While the board has responsibilities in numerous areas of company operations, each individual director and board member, as well as non-board senior leadership, has distinct regulatory responsibilities that they must take care of. These responsibilities will require that director to have access to various aspects of the organization’s operations in order to keep the company in compliance with local jurisdictional regulation.
In this article, part of a series looking at various senior management roles in relation to governance, we will look at the role of the head of tax in entity governance, and how the tax department needs to leverage entity data to meet regulatory requirements.
What Does the Head of Tax Do?
The role requirements are in the job title, really: The head of tax manages an organization’s tax function and provides taxation services across the business, according to recruiters Robert Walters. The job can be highly technical, but key responsibilities are likely to include:
- Submitting tax returns to authorities
- Providing tax guidance to the front office and other functions
- Providing tax support to senior management as requested
The head of tax must have in-depth knowledge of the jurisdiction’s tax legislation and requirements. Where the role is a global one, they are likely to lead a team of local experts to feed into strategy and guidance at both the local and the parent level. For this reason, the head of tax should be able to communicate highly technical concepts to non-specialists in a clear and comprehensible manner.
Why Does the Head of Tax Need Access to Entity Data?
Regulators around the world are getting tough on tax. Led by the Organization for Economic Cooperation (OECD) and its Base Erosion and Profit Shifting (BEPS) project, it is getting increasingly complex and burdensome for companies to stay on top of tax regulation. More than 125 countries and jurisdictions have collaborated on the implementation of the BEPS package, with around 85 thus far having signed the Multilateral Instrument on BEPS, all as a way to combat the $250 billion lost annually due to tax avoidance by multinational companies.
Entity data, therefore, becomes essential to the head of tax as they manage the organization’s tax position and work to remain compliant with ever-changing regulations. For example, entity data helps the head of tax perform the following roles:
Check Entity Structuring
Through entity management software, the head of tax can get access to visualizations of the company structure, which, in turn, can highlight potential issues with the entity structuring. The OECD’s BEPS project is ushering in regulation aimed at stopping multinational companies from shifting profits between jurisdictions as a way to avoid or evade tax, and entity diagrams can highlight, at a glance, any risks, gaps or potential issues for the head of tax to address to ensure compliance. The head of tax can then decide whether to make changes to an entity or the group structure to ensure any risk of being seen to shift profits is mitigated while the organization can still take advantage of double-taxation treaties and so on.
Prove Economic Substance
One of the big ways to mitigate that risk – and one of the big requirements of the laws emanating from BEPS – is to prove “substance” in a jurisdiction. In recent years, countries have been introducing economic substance requirements for local entities, especially in those international finance centers once seen as blacklisted offshore jurisdictions.
To be compliant with economic substance requirements, an entity must meet certain requirements, including how they carry on “core income generating activities” in the territory. To do this, says BDO, they will have to demonstrate that there is:
- An adequate level of qualified employees in the jurisdiction proportionate to the activities of the company
- An adequate level of annual expenditure incurred in the jurisdiction proportionate to the activities of the company
- Adequate physical offices and/or premises in the jurisdiction for the activities of the company
The head of tax will need to be involved in these decisions, as, while this is largely an operational issue, it’s a result of tax regulation and tax-based strategic decisions. Thus, they will need access to entity data.
Stay on Top of Filing Requirements
With all of this added regulation – and with tax law changing regularly within individual jurisdictions – it’s important for those in charge of compliance and governance to stay on top of tax filing requirements. Ultimately, the head of tax’s team will be responsible for ensuring the accuracy of any tax filings, and for working with the compliance team to meet filing requirements, and so the head of tax needs access to entity data to meet these requirements.
Better Leverage Entity Data with Entity Management Software
The head of tax, then, has an urgent and pressing need to leverage entity data, especially while operating against the current backdrop of global regulation and financial transformation. A multinational firm must be able to robustly disclose and report its worldwide tax position in a transparent manner, and often this requires new capabilities and skills other than those traditionally required from heads of tax, write Fabio Dell’Anna and Andreas Staubli, tax experts from the Swiss arm of PwC, for the International Tax Review.
That expert duo says the head of tax is responsible for developing a strategic plan and designing a tax strategy for the organization, ensuring alignment with the rest of the business and its overarching strategy, and involving stakeholders as and when required. All of this requires access to real-time entity data to ensure that developments and decisions are based on accurate and informed entity data.
For this reason, the head of tax can benefit greatly from entity management software. In this system, they can surface the right information at the right time in the right format, helping them to report on tax-related governance and compliance requirements and to electronically file statutory forms to global regulatory bodies. The system even supplies compliance calendars, reminders and workflows to ensure that no stone remains unturned in tax strategy.
Yet entity management software alone may not be enough to help the head of tax perform their role in entity governance. While that software provides the head of tax with the entity data and visualizations that are essential to their role, it doesn’t link that data with the actions and behaviors of the board. This, in turn, risks outdated or inaccurate information being used to make strategic tax decisions, as board actions and decisions may not yet be logged into the entity management software.
Diligent’s entity management software is integrated with a board portal as part of the Governance Cloud. The integration is built to drive modern governance needs, ensuring that data is seamlessly and securely shared between portals and mitigating the risk of human error or oversight introducing inaccuracies to entity data.
Get in touch and schedule a demo to learn how Diligent’s entity management software and extended governance cloud solution can help the head of tax to leverage entity data and remain compliant across a multinational – or local – tax structure.
