Q&A: EY’s global vice chair of tax on a changing function

Q&A: EY’s global vice chair of tax on a changing function

Accountancy Age sits down with Kate Barton to discuss the effects the pandemic is having on the tax function and what to expect going forward

In an effort to help keep businesses alive, countries around the world – as part of broader coronavirus stimulus – have deferred or cut certain taxes for this fiscal year. This – combined with massive government spending – have helped to keep the economy going during lockdown. Accountancy Age spoke with Kate Barton, EY Global Vice Chair – Tax, to discuss how coronavirus has changed the tax function and what to expect for tax moving forward when government’s look to create new revenue streams.

 

What have been the big changes to the tax function because of coronavirus?

Tax departments are not immune to the virus, so I would categorise the changes in two parts. First, most tax functions have had to scramble to work remotely and adjust their working style. While some of our clients were prepared to work remotely, there were a lot of companies and tax functions out there who were operating on a desktop, and when the stay-at-home orders came, had to scramble to get the right equipment. For some organizations, it may have been a week and a half of not having the proper tools – even longer for others.

Another part revolves around keeping people engaged in your department. That has been a big issue for heads of tax. Managing workloads and tasks and sharing work globally and digitally among teams has required heads of tax to take on a different level of leadership.

The second broad category is just dealing with the increased inquiries coming from the C-suite. Most companies have developed frameworks around what stimulus measures they may be eligible for. All the while, companies are looking at reputational risk and want to make sure that whatever stimulus they access is justified (and makes sense for their company). Companies that have various subsidiaries in as many as 170 jurisdictions need to be particularly careful and make sure that any stimulus accessed is essential, reviewed and approved.

 

One of the big changes to tax in the UK has been the deferment of VAT. How has that and other measures affected the tax function?

That’s been a big one. Focusing on the UK rules, some of our larger retailers – those that have significant operations in London and the UK – have said that the deferment of VAT for this financial year has been a big benefit. During these trying times, companies are holding onto their sites, but don’t have the same foot traffic in their stores. All the while, they are trying to keep things going, especially if they’re in the essential service category. The UK’s stimulus measures have been viewed very positively, at least from the viewpoint of a number of clients.

 

 

What are you seeing in the US?

In the US, what companies are focused on is something called the employee retention credit that is provided to the employer. Simply put, it is a complex calculation where you get credit to offset your taxes. It has not been as impactful, but it is certainly helpful. People are grateful for support right now, but it doesn’t take long before the cost of retaining an employee is much greater than the retention credit.

 

You mentioned tax complexity, have these new stimulus and support measures made the book-keeping of tax more complicated?

It sure has. Just working through global stimulus in over 130 countries, there have had over 2,000 legislative changes around the world. Talking to heads of tax – they are overwhelmed with the complexity. They are looking for tools to stay on-top of the sheer scale of change and to navigate through it.

I like to describe it as a labyrinth. Just trying to discern which stimulus measure is optimal in a particular country – and then doing that across 100 countries – that’s a lot of work for organizations. Then they also need to summarise the measures. Few people want to hear the details. From the tax department’s perspective – we love tax – but the C-suite wants to hear it in a more simplified language: here is how much cash you will save, here is how much earnings per share you will be able to deliver, here is what is happening to your bottom line.

 

Based on statistics back in April on the cost of stimulus spending, the US has spent 10 percent of its GDP on additional stimulus, the UK 17 percent. Germany’s is the highest with 36 percent. With all this stimulus spending, do you expect tax hikes or the introduction of new taxes in the short to medium term?

Yes, I would say in the medium-term. Most people right now are focused on a safe re-opening and a responsible return to physical workplaces. But I think people will continue working virtually more than ever. Everyone wants to re-open their country, but they want to do it safely. They want to keep their employees, their customers, everybody safe. That’s their first focus.

Once that happens, over the medium and long-term, I think it’s universally expected that governments are going to have to pay for all these stimulus expenditures. Taxes are going to have to go up.

New taxes could come out. For example, in the US, will this be the time to introduce VAT? Globally, will there be a carbon tax? Those are things that are on the table. Will the OECD continue to make progress and get something done on a multilateral basis that will deal with the digital world that we live in?

 

Looking back to the First World War, many nations introduced income tax to help finance the war, which at the time was supposed to be a temporary tax, but obviously that has become permanent thing. Do you foresee any kind of new tax?

I do think that it will probably be a digital services tax. Typically, they are based on revenue, which generally from a policy perspective, isn’t something that’s desirable. But I think that countries will be very anxious about their balance sheets having overspent to get through the pandemic. They are going to look for ways to supercharge their revenues. However, what they will have to consider is whether a company will still operate in their country if they have such taxes.

It’s important to view this from a policy perspective. How business friendly is your market? Countries that incentivize businesses to operate in their jurisdiction usually leads to more employment. Countries that have figured that out typically thrive more.

 

Have all these different stimulus measures and schemes made tax more complex?

Each one of these new laws just adds to the incredible mosaic of global tax laws. That level of complexity is only increasing. However, what’s interesting to me is when a tax law is introduced to simplify existing codes, it actually becomes more complex.

Let’s take the US for example, they just went through tax reform two years ago. It was supposed to simplify the US tax code. It was supposed to be a territorial system of taxation, but it is still worldwide with territorial elements.

We were just talking to a client earlier who noted that they still haven’t fully digested US tax reform, and then on-top of that, was confronted with the US CARES Act as a result of COVID-19.

It’s just incredibly complicated. That’s just one country. Another example is Saudi Arabia which just tripled their VAT. It used to be 5 percent, and now it is up to 15 percent. Saudi Arabia reacted very quickly, obviously hurt considerably by low oil and gas prices.

 

Do you feel demand for the tax function at accounting firms will go up because of this?

Yes, I really do. There is nothing more guaranteed than taxes, so I think it is only going to get more complicated. The demand for our services is going to continue to be strong. Companies are looking to us for help as they are not able to stay on top of it independently. It is a tremendous amount of work.

 

Before coronavirus there was a push to try to make tax more digital. Do you feel like this crisis will impede that push or do you think it’s going to accelerate that push for more digital tax?

It’s only going to accelerate it on both the corporate and government front. Companies are going to have to continue to use technology to address their corporate taxes. There are also cost constraints. Everybody wants more with less human resources. Technology’s the secret sauce. Many companies are looking to be a tenant on a multi-tenant technology platform that is built by one of the Big Four, much like EY’s Global Tax Platform (GTP).

Then there is the government impact. We were talking to some of our clients who were postulating how employees could return to offices so that they could sign tax returns, if it was necessary. In some countries, tax authorities still require what we call wet signatures. Many of the emerging market countries have already moved past that – they will take an electronic signature.

 

 

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