But...
I think, in general, because of BEPS
and what's going to happen,
corporate tax rates will
probably be going up.
I think there's waves,
I think corporate tax
rates are going to go up
until someone figures
out that corporations
really don't pay taxes,
and maybe they shouldn't.
But they'll probably be going up
and I think there's an expectation
that they probably will be.
The question is whether
there's going to be
some dead bodies along the way
that really are unintended to be caught up
in something else.
But I haven't seen a great change from,
can we have our cake and eat it too.
- Yeah, I agree.
I think the other point I'll make
is it's on a relative basis.
So depending on where you do business
and what industry you're in,
the range of sort of what's an appropriate
effective tax rate, question
whether that's the best measure
of a tax department's
efficiency to begin with,
depends on sort of your criteria.
So I think it's a good question.
I think it's a bit of
a moving target though.
- And I think eventually,
even the senior management in the company
want to look at it from a
balanced perspective, right?
Like it's our job to make sure we explain
if this is the way you want to go,
these are the consequences
and most times you would think
they would do the right thing overall,
from a company or corporate perspective.
- That's a great way to end it, Kanthi.
Do the right thing,
and have the right resources
and the right tax department
to ensure that you do it.
So thank you very much, panel.
Excellent discussion.
(audience applause)
- Thank you.
