Tag: CCO

Categories
Blog

Using Agile for Compliance Innovation

Driving innovation in your compliance program is still seen as one of the most difficult challenges for every Chief Compliance Officer (CCO) or compliance professional. I was therefore intrigued by a recent article in the Harvard Business Review (HBR), entitled Purposeful Business the Agile Way by Darrell Rigby, Sarah Elk and Steve Berez, which discussed how business leaders can “transform a profit-maximizing system into a purpose-driven one without jeopardizing the future of their businesses and their own careers.”
Interestingly, the authors came to their approach due to the post pandemic great resignation, which they posit business leaders have no clue as to why there is such employee action and equally importantly how to adapt to it, stating, “For decades managers trusted influential economists who promised that if businesses maximized profits, an invisible hand would generate greater benefits for all society. That isn’t happening the way they said it would.” Yet business executives went overboard on creating value for shareholders as their only focus. The authors believe that such a myopic approach robs other “stakeholders of value.” That has certainly been the case for businesses treatment of employees. The authors conclude, “One recent manifestation: Record numbers of people are quitting their jobs, and others are hitting picket lines to demonstrate a growing conviction that life is too short to waste on demoralizing work. Concern about social inequities and environmental damage is escalating. The system is out of balance, and the situation is getting worse.”
Business executives stand at the turning point. They can continue down a destructive path or adapt. However, the problem is that most business leaders are afraid to change, afraid to create multiple stakeholders, as opposed to focusing solely on shareholders and do not want to listen to their employees. The authors believe, “agile ways of working can help, turning squishy debates about corporate purpose into real actions and results.” It provided to me numerous tangible ideas about how to drive innovation in the compliance arena. I have adapted the authors ideas for a corporate compliance program. The authors posit several concrete steps you can take, which every CCO and compliance professional should consider for their compliance regime.
Create a Microcosm
The authors suggest an approach not unlike Design Thinking. Here are some of their suggestions.

  • Assemble a multidisciplinary team, including experts outside your silo.
  • Develop deep empathy for users, exploring their goals and frustrations.
  • Examine the current system to identify the causes of those frustrations.
  • Envision a more purposeful system.
  • Describe changes that might improve the system.
  • Prioritize and sequence them.
  • Test potential improvements.
  • Adapt to unexpected effects and side effects.
  • Scale up solutions that enrich the lives of stakeholders affordably.

Every CCO should be comfortable with these suggestions and steps.
Continuous Monitoring Leading to Continuous Improvement
Compliance, like business purpose, should not be viewed as a mechanical watch. In 2008, I heard then Deputy Attorney General (DAG) Lanny Breuer say that a best practices compliance program needed to be nimble and agile. Obviously, continuous monitoring and continuous improvement are mandated parts of a best practices compliance program in 2022. Where the authors expand on this basic component for any compliance program is around five questions you should ask about your compliance innovation.
These include: Does your compliance initiative support your strategic objectives and create important benefits for the stakeholders who have the most impact on the success of your business? Will multiple stakeholders actively support your compliance initiative? Will your investment in this compliance initiative create greater value for a wide variety of stakeholders, more “than would simply writing a check to a more economical innovator?” Finally, your compliance initiative should “test specific hypotheses and mitigate adverse side effects before scaling up the project.”
Do the Right Thing
Setting financial targets is one way of goal setting. However, as the authors note, “Agile helps flip that approach, focusing first on creating value for stakeholders and then on earning adequate profits in the process. Instead of asking, How can we improve profitability without damaging customer and employee satisfaction? they ask, How can we enrich the lives” of various stakeholder’s and employees?
In the 2020 Update to the Evaluation of Corporate Compliance Programs, the Department of Justice (DOJ) made clear that CCOs and the corporate compliance functions were the holders of institutional justice and institutional fairness in a company. In other words, you already have the obligation. Therefore, doing the right thing for both employees and other stakeholders is not something new for compliance professionals.
Prioritize Collaboration
If there is one thing compliance must do it is collaborate. Compliance generally does not have a hammer it can bring down but must lead through influence and working with others. Moreover, engagement with a wide variety of stakeholders in your company is a much better way to get something down as those stakeholders involved will be invested in the outcome if the are involved in its creation.
In the world of agile, the authors report, “A central reason for the success of agile ways of working is that they prioritize teamwork over individual performance. Research by the Standish Group, which has studied the success of IT projects since 1994, shows that agile teams improve software innovation by more than 60%, on average, and by 100% when the innovation is large and complex. Two-thirds of agile teams across a wide range of business functions report better cross-functional alignment, and 60% register higher team morale, according to the State of Agile Report by Digital.ai, a company focused on digital transformations.”
The bottom line is that by embracing these agile concepts, a CCO has a much better chance of implementing innovative change in their compliance program.

Categories
Innovation in Compliance

Taxman: Tax and ESG


 
In this episode of Taxman, Tom Fox and Tracy Howell conclude the special series by discussing a topic that has yet to be explored by most: tax and ESG. 
 

 
How Tax and ESG Intersect
Tracy tells Tom, “There are external forces pulling tax into the ‘S’ and ‘G’ of ESG.” In the social sector, different jurisdictions have different tax rates and laws, and as companies begin to operate in a tax-efficient manner, their activities will gravitate towards lower tax regimes. Tracy adds, “You’ve got forces trying to push the concept of ‘fair share’ rather than compliance with tax laws of different jurisdictions.” Governance-wise, it’s becoming more common for companies to be required to talk about their compliance tax audits. 
 
The Role of Tax in a Company
With the growing pressures on ESG transparency, there’s a push to standardize reporting and scorecarding of companies based on their tax transparency. This would include things like the reporting of an organization’s effective tax rate. 
 
Tax and ESG in Multinational Organizations 
Institutional investors play a major role in impacting the activities of a multinational company. When making investment decisions, these entities heavily incorporate ESG scorecards with tax transparency, further emphasizing the need for a relationship between the two sectors. 
 
Resources
Tom Fox’s Email
Tracy Howell | Email | LinkedIn
 

Categories
Innovation in Compliance

Taxman: Tax and Supply Chain


 
As the Taxman five-part series nears the end, Tom Fox and Tracy Howell tackle an important topic that has become more prominent over the years: tax and supply chain. 
 

 
How Tax Can Help Supply Chain
Supply chain in a traditional sense focuses on the acquisition of goods, in particular the quality, cost, and delivery. There can be a substantial tax component in each of those steps to help companies attain goods at the lowest possible cost. Consequently, if supply chain does not have a relationship with tax, it can result in additional surprise costs being attached to goods. Data beyond the cost of goods, material, and service can be used to model and predict the additional tax burden so that better procurement decisions can be made. 

Mitigating the Risk of Mission Creep 
Establishing a connection between tax and supply chain in an organization is good, but the relationship needs to be kept fresh for a positive impact. In a company, people may be focused on so many different things that they forget to interact. Creative people tend to expand their roles and look for goods and services in different locations, which can be the cause of a mission creep. Hence, having constant close interaction between supply chain and tax allows for changes in functionality to be documented and implemented into the organizational framework.
 
Elements of a Tax-Efficient Supply Chain
Tom and Tracy discuss the elements of a tax-efficient supply chain. This includes:

  • Examination of the entire scope of what’s being manufactured and sold to allow the creation of tax opportunities to bring value based on special purpose entities. 
  • Coordination of transactions in a supply chain with transfer pricing. 
  • Compliance with tax laws and regulations. 
  • Documentation of the process. 

 
Resources
Tracy Howell | Email | LinkedIn 
 

Categories
Blog

Tax and Compliance: Tax and Supply Chain

What is the intersection of tax and compliance? Why does a Chief Compliance Officer (CCO) or compliance professional need to sit down with the corporate head of tax? How does a corporate tax function fit into a best practices compliance program? It turns out there is quite a bit a compliance professional can learn from a tax professional. Moreover, there are many aspects of tax which should be considered by a CCO and compliance professional from an overall risk management perspective. Unfortunately, these questions are rarely explored in the compliance community.
To explore these issues (and remedy this lack of awareness) I recently sat down with noted tax professional Tracy Howell to explore these and other questions. We tackled these issues and others in a five-part podcast series for Innovation in Compliance. Today, we consider the role of tax in the Supply Chain. We also expand that to compliance, because compliance also has a huge role in this area.

Obviously, this topic has become more prominent over the last couple of years during the pandemic. Over the past couple of weeks, with the Russia invasion of Ukraine, it has become even more hyper-critical. One of the things we saw in the pandemic was that many companies with long established Supply Chains, perhaps not single source suppliers, but close to single source suppliers, found themselves scrambling when huge swaths. With the Russian invasion of Ukraine, we have had the largest amount of economic sanctions delivered by any administration in the modern era. Companies are struggling with not only responding to the sanctions but responding to the business dislocation from Russia and Belarus to Ukraine and into eastern Europe.
Clearly Supply Chain is critical for an organization, especially an organization that manufactures and has any substantial delivery of materials and services. There is also the question of where the highest risk in your Supply Chain might be. Is it in the critical component(s) in the acquisition of goods? Is it in the delivery of services? Or is it simply in the manufacturing process itself? Moreover, if you think of Supply Chains as only having a traditional focus on the acquisition of goods, comprising both the quality of the goods and the cost of the goods, and concluding with the delivery of the goods for consumption or later sale; you are missing a key component. That key component is tax and as Howell stated, “there can be a substantial tax component in each one of those steps of acquisition costs. If you are buying goods in foreign jurisdictions that can be transaction taxes, such as GST or VAT.”
Howell provided the following example. “If a company’s buying raw materials in a third country, in the shipping terms, we’d normally say title transfers in international waters, that’s a good thing for the buyer. Because that means if I’m buying something and I take title in international waters, it should not trigger any transaction taxes. However, if you are not paying attention to where you acquire goods from and then you take title within the country of origin’s territory, guess what? That could trigger up to a VAT liability of 15 to 20%. This means that if your Supply Chain is not interacting or does not have a relationship with tax, and the taxes can add a 15% to 20% component to the cost of goods in a transaction, which dramatically impacts the company’s cost of goods sold (COGS).”
However, if there is a good relationship between tax and Supply Chain, there can also be additional benefits tax brought to the fore and such benefits are more critical in 2022 and beyond because they can help a company plan for disruptions in the supply chain. For instance, if Supply Chain looks for alternative suppliers, or a different geo-region for component parts, tax can step in and do an analysis that would at least give them an estimate of what the tax costs are going to be.
Howell said that tax can provide “Supply Chain with the data that is beyond the cost of good, or the cost of material, or the cost of service. A tax professional can do so by modeling out the liability that a multinational could incur, including up to five different possible sources for goods and materials. From there you can extend your model out to see what the additional tax burden would be in each one of those scenarios. From there you can check to see if there are any tax incentives that either exist or that your organization can go negotiate.”
But the risk management that tax can bring to Supply Chain does not end there; particularly once tax and Supply Chain have established a relationship and it is understood how tax can assist Supply Chain in the procurement of goods and services. Through a documented process, it creates and entire framework for the organization to use going forward because at any given time Supply Chain will be looking for goods and services in different locations. Howell said, “you can have a mission creep. It is important for tax to have that relationship with Supply Chain so as their functionality changes and your organization is acquiring new goods in different locations, you can document the changes, and update your framework as needed when new tax issues can come to play.”

Join us tomorrow for our concluding post when we consider the role of tax in a corporate ESG program. Check out the full podcast series Taxman: On the Intersection of Tax and Compliance on the Compliance Podcast Network. Check out Tracy Howell on LinkedIn.

Categories
Innovation in Compliance

Taxman: Why Tax Needs a Seat at the Table


 
In episode 3 of the Taxman series, Tom Fox and Tracy Howell strive to answer the question: ‘Why should tax have a seat at the table?’
 

 
Tax and the Table
The table refers to the front end of when an organization is trying to define what it wants to do, where it wants to do it, and how it’s going to perform. A corporation’s ultimate objective is to generate net income or distributable profit, something tax professionals are well-suited to assist with because they are experts in damage control and risk mitigation. Tracy points out, “Tax can provide an umbrella to achieve corporate objectives if they’re involved in the front end.”
 
Tax’s Relationship with Other Stakeholders 
In a company, a functional lead will often pose the question: ‘Why do we need tax here?’ According to Tracy, “A good tax guy has to be proactive and provide examples to get the tax men at the table.”
 
Educating Corporate Functions Outside of Tax 
Tracy’s advice is to build a relationship with the functional experts, and “create the situation where you’re a trusted business advisor”. He recommends one-on-one interactions above all. However, it is important to remember that in a global organization, the outcome may not always be successful. For this approach to yield positive results, he comments, “there has to be some buy-in, compliance, and a willingness to talk tax.”
 
Resources
Tom Fox’s Email
Tracy Howell | Email | LinkedIn
 

Categories
Blog

Tax and Compliance: Why Tax Needs a Seat at the Table

What is the intersection of tax and compliance? Why does a Chief Compliance Officer (CCO) or compliance professional need to sit down with the corporate head of tax? How does a corporate tax function fit into a best practices compliance program? It turns out there is quite a bit a compliance professional can learn from a tax professional. Moreover, there are many aspects of tax which should be considered by a CCO and compliance professional from an overall risk management perspective. Unfortunately, these questions are rarely explored in the compliance community.
To explore these issues (and remedy this lack of awareness) I recently sat down with noted tax professional Tracy Howell to explore these and other questions. We tackled these issues and others in a five-part podcast series for Innovation in Compliance. In Part 3, we consider the issue of why tax needs a ‘seat at the table’.
I first met Tracy Howell when I had a tax issue come up in a contract interpretation and someone told me to go see him about the issue. I literally went to the basement of our building and there was the corporate tax team. I introduced myself and told him about the issue. We worked on it and he gave me some ideas. As I was leaving, he also made clear that the issue could have been handled in the contract negotiation and language put directly into the contract. From that visit, I understood why tax needed a ‘seat at the table’.
Corporate income tax is a significant component of an entity’s operating expenditures with statutory tax rates within any jurisdiction between 20% to 30% of profits. Howell said, “The business cycle includes sales, cost to deliver those sales which generate a profit, and many people think “Okay, that’s the end of it.” But then you take on the additional work of corporate income tax and it’s a significant component.” This is the reason Howell believes that “tax needs to be at the table, at the front end when a business organization is trying to define what it wants to do, where it wants to do it and how it’s going to perform what it wants to do.” A corporate tax function “needs to be at the table to help with each one of those components.”
An organization needs to ask (and answer) such questions as “Where will you manufacture the products?Where do you want to sell those goods? Where is your customer base?” Howell said that with the location of the manufacturing activity and the subsequent resale to third parties to generate a profit “you can get different answers based on where you’re manufacturing and where you’re selling.” If tax is not at the table, the “thought process is pretty much focused on the manufacturing activity, the procurement of raw materials, the application of direct labor equals finished goods, and then where you sell them.” However from the tax perspective, at the point in time each of those activities occurs “you can get substantially different results if you are manufacturing and then you are trying to sell across 25 different borders, but you are importing goods from five different countries. Tax can provide an umbrella, to achieve those corporate objectives.” But a key is that tax needs to be involved at the front end as opposed to at the back end.
Howell added that tax works with a wide variety of corporate disciplines. He pointed to tax and the corporate HR function. If your organization is a multinational company, it is literally sending  people around the world, for both short and long periods of time. Each country has certain rules about having to pay income taxes for foreign employees. If you send an employee from the US to the UK to work offshore, you have a certain amount of days before you are required pay income tax on that employee. Howell said that if tax is “interacting with a HR professional on the provision of people, they can put in a management system to prevent an employee from being in country too long and triggering the change in employment status. This can be a substantial impact for 20 or 30 employees whose tax cost are not factored into the price of their products they are servicing.”
We then turned to how tax can get a seat at the compliance table. Howell said it all starts with relationships. But relationships are two-way affairs. I have long advocated that a CCO gets out of the office and goes down the hall to meet other executives. The same holds true with your tax folks. Howell said the reason this is so critical is a CCO needs to have solid relationships with functional experts inside an organization. He stated, “it sounds a little bit of a cliche … You need to create the situation where you’re a trusted business advisor.”
I asked about tax putting on training for groups such as a corporate compliance function, with such strategies as Lunch ‘N’ Learns or other types of trainings. Howell responded, “I have found that one-on-one interaction has to happen before you can just send updates, emails, training seminars. It needs to have an in-person component. In a global organization, you are not going to be able to get in front of everybody, but the relationship must start at the top down, with those functional leads. There has to be some buy-in top down in an organization around compliance and then a willingness to talk tax. The belief that tax is here to help, there has to be some buy in on that angle.”
Join us tomorrow when we consider the role of tax in Supply Chain. Check out the full podcast series Taxman: On the Intersection of Tax and Compliance on the Compliance Podcast Network. Check out Tracy Howell on LinkedIn.

Categories
Blog

Tax and Compliance: What is Transfer Pricing?

What is the intersection of tax and compliance? Why does a Chief Compliance Officer (CCO) or compliance professional need to sit down with the corporate head of tax? How does a corporate tax function fit into a best practices compliance program? It turns out there is quite a bit a compliance professional can learn from a tax professional. Moreover, there are many aspects of tax which should be considered by a CCO and compliance professional from an overall risk management perspective. Unfortunately, these questions are rarely explored in the compliance community.
To explore these issues (and remedy this lack of awareness) I recently sat down with noted tax professional Tracy Howell to explore these and other questions. We tackled these issues and others in a five-part podcast series for Innovation in Compliance. In Part 2, we turn to the question of what is transfer pricing and what does this have to do with compliance?
We began at the beginning – what is transfer pricing and what methodologies are used to determine or estimate price transactions? Howell began with the rather astute obligation that if you are “a compliance officer and you can say anything more than just the words “transfer pricing”, you are indeed an FOT (Friend of Tax).” He went onto explain, “Transfer pricing encompasses the methodologies required by tax code and regulations around the world to price transactions between affiliated companies. It is the provision of and sale of goods between affiliates, sale of services, provision of services, including the licensing of intangibles. Finally,  transfer pricing requires you to press the transactions at an arm’s length rate.”
Transfer pricing is a critical issue when you have transactions between related parties, which in a large multi-national organization is almost always. To help illustrate the issues involved, Howell compared two transactions. First if you are selling goods, “such as Ford Motor Company selling an automobile, it is easily comparable if manufactured in Canada and sold to the US, because you could compare that transaction to something that was manufactured by Chevrolet.” However, Howell noted, “when it gets really complicated is if you’re manufacturing proprietary products. In oilfield services for instance, your organization might manufacture a very unique valve. What would the arms-length rate be if it’s manufactured in the US and sold to Mexico?” Here the tax professional must have a process to prove the arms-length rate of value for sale between related parties. The methodology to do so would be to get some comparables for those kinds of transactions. But this may be hard to do if you are selling proprietary top specialized manufactured equipment.
As Howell related, “it becomes an art, and that art is developing and applying an arms-length rate for comparable transactions between comparable entities. Even trickier is if a one-off piece of equipment does not have a comparable, so then you have to broaden the scope of finding manufactured goods, for instance, or something comparable. It is an art and its normally tax issues of an exact nature and transfer pricing is not but the key is to have a defined methodology.”
We then turned to the several entities involved in the government side of transfer pricing and how they may at times be at odds, complicating the job of the tax professional as well as the compliance practitioner. Initially Howell noted that governments are involved with their different regimes for the selling and buying side of tax jurisdictions. This means in every case you have a seller of goods or services and a buyer. The objective of governments and their taxing jurisdictions is to get their fair share. In reality, this means that every government is trying to expand its tax base. They do that by trying to grab as much of multi-jurisdictional transactions profit as possible.
Then there are third party organizations that are involved, such as the Organization of Economic Cooperation and Development (OECD). The OECD is pushing standard transfer pricing laws and regulations throughout the world. They provide model laws, treaties and transfer pricing strategies. As Howell noted, their objective is to “try to standardize the government’s laws and regulations, so that you do not have a mismatch between very aggressive and very liberal transfer pricing laws. The OECD is trying to provide some guidance on what is a fair share.” But as Howell further related, “at the end of the day, what is fair? And that’s just somebody’s opinion; what is fair.”
We concluded with a look at the transfer pricing negotiation process. Most interestingly, the process Howell described mirrored the process when negotiating with the Department of Justice (DOJ) in a Foreign Corrupt Practices Act (FCPA) investigation or enforcement action. It all starts with your credibility. You must demonstrate credibility to the taxing authority and then back up that credibility with documentation (Document, Document, and Document). From there it is demonstrating your consistent process and methodology to demonstrate how you came up with a rate for transfer pricing of a good or service, similar to how a CCO would demonstrate compliance program effectiveness to the DOJ. But here the tax professional will face an added wrinkle from a that of a CCO. Howell explained that if you are in a country like Kazakhstan, your submission must in the format required by Kazakh law. If you are required to use local language in your submission, you are partway there. Howell ended with “you have not gone all the way. You must follow the laws, even if they are a little bit different. That includes language and formatting in all your jurisdictions.”
Join us tomorrow when we explain why tax needs a seat at the table. Check out the full podcast series Taxman: On the Intersection of Tax and Compliance on the Compliance Podcast Network. Check out Tracy Howell on LinkedIn.

Categories
Innovation in Compliance

Taxman: Why Compliance Should Talk to Tax


 
Tom Fox is back again for a special new five-part series, Taxman: On the Intersection of Tax and Compliance. Tracy Howell, Tom’s colleague and tax expert extraordinaire, joins in to discuss the intersection between compliance and tax. 
 

 
Why Should Compliance and Tax Interact? 
All organizations have an enterprise risk management (ERM) system. One risk common to multinational companies especially is corporate tax risk; and yet, it tends to remain under the radar. While tax professionals are usually very good at identifying and mitigating tax risk, if there is no close interaction between compliance and tax professionals, the risks are elevated. 
 
Sophistication in Taxing Jurisdictions 
Most jurisdictions have a tax code, but street rules tend to also be in play. “You have to establish very early on that you don’t pay bribes,” Tracy advises. The results of following the law are more expensive, but it pales in comparison to the cost of putting your company at risk. 
 
Resources
Tom Fox’s Email
Tracy Howell | Email | LinkedIn
 

Categories
Great Women in Compliance

Alison Hinds-Pearl on Why the Only Constant is Change

Welcome to the Great Women in Compliance Podcast, co-hosted by Lisa Fine and Mary Shirley.

Today is the day after International Women’s Day, and we are so pleased to welcome Alison Hinds-Pearl.  Alison is the Chief Compliance Officer and Assistant General Counsel at Revlon and previously had senior roles at MasterCard and Bayer.   Her career is remarkable in many ways, particularly as she has been in three very different industries, finance, pharma and now beauty and self-care products.

Alison talks about the differences and similarities in these different industries, particularly as finance and pharma are so heavily regulated.  Alison also started at Revlon during the pandemic and discusses her experience.

Lisa and Alison discuss the importance of diversity in our organizations, and Alison shares some insight from her experience, as a woman and as a woman of color, including an early experience at the Bronx District Attorney’s Office.  This is a great discussion not only for Women’s History Month, but to conclude the winter session of #GWIC.

Great Women in Compliance will be back on March 30 with a special bonus episode hosted by Tom Fox.  Lisa and Mary want to say thank you to the #GWIC community, especially during Women’s History Month.

You can subscribe to the Great Women in Compliance podcast on any podcast player by searching for it and we welcome new subscribers to our podcast.

Join the Great Women in Compliance community on LinkedIn here.

Categories
Compliance Into the Weeds

First We Kill All the Lawyers

Compliance into the Weeds is the only weekly podcast which takes a deep dive into a compliance related topic, literally going into the weeds to more fully explore a subject. This week, Matt and Tom take look at a recent speech by SEC Commissioner Alison Herron Lee where she considered the role of lawyers as gatekeepers under SOX 307. Some of the issues we consider

·      Who do lawyers represent?

·      What is the difference between lawyers and gatekeepers?

·      How can or should lawyers represent multiple interests on SOX issues?

·       How does this comport with state bar requirements?

·      How, if at all, does SOX 307 impact compliance professionals?

·      Was the speech a policy change announcement, trial balloon or something else.

Resources
Matt in Radical Compliance
SOX 307