By Rick Stamm
Article by Rick Stamm, Former Vice Chairman, Global Tax, PwC.
I recently retired after 40 years with PwC, including 35 years as a tax professional and 30 years as a partner. My career with the firm began as an auditor in Baltimore; I could never have imagined back then that I'd spend my last day with the firm at a meeting in Beijing.
Looking back, it would have been impossible to predict most of the changes I've seen. In the early days of my career, computers and smartphones were science fiction and most of our work papers were prepared by hand. We sent everything to clients by the US Mail service - FedEx, UPS. Fax machines and email were still to be created.
Our clients' business models were simpler, too. It was fairly unusual to have a client with operations in more than a few countries. Cross-border investment happened, but at nowhere near the pace of today or on the same geographical scale. The first sparks of globalization were appearing, but intermittently. Our clients' activities were mostly local and, more often than not, involved tangible property.
Today, it's unusual to have a client that's confined to a single country. Globalization is reaching us all. Tangible goods still matter, but intangibles dominate. Technology has moved forward at an unimaginable pace - creating value, driving efficiency and raising expectations.
As I've said before, one aspect of our financial world that hasn't kept pace with this change is tax. Tax systems in most countries simply don't deal efficiently and effectively with today's business models - and this creates a lot of uncertainly for businesses.
The OECD's Base Erosion and Profit Shifting (BEPS) initiative is a recent and comprehensive effort to update tax systems into a logical set of rules that can deal with today's business patterns. Whether BEPS will meet its significant expectations remains to be seen; much of the ultimate outcome will depend upon whether countries make an effort to be sensible with the legislation. But the pace of change and the rapid development of alternative business models is also a risk; Uber and Airbnb, for example, only entered the collective knowledge of people after many of the BEPS conclusions were reached. Both businesses raise questions that simply aren't dealt with by BEPS.
As I look to the future, I think we can predict a few things with confidence. First, tax won't become less complicated anytime soon. Some countries will enact legislation that's broadly consistent with BEPS, but others will be driven by their own self-interest and will try to get access to taxing rights on as much income as possible, regardless of the implications for other countries. National priorities will win out, and this will drive tax competition and result in greater tax complexity.
Second, governments and companies will make more use of technology and data analysis, and tax data will be more widely circulated. Transparency is expected by an ever-increasing set of constituents. We can expect, for example, that country by country reporting data won't just be for government tax authorities in the future - it will be public in some form and will be analyzed by many constituents. This may lead to companies moderating their planning as they look for certainty in judgmental areas such as transfer pricing.
Third, we should expect the emphasis to shift away from taxes on profits and towards indirect taxation. These indirect taxes, such as value added taxes, sales taxes or GSTs, all have elements of simplicity and avoid the issue of where value is created.
This last point is related to the question of fairness. In my view, the global financial crisis still casts a shadow over taxation. Governments are failing to collect all the money they need to fund the promises made, which has led people to look for someone to blame for the shortfall of revenues. This has led to a desire for everyone to pay their 'fair share' of taxes - a concept that sounds nice, but which simply does not work. Tax systems are legal systems - written to drive certain behaviors. Fairness must come from the laws themselves and how they're administered, not from some vague concept that taxpayers should pay not just what the law requires, but what would be fair. We elect legislators to define what is 'fair' through a set of laws, and that's the only right way to arrange a tax system if one wants to actually be fair and consistent.
Overall, I believe that tax professionals are more relevant today than they were 35 years ago when I started in the tax profession. But if we're more relevant we should expect more scrutiny, and to explain why we use certain planning techniques. Our challenge as professionals is to evolve accordingly as the tax world changes. As I hand the reins over to Colm Kelly, who will succeed me as the leader of PwC's global Tax network, I'm confident that with his ideas and energy our network will embrace the challenges and opportunities in our future.Back to Articles
The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.
Greek citizen setting up in Cyprus - The checklist! We get a lot of queries from our Greek clients and associates on how Greek citizens can become Cyprus tax residents and what the process of obtaining a tax residency certificate is. As such, we have prepared the below checklist to assist everyone interested in this.Read more