Tag: Tracy Howell

Categories
Taxman

What is the Role of Tax in ESG?


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. In this episode, we explore the unexplored topic of the role of tax in a corporate ESG program.
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
Tracy Howell | Email | LinkedIn

Categories
Taxman

What is the Intersection of 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. In this episode, we explore the intersection of 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
Taxman

Why Does Tax Need 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. In this episode, we explore the question of why tax needs 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
Tracy Howell | Email | LinkedIn

Categories
Taxman

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. In this episode, we transfer pricing.
The Concept of Transfer Pricing
Transfer pricing encompasses the methodologies required by tax code to price transactions between affiliated companies. Devising an arm’s length rate for comparable transactions between comparable entities is more art than science. As far as compliance is involved, Tracy believes that, “If you’re a compliance officer that can say anything more than just the words, ‘transfer pricing,’ then you are, indeed, an FOT (friend of tax).”
Parties Involved in Transfer Pricing
Governments (taxing jurisdictions) tend to be involved with different regimes for selling and buying. Third party organizations that are involved currently only consist of the OECD (Organization for Economic Cooperation and Development), who push standard transfer pricing laws and regulations throughout the world.
The objective of the governments is to get their fair share, and they do so by trying to obtain the maximum multi-jurisdictional transaction profit. Consequently, the OECD attempts to provide guidance on what constitutes a fair share. “What’s fair is just somebody’s opinion,” Tracy tells Tom.
Developing a Transfer Pricing Strategy 
As a multinational corporation, it is crucial to set transfer pricing policies and business practices at the beginning. This involves identifying the appropriate methodology that will be used to price the transactions between affiliates. Documenting this process of analysis and conclusion helps to adopt a suitable transfer pricing methodology. In summary: perform analysis, document analysis, then adopt the findings in future transactions.
Tracy poses the question, “How often have you seen a company that’s got the policies and procedures, but somebody’s not following them?” Claiming to have global policies for all multinational intercompany transactions, and then failing to follow them leads to an extreme loss of credibility – this is why it is important to comply with local documentary requirements, “You’ve got to follow the laws, even if they’re a little bit different.”
Resources
Tracy Howell | Email | LinkedIn

Categories
Taxman

Why Compliance Needs to Talk to Tax


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. In this inaugural episode, we consider the following topics.
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
Tracy Howell | Email | LinkedIn

Categories
The ESG Report

The Role of Tax in ESG with Tracy Howell


 
Operating in a tax-efficient manner is a wise business move for a multitude of reasons. It’s time to start the conversation about the benefits of a relationship between tax and ESG, especially in multinational organizations. That’s what Tom Fox and Tracy Howell are discussing in this episode of The ESG Report. 
 

 
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 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
Blog

Tax and Compliance: Tax and ESG

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, in this concluding blog post, we consider the role of tax and Environmental, Social and Corporate Governance (ESG).
We began from where Howell sees ESG from a tax perspective. ESG is the acronym for and covers environmental, social, and governance sections of an entity. For the ‘E’, environmental, an organization is supposed to be monitoring and contributing to its social requirements of its environmental footprint. It can include such areas as wastewater management, energy efficiency, carbon footprint of an organization. In the ‘S’ or social component, it includes the human rights, where an organization is operating, its Human Resource (HR) function, the wellbeing of its workforce, fair wages and much more. In  the ‘G’ or governance, it includes the executive compensation, which Howell noted is “a high-profile item”, political contributions of an entity, board independence and composition, the demographics of its executives, whistleblower schemes, among many others.
Importantly, Howell believes there are “external forces pulling tax into the S and the G of the ESG component.” From the social component, how does tax fit in? The phrase “being thrown around these days is for companies to pay a fair share.” Yet in addition to that being an arbitrary term for multinationals, Howell believes it is “really misunderstood because there are different countries or jurisdictions which have different tax rates. Some are higher, some are lower.” This means that as companies employ a tax strategy “to operate in a most tax-efficient manner, their activities are going to gravitate to lower tax regimes. Social taxes becoming more common in social piece of ESG, and you’ve got forces trying to push the concept of fair share rather than just compliance with the tax laws of those different jurisdictions.”
There is also a tax component in the governance prong. It is becoming more common for companies to have to talk about their compliance tax audits. Howell emphasized this “does not mean a company has a perception of not being compliant in governance simply because a company’s following the laws of the different jurisdictions.” Additionally, Howell has seen  litigation in the European Union (EU) between the “countries where there is some intellectual property licensing and one jurisdiction that’s at a lower rate, and governments are giving maybe some tax concessions to draw business incentives.” Subsequently those are being challenged, so that too falls under the ‘G’ for governance.
Howell believes the continued pressures on ESG transparency are growing. This could well lead to standardized reporting and score carding of entities on their tax transparency. US publicly traded companies currently have substantial reporting requirements in material areas of their operations and income taxes, which is “one of the large footnotes as required in SEC reporting.” Indeed, some international organizations such as the Organization for Economic Cooperation and Development (OECD), the International Financial Reporting Standards Foundation (IFSR), the World Economic Forum, and the Sustainability Accounting Standards Board (SASB), “are all drafting up their own and pushing out their own transparency scorecard that would include some things like effective tax rates.”
Another key issue Howell sees in the conjunction of tax and ESG is in the arena of effective tax rates (ETR) reporting by jurisdiction. In ETR “if you are in a high-tax country such as the US and then your organization has operations in Ireland, which has a lower income tax rate; if you just put those on paper and compare the two effective tax rates without an explanation or thorough understanding, you’re going to get an inaccurate conclusion. But these organizations are pushing for globalization and transparency, and it’s going to be a component for ESG score carding.” All of this will mean more importance for tax in an overall corporate ESG program.
We concluded with what Howell sees as the most important reason for tax to be a part of a company’s ESG discussion. That reason is the market. Howell stated the “biggest pressure that’s coming on top of multinational organizations around ESG is coming from the institutional investors. Large institutional investors play a heavy role in impacting a multinational’s activities. Every CFO really has to listen to the institutional investors that he has or his entity have relationships with. Moreover, institutional investors are probably the biggest 500-pound gorilla in the room that are making investment decisions with their millions of dollars, and they are incorporating an ESG scorecard with tax transparency. It is a big part of where they are making their investment decisions. So, the biggest players in the room that are asking for tax transparency are institutional investors, the pension funds and investor class. Those investment dollars are driving the CFOs and organizations to get ahead of SEC reporting and requirements and include an ESG scorecard component, of which tax is going to be a large component.”
What started off as a discussion of regulatory and legal requirements around tax has become market driven. This echoes my observation that it was not government regulation which drove ESG but the market. As antithetical as the former administration was to ESG, the market spoke about what it wanted for its investment dollars. This speaks to the overall and what will be the long-lasting power of ESG.
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: 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
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.