How tax reforms are impacting the European tax landscape?

Over the course of 2017, a number of EU member states announced sweeping tax reforms which have subsequently transformed today’s tax environment.

As countries work hard to avoid uncertainty in terms of tax legislation which could deter foreign investment, authorities have looked to strike a balance between being pro-business whilst also ensuring they remain on the correct side of international standards.

On top of this, administrations are keeping a close eye on proposed reforms in a bid to remain competitive against their overseas trade partners. The impact of this on the European recruitment market is still to be seen. On one hand, reforms equal uncertainty and with this hiring levels are often dampened. Opposed to this is the view that tax functions will have to ensure they are best structured to deal with the potential new raft of changes such reforms promise to bring.

One thing is for sure, as the OECD’s Action Plan on base erosion and profit shifting (BEPS) takes hold, a new landscape is emerging: one that’s more transparent and digitised than ever before.

BEPS and the OECD’s recommendations

In 2015, the OECD released its final recommendations on BEPS for the G20 and OECD countries.

In doing so, the organisation pulled tax restructuring, transfer pricing and the use of tax havens firmly into the foreground – delivering what Vinod Kalloe, Head of International Tax Policy at KPMG Meijburg & Co, described as a “groundbreaking starting point for truly global tax coordination.”

But despite this effort towards greater tax coordination, a complex and confusing climate is forming as individual member states either adopt or deviate from the OECD approach – prompting serious implications for businesses and the tax professionals advising them.

“If there’s a message to tax professionals worldwide, number one is that they must stay on top of developments, which is already a challenge,” says Kalloe, who co-authored KPMG’s OECD BEPS Action Plan report published in October last year. The second message, according to Kalloe, is that the country-specific tax specialists are a thing of the past. In today’s economy our clients are all global, and that’s why our perspective needs to be global too.

Disclosure and its impact on business

Disclosure – aka tax transparency – is the key theme running through many of the OECD BEPS reforms. Multinational corporations are now required to produce country-by-country tax reporting: forcing a business to disclose exactly how much tax it pays in each jurisdiction it operates or has a presence in. This creates several problems for businesses, as Kalloe explains.

“For example, a company might have intellectual property, such as a brand name or logo, registered in Bermuda, with one billion dollars profit annually paid to the trademark company there, but zero employees. Now, because of country-by-country reporting, this will be flagged.”

Flagged to tax administrators and, potentially, the general public – prompting a possible media backlash. “Tax professionals now have to make the risk assessment with the corporate client: what does it mean if my tax report looks like this?”

The technology question

This shift towards increased tax transparency has given rise to a greater reliance on technology and tax digitisation, believes Dominic Preston, a Tax Partner at Grant Thornton specialising in technology.

Businesses no longer require advisers with huge, enterprise-level software to analyse and codify their data. Simpler, off-the-shelf solutions and monthly, more SaaS-style solutions can cater to this need instead.

“Tax and technology are now inextricably intertwined,” says Preston. “The transparency required by BEPS country-by-country reporting, and the requirement to publish tax strategies in many jurisdictions, coupled with the ability to extract taxpayer data digitally and perform compliance checks in real time, means the game has irrevocably changed.”

So what does this mean for tax professionals and those looking to recruit tax professionals in continental Europe?

A shift in thinking, according to Preston: “Think along the lines of a knowledge concierge – an expert enhanced by technology – who’s able to triage issues and opportunities quickly, and to assemble situational and strategic advice with far greater rapidity and certainty than ever before.”

As today’s tax environment continually evolves, tax functions are facing a raft of changes and with this an increasing demand to ensure they are best structured to meet the demands placed upon them both internally and externally.

March of this year saw the release of the first edition of the Brewer Morris European salary guide and market report. This publication provides insight into the key industry trends facing tax professionals and a complete breakdown of salaries, firstly by country then tax specialism, as well as a market commentary for each specific region. We are delighted to have insight from tax leaders across a variety of European countries to support this guide. To request a copy click here.