What was the most significant development in your region/jurisdiction's tax practice in the past 18 months?
The OECD and the European Union have imposed new standards of tax transparency, which require proof that the tax paid corresponds to the rate applied in the country in which the company operates. These new standards challenge the finance departments and their CFOs, which must communicate to tax administrations much more precise and consolidated tax data on larger volumes.
Therefore, the most significant development is linked to our capabilities in advising large companies to deal with the technology transformation of the tax environment, inhouse and with external stakeholders: use of smart data, implementation of new digital platforms and tools, automation of information sent on line to the tax authorities, big data compliance obligations.
What was the most notable effect of that change?
We have had to onboard and train new talent profiles, much more hybrid than before, in addition to the skilled and knowledgeable tax and legal professionals.
We now also employ engineers, consultants, robotics specialists and our member firms all have new support functions such as Chief Technical Officers, Chief Digital Officers, Innovation managers. Moreover Deloitte is globally implementing a new revolution in terms of digital platform to produce compliance worldwide, set up a digital collaborative workspace with our clients, and offer new advisory use cases leveraging on innovative digital tools. The vision needs to be implemented in a way that allows not only technical deployment but also to re-imagine most of our processes as advisors.
Where is the market moving in this practice area?
Our Tax Management Consulting and Legal Management Consulting practices see a vast field of opportunities as clients need to constantly be more agile (to face crisis like the present Covid 19 depression), competitive and upgraded to face the new pace of technology changes imposed by the Administrations. More and more large multinationals request end to end advice, ranging from strategic definition of their transformation needs, benchmarks with best in class organizations and ability to improve their maturity model, to the actual implementation of tools and new processes.
We also note clients (especially under the influence of the US market) contemplating to ask for a full "operate" service, i.e., having their service provider take on board talent (versus in-house employees) to carry out a vast range of compliance tax and legal activities.
What kind of impact will this have on your work?
Deloitte, in DCE and in Spain, but more generally in all of Europe, has a very strong advisory practice, based on eminence, excellence and a vast range of professionals with deep knowledge. Intervening in the Management Consulting area, whether tax or legal, requires to be even more a business partner to our clients, and discuss the key aspects of the service not only with the tax and legal specialists in-house, but also with other key stakeholders such as head of IT, head of Finance, Corporate Governance officers, and more generally business leaders who want to make sure that tax and legal enables and augments the way of doing business. Therefore, our professionals are capable of embracing the diversity of profiles and team with clients as never before.
DCE and Spain member firms have also had to determine the best ways of building the new digital tools, with mainly four alternatives, which are not exclusive one from the other: partner with external IT companies, work with the Deloitte central IT teams, hire in-house technology specialists (within our services lines such as legal, TMC, global mobility tax etc.), and with innovative Deloitte groups (Digital Factory, the Garage etc.) stemming from our best in class Consulting and Advisory practices, who work for clients and for our Tax and Legal teams.
Do you anticipate any significant legislative changes in the future with a material impact on tax in your region?
We can clearly anticipate that there will be changes in the tax regulations. All governments will be facing a double challenge: on one hand, finding resources to finance huge expenses derived from COVID-19. Increase of taxes can easily reach this objective, as well as a trend to protectionism (Customs Duties). The fight to attract taxation between the countries with large company headquarters and the countries where the customer base resides will lead to a frenzy of antagonist laws which will trigger double taxation.
On the other hand, such an increase needs to be balanced to allow businesses to get back to the activity, to invest and not to suffer from the tax burden. In this respect, we can expect for example change in the rule of offsetting tax losses. Government will more than ever scrutinize the adequacy of transfer pricing rules.
How would you describe the tax controversy landscape in your region/jurisdiction?
The tax controversy landscape in our region has clearly increased during the last decade. There are more and more claims and litigations regarding taxes due to the speed over which tax provisions are adopted, in order to respond to the public opinion or budget needs, and constraints of EU legislation. Numerous tax provisions are being challenged by the EU court, here again, often due to new tax provisions enacted by local Member States Governments & Parliaments without taking time to analyse all the consequences.
In addition to the increase of cases, we have also noted an increased level of aggressiveness in the way discussions are conducted. Less inclined to discuss a balanced solution, the Tax Authorities keep their position due to the government pressure, which leads to an increased level of tax controversy in front of the Courts.
Do you expect tax procedures in your region to move towards common standards or diverge in the future?
We expect some degree of convergence due to the EU reforms and common goal to confirm that companies apply sustainable tax policies. The various CBCR and Mandatory Disclosure Rules apply to all EU companies in a similar way. However, same as SAF-T in its time, the wish to common standards, leading to common procedures, is often contradicted by the will of Member State governments to impose their own local specificities.
Is the global drive towards regulation going to affect tax practice? If yes, in which areas?
Our tax practices now have common foundations in technical skills and can to some extent advise companies around the entire region. However, as noted above, as long as States consider tax as a differentiator to improve either competitiveness or warrant protectionism, local domestic knowledge will be needed, and I don't see this changing in the foreseeable future.
What do you see as direct impact of COVID-19 in your practice?
There are several direct impacts to our practices in our Region:
Some areas of practice, such as M&A, have experienced a sudden decrease, however we anticipate that some strategic buyers and Private Equity Houses will be keen to look at targets available at low market prices. However, the need to have visibility on performance will probably mean a slow recovery generally, mid-2021. Similarly, large companies have deferred any large reorganization, which was considered as "non-essential". Our clients indicate that these transformation and reorganization plans will pick up this summer or in the fall.
The other practice areas are much more resilient.
Some practices will thrive, as the world gets a wakeup call to "too much" globalization, many groups are exploring a more regional approach to industrial relocations. The crisis is sanitary but also accelerates the focus on the imperious need to be more sustainable for the planet. As a result, "short circuits" will be analysed compared to manufacturing products on the other side of the planet. These strategic changes are complex, and complexity requires to carefully analyse the tax and legal consequences, therefore our practices anticipate many areas to assist our clients.
The crisis has also accelerated digital economy. Pre-Covid, the digital taxes were already a significant focus point at the level of European governments, to align an old fashion tax system to the new economy and get tax payments in a more efficient way in their view.
As mentioned, we can expect that governments will increase their tax audits to finance their deficits. Courts are just starting to reopen, tax litigation will pick up after a 2 months full stop.
One can also expect that the need for tax transparency and sustainability will increase: we expect that governments will pressure companies to explain/justify how they contribute to the resources of the countries where they carry out their activities.
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