While some might envy the corporate tax vice presidents and senior counsel who occupy the corner office, there’s no denying they have a difficult job, one that is subject to increasing pressures due to changes in tax laws and to increasing media and public interest in tax issues. To get an inside look at the issues these company officials face every day, we convened a roundtable of seasoned professionals, including Kathy Fanning, vice president of worldwide taxes for Xerox Corporation; Tadd Fowler, vice president, global tax operations, for the Procter & Gamble Company; Mark Harris, senior tax counsel at the Coca-Cola Company; and Katrina Welch, vice president and tax director for Texas Instruments. Michael Levin-Epstein, Tax Executive’s senior editor, moderated the roundtable in December 2017 as Congress was debating tax reform legislation.
Michael Levin-Epstein: What are the priorities as a senior tax executive?
Kathy Fanning: I think the first thing for me is just finding certainty and predictability in determining Xerox’s global tax liability. It’s about understanding where the business is going and looking at the operations to try to figure out how the tax laws apply. We’ve got a very dynamic business, so it’s trying to understand how the changes to the business are going to be taxed going forward, and then also looking at the past and making sure we’re closing out the old audits and getting certainty for the future.
Tadd Fowler: It’s important to understand our overarching objectives as an organization, because that helps define why the priorities are what they are at P&G. First, we want to develop and manage a competitive, sustainable, and low-risk tax profile; second, we want to grow and retain our talent pool; third, we want to influence pro-growth tax policy, both here in the U.S. and abroad; and, finally, we want to work closely with the business in their efforts to drive both top-line and bottom-line growth. With these overarching objectives in mind, it’s easy to understand “What are our current-year priorities as a function?” One certainly is U.S. tax reform. We are investing significant time analyzing potential implications to P&G and to influence, where possible, competitive and pro-growth tax policy. We continue to prioritize our objective of minimizing uncertainty in our global tax matters. We are doing that by focusing on getting as current as we can with tax audits around the world and continuing to build, via transparency with government stakeholders around the world, our inventory of bilateral advance pricing agreements. Additionally, as Kathy mentioned, our business continues to evolve. The business is never stagnant; they’re always looking at creative ways to pursue growth. That often involves new and challenging tax issues that need to be addressed—think digital, for example. And finally, we, like many, are trying to drive productivity in the management of our tax affairs. When coupled with overall reduced department budgets, this is more important than ever, given the continued increase in external reporting requirements and audits around the world, evolving tax policy, and more complex business models raising unique and challenging tax issues.
Mark Harris: I obviously echo what both Kathy and Tadd said about staying close to the business. Clearly tax reform is a priority for all of us, as we’re expecting something later this week or next week, possibly. Instead of rehashing what everyone else said, I’d add on [that] it’s predictability in the sense that Kathy and Tadd both said, but it’s also not having those bumps in the road, if you will, or surprises. We all know we’re here to support the business, and we do the best we can and give the best advice possible, but it’s also not waking up in the morning and seeing our name on the front page of the paper, or at least not seeing it on the front page for the wrong reasons. So, one of the priorities is in the context of advising the business and keeping close with the business, making sure that there’s nothing that’s happening that I’m going to wake up the next morning and then try to figure out how to address in the best way possible.
Katrina Welch: I would echo a lot of what’s already been said. Definitely, I think we want certainty and no surprises, especially the unpleasant surprises. But it is about the business. The business has to drive. We’re the tax advisors; we’re recommending to management, our internal client, what the different tax consequences would be of different paths they can go down. But it still has to be the business driving the ultimate decisions. As we strive to understand the business, it is helpful to have that tax certainty, using the tools that have already been discussed, like unilateral and bilateral APAs. One of the main focuses for me, and for our tax function here, is succession planning. It’s trying to make sure we have the right people in the right roles and giving them the tools to be successful so that we can provide an effective tax function here at our organization.
Levin-Epstein: How has your role changed in the last five or ten years?
Welch: One thing I think in the role has changed is, especially now in light of the pending—very imminently pending—tax legislation, we’ve gotten a lot more visibility. We’ve always tried to have a seat at the table, but before we had to really work hard to insert ourselves at that seat. And sometimes it was the last seat at the table, right as the chairs were pulling up; we’re in at the eleventh hour. I try to really establish those business partnerships across our organization and beyond so that we are a sought-after business partner early at the table, and I think we certainly have that. We’re definitely another valued business partner and another valued business consideration in making all of our determinations. I think increased visibility and increased interest in tax is the biggest change. We’ve never had this much attention from our board, our audit committee, our senior leaders, as we do right now.
Harris: I think I am sure everyone will echo what everyone else said, but what I’d add, I’d say also is . . . when I started my career, there was a lot more focus on the [Internal Revenue] Code and regulations. You would have an issue, you’d crack open your books, you’d look at it and that would be it. It was primarily a U.S.-issue-focused role. Now it’s much more internationally focused. We’re all obviously very international companies. I find I spend a lot more of my time, putting aside tax reform right now, on the non-U.S. issues. That’s really been a big shift. The other one that I’d point out, it’s a lot more of an external-stakeholder-facing role than it used to be. The tax department, kind of like Katrina just said, we were kind of more in our silos to do our job, and now it’s not just enough to be the tax advisor, you’ve got to think about how the external community is going to look and react to what’s going on, so you have to be having that level of proficiency or competency in your role as well.
Fowler: I would echo all of that. Building on a couple of points, and perhaps a couple of different perspectives—I think the risk profile has changed. As Mark was alluding to, it’s no longer just financial risk. There is reputational risk that in large part didn’t exist ten or fifteen years ago. Corporate tax has become headline news around the world. Additionally, the pace of change is dramatically different today, whether that’s a reflection of the financial crisis and governments trying to figure out how to deal with increasing budget deficits and/or sovereign debt issues, etc., or a perception that multinationals are not paying their fair share, the pace of legislative and policy change around the world requires a more proactive approach. Finally, the portfolio of skills a tax professional needs to be successful, particularly in-house, is evolving. As Mark alluded to, tax used to be a very technical job—it still is—but the breadth of technical skills needed has evolved. Historically, technical focus was on U.S. income tax. Now, both a broad and deep understanding of international income tax concepts, including international tax and trade policy, transfer pricing, and consumption taxes, for example, is important. Strong oral and written communication skills, effective collaboration, and a deep understanding of the business are also critical skills for today’s successful tax professional.
Fanning: I would agree with what everybody else has said. The one thing I would add is that today we tend to spend more time with the financial auditors than we did in the past. Historically, we were more focused on documenting technical positions and understanding the reserves at the time we closed the books. Now, the close and the financial audit process are much more about the tax processes and the controls around them. You can’t really wait until the tax return is done anymore. You really have to know what the tax picture is going to look like when you close the books.
A Typical Day?
Levin-Epstein: What’s your typical day like, if there is such a thing?
Fanning: As you said, no day is typical, and definitely this past month has been consumed with tax reform. That said, even with all the tax reform work that’s going on, my day is typically spent with cross-functional teams. So, working with Treasury, supply chain, HR, and other functions in the organization to make sure that we’re all focused on the company’s priorities. Looking at the tax considerations and understanding how tax interacts with the other functions’ areas of concern. I’ve actually been spending a lot of time doing this as part of tax reform, so that not only do I understand what’s going to happen from a tax perspective, but also making sure our stakeholders really understand how tax may impact their areas, whether it’s Treasury and repatriation of cash, or changes to the supply chain with some of the base erosion provisions. It is about making sure that everyone understands the tax implications for their respective areas.
Harris: Obviously, reform is critical; we need to think about how the provisions of the potential new tax law will apply, and when they’re effective or not, may impact even the financials and disclosures and things like that. But coming to what some may call the more routine aspects of the role, what’s been top-of-mind the last couple weeks is really country-by-country reporting. We’ve got requirements for country-by-country, as everyone knows, that are being done and coming due, and there are still some countries that the U.S. has not signed bilateral treaties with, and we don’t have mechanisms or provisions in place to comply with country-by-country reporting in those countries for our U.S. filings. As a company, now, we’re starting to think through “What is our Plan B now that we’re at December 14, two weeks or so left in the year, and we’re in a situation where we thought the U.S. government would have these treaties so we could rely on our U.S. filings? We can’t now. How do we make sure we’re compliant with what the rules are, not just here in the U.S. but locally?” That’s to avoid penalties or non-filing issues and things of that nature. Country-by-country reporting has become a very big thing, especially because there are countries that have passed some filing obligations that are perhaps not strictly in the world of tax but nonetheless have a strong tax impact. The U.K. is one of them, where you have to publish a tax strategy by the end of the year, and the obligation to comply falls within the scope of the tax department. So, a lot of my time has been consumed with talking with the different disciplines within the company: PAC, or we call it Public Affairs, which is government relations in other companies perhaps, our investor relations, all these different groups, because this U.K. strategy that has to be filed, it has to be filed publicly. So, we have to be able to make sure that all the groups within the company that deal with these various stakeholders are aware of what we’re doing. They have to be given an opportunity to give meaningful input and then sign off on it and be ready to address whatever may come up, be it positive or negative.
Fowler: I don’t have a lot more to add. I like Mark’s example of country-by-country reporting. It’s a great example of the challenge of bridging concept and execution. Even if you get a concept seventy to eighty percent executable, it’s that twenty or thirty percent that creates an incredible amount of work for our organizations. As mentioned earlier, there definitely is no typical day, and when you are a global company like ours, it’s not unusual that you are dealing with Europe in the morning, the U.S. in the afternoon, and Asia in the evening. With the global footprint that our companies have, there’s always something going on that is unexpected, and no matter what you plan for, your day is likely to get sidetracked in some fashion.
Welch: I can identify with a lot of what’s already been shared, but yes, tax reform is unique right now. But what’s probably not all that unique is year-end planning, trying to get all these deals done and get all the structurings complete. It seems like it’s always a lot for December. As has been shared already, I’m working across the organization with different functions here at my company to complete these transactions, as well as potentially working with outside advisors on some of them. Managing people is a big part of my job. So, one thing that I did this week—I just got back last night from a site visit in one of our regions. I was there not only for some tax reviews but to really meet with some of the team members, to have the one-on-one meetings with them, and, again, just thinking about filling those roles well currently as well as thinking about the next role for the people and the next people who can be in the various roles.
Levin-Epstein: Great transition, Katrina, because my next question is: What are your biggest challenges as the leader of the team?
Fanning: Right now, for us it’s cost transformation. We really have to focus on how to do more with less. All companies are facing cost pressures, and tax departments aren’t immune. So, I’m not able to go in and say that I need more money just because the requirements are growing. We’re all faced with trying to do more with less. Looking at various options, whether that’s global centers of excellence, outsourcing certain areas, investing in IT, and other things along those lines. This is clearly something we’ve got to stay focused on.
Harris: For us, it’s just having to do more. Whether it’s with less or same or otherwise, it’s having to do more. I even go back to the example we had one or two questions ago talking about just compliance. This is the first year of BEPS and CbC, but that added three different compliance requirements to what companies used to have to do. We used to always have to be compliant from a transfer-pricing perspective, and that was what is now the local file aspect of CbC. But all of a sudden, there was a new filing requirement, a country-by-country report filing. On top of that there’s a master file, which is a different form that has to be done, and then you have the notification, and that’s an annual requirement, but it’s not just filed once, it’s filed with every single country where you have a subsidiary and, in fact, in some instances, if you have multiple subsidiaries, you have multiple filings. Obviously this is one example. There are countless others. But it’s all of those additional requirements that are being put on departments while you take the same issue and say you have to do it with the same people. The other big challenge, I’d say, which I’d echo what you just heard, is that there are a lot of soft skills now that you didn’t used to have to have in a department. The ability to talk to many different stakeholders and convey the same message. Talking within the tax department, you can have a very technical discussion, and that’s something that tax used to do. And even talking to your CFO or certain businesspeople, perhaps that was something that you could maybe soften the tax technical language a bit, but you still were able to do it. Now it’s talking to the world at large, whether it’s investors, it may be NGOs, it may just not even be investors or NGOs, it may be the public at large. Being able to communicate what’s going on about your company, what questions they may have about taxes or other structures in your company, and being able to convey it in an articulate manner.
Fowler: I agree with that. The challenge, though, is the more you try to adapt very complicated messages for less-technical stakeholders—that is, the simpler a message becomes—the more questions that are potentially created because of the simplicity of the response. We’re dealing with very complicated businesses, very complicated legal and regulatory environments, and very complicated policy and political issues around the world. I mentioned advance pricing agreements earlier. For perspective, these can sometimes take five to seven years to complete. This demonstrates the time, effort, and expertise needed to fully understand the many issues that ultimately impact a company’s tax profile. That’s why communication is such an important skill. Another challenge we are dealing with is finding talented tax resources, particularly in the developing world. Finding individuals that are passionate about wanting to work in industry, have a broad tax background, and at the same time bring unique, deep technical expertise is difficult, and in many places around the world, the demand for tax talent is significantly in excess of supply. Finally, as we embark on productivity, allocating our resources to their highest and best use is an imperative. Trying to find the right balance between productivity and allowing professionals the time and experience to grow, which should result in greater performance and retention on a longer-term basis, is a challenge we continue to grapple with.
Welch: I think we’re all observing the world is getting smaller and moving faster. What’s the best way for us to gather and marshal various resources to be good tax stewards of our organizations? The additional demands of the environment in which we find ourselves, the BEPS reporting that’s already been talked about, electronic filing requirements, electronic audits, all these things. For me, I look at, “OK, how are we going to do what we need to do as a tax function?” For me, it’s about our people, and developing the people to be the best they can in their roles today, but also developing each of them for that next role, which I think goes to the retention that we already talked about.
Levin-Epstein: What keeps you up at night?
Fowler: I can start. If I step back, broadly it’s the things that aren’t directly in my control, but yet I’m indirectly responsible for. P&G products are distributed in over 180 countries globally, but we only have tax resources on the ground in about thirty. Thus, there are many countries where we don’t have tax resources on the ground that can immediately manage issues that arise. So, you have to trust that you have established the right controls environment, instilled the right values and principles within your peer organizations, and established the right external relationships with trusted advisors that can help minimize and manage these situations. Also, right now, we’re all in the process of U.S. tax reform and wondering, “Is it going to happen or not?” When you think about all the implications of U.S. tax reform and how it will impact you as a company (accounting and reporting, compliance, planning, etc.) and as a tax organization (e.g., priorities), that is currently keeping me up.
Harris: What I like to keep me up at night is an ice-cold glass of Coke [laughs]. Sorry, had to throw that joke in. But honestly, it kind of follows on what Tadd said, and they’re two intertwined items. The first is with the resources we have, being able to keep up with the quick pace of change of the rules out there. By that I mean, being in a number of countries and not having a tax person or a tax-knowledgeable person in every country, it’s difficult to keep up on the ever-changing rules, and you rely on advisors and publications and items such as that, but it still is a challenge that keeps us up. But the second one is it feels like, going back to your question of how’s it changed since we started, I feel like we’re in a world now where following the rules and the law isn’t always enough anymore. It used to be that if you opened up the rules, it said, “This is what you do, this is the treatment” and you did it, everything was perfect. Now, it feels like there is a whole other set of rules out there. It’s important, because it’s public opinion and how the public views the world of tax, but it’s knowing those “unwritten rules” and trying to make sure that how we behave and operate is not just consistent with the rules as written but also the rules as how the public at large will interpret it and view our company, to be quite honest.
Welch: I think a couple of things resonated with me that have already been mentioned: influencing without authority, but also influencing with authority. You know, I want to make sure that I’m doing my part to communicate, model, and coach effectively my team, the tone at the top, the vision, the priorities for our company, so that I can lead and put our company in the best tax position.
Fanning: For me, it’s a bit of what Tadd was talking about; it’s the uncertainty of what is coming next. Tax reform, we’ve already started to know and understand how we can mobilize around it, but what is coming next? What is going to be happening two years down the road, and how do I have an organization that’s prepared and ready to respond to those changes? It’s difficult to get a team ready and folks on board; how do I get an organization that is adequately staffed to deal with and respond to those future changes?