Paul Morton: Tax Issues Uncovered

Feb. 19, 2010 - PRLog -- Cannes, France - Interview with: Paul Morton, Head of Tax, Reed Elsevier

Tax officers have the potential, and often the opportunity, to create significant financial value for their organisation. They manage tax risks, advise on transfer pricing, maintain standards in compliance and steer the company away from double taxation and any other preventable costs. Nevertheless, that is quite a challenge with an endlessly evolving regulatory environment, constantly changing international tax practices and fiscal policy, transparency pressures and countless other issues to overcome. Paul Morton, a speaker at the marcus evans European Tax Summit 2010, 7 - 9 March, discusses transfer pricing and other critical issues on European tax directors’ agendas today.

What are the most critical tax issues in Europe at the moment?

Paul Morton: Trying to achieve more with limited resources is an issue for most companies – there is a great deal to do with corporate tax returns, tax risk management, dealing with payroll taxes and compliance. Taxes are constantly becoming more complex and resource intensive, while at the same time we have had to manage cash more carefully due to the economic environment. We also do all we can to maximise the cash flow for the company and build good relationships with revenue authorities. Doing all these with limited resources is challenging.

Tax directors also face the challenge of determining the tax strategy and the type of tax planning their company should be engaged in. They do not want to be so aggressive as to strain their relations with the tax authorities and policy setters, but neither should they be insufficiently robust for that could put them at a competitive disadvantage. Finding the right balance here is quite a difficult judgement.  

In the last few years, in some countries, the relationship between the tax authority and the large corporate taxpayer has undergone a transformation, with more emphasis being placed on taxpayer openness and transparency. There is a need for better cooperation, openness and transparency on both sides. Tax authorities assess the risk levels of taxpayers, and deploy more resources and deal more aggressively accordingly. Companies might wish to refrain from aggressive tax avoidance to enjoy a better relationship with the authorities.

What are the latest developments in transfer pricing?

Paul Morton: The recent work of the OECD and the initiatives of various revenue authorities in taxing the re-organisation or transfer of business units across borders is a key issue for businesses undergoing restructuring. There are new approaches employed on transfer pricing and transfer pricing capabilities on both sides are becoming more and more sophisticated. A number of UK companies have been moving their headquarters and their domicile to lower taxed countries, such as Ireland and Switzerland. The competition for taxpayers between countries has increased - the Netherlands has improved its intellectual property taxation regime, following improvements in Belgium and Luxembourg. Countries are clearly competing for foreign investment, and there is pressure from the highly taxed countries not to allow some of the smaller countries to create excessively preferential tax environments.

What are your projections for 2010?

Paul Morton: We will see increasing complexity in anti-avoidance legislation. Companies continue to be under competitive pressure to look for appropriate means of minimising their tax liabilities so governments will remain under pressure to introduce anti-avoidance legislation to block structures which they feel are inappropriate. This will continue to complicate the life of tax directors. In 2010, it will become clearer how the new enhanced cooperation between large taxpayers and tax authorities is working out; how the more controversial issues will impact those relationships remains to be seen. On the Value Added Tax (VAT) side, the changes in 2010 from the point of view of preparing systems and processes to deal with new information requirements will be very important. The new VAT regime will hopefully work well for most companies. I also suspect that indirect taxation will be increased in many countries in view of the need for additional revenue.

What long-term strategies would you recommend to your peers in Europe?

Paul Morton: Corporate tax directors should invest time and effort to build good relationships with tax authorities and use those to their advantage. When new tax legislation is being developed or implemented, they should spend time with revenue officials to learn more about the changes. Good relationships pay dividends over the years. It is also now a very good time for corporate tax departments to recruit – there are very talented people in the market who could be long-term assets for the company. There are not as many big transactions now as in the past, so it is also a good time to put in place good quality controls and processes that comply with the Sarbanes-Oxley Act and other reporting regimes. Tax officers should follow the OECD’s work on transfer pricing and business restructuring very carefully and engage with policy makers or revenue authorities where relevant.  

Preserving cash is a top priority for tax departments at the moment. Most businesses are feeling the economic strain, so where relevant they should make sure they are properly utilising loses and deductions for expenses, and that their structures are optimised. They need to be prepared to make acquisitions as we reach the bottom of the market and generally be aware of sudden changes in business lines as they can suddenly start to underperform. They should be quite swift in their response to changes in the environment.

To view the complete release, please visit http://www.me-uk.com/summit/newsletter.asp?eventid=16001&...