Managing through challenging times: tax and legal impacts · 2020-06-17 · ―Risk of unilateralism on BEPS2 ... Managing through challenging times: ... predictio\ ns transparency

$Page 1: Managing through challenging times: tax and legal impacts · 2020-06-17 · ―Risk of unilateralism on BEPS2 ... Managing through challenging times: ... predictio\ ns transparency$
Managing through challenging times: tax and legal impactsKeeping Connected Global Tax & Legal & Mobility Virtual Meeting Series – Part 13Rising to the demands of a new reality—

June 2020

Document Classification: KPMG Confidential

© 2020 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved 2© 2020 KPMG International Cooperative ("KPMG International"), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no services to clients.

No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

4 The new reality for tax

1

2

3

Mobility perspectives

Legal perspectives

Indirect tax & compliance perspectives

Agenda

Topics for discussion

Virtual panel discussion and Q&A5

3© 2020 KPMG International Cooperative ("KPMG International"), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Administration

Polling questions

—Polling questions will appear as we proceed through the presentation.

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Today’s presenters

Marc Burrows Head of Global Mobility ServicesKPMG InternationalE: [email protected]

Sean BloodwellHead of Global Compliance Management Services, KPMG International and Partner, KPMG in the USE: [email protected]

Lachlan WolfersHead of Global Indirect Tax ServicesKPMG InternationalE: [email protected]

Brahma SharmaGlobal Head of Clients and Markets, Tax & LegalKPMG InternationalE: [email protected]

Jane McCormickGlobal Head of Tax & Legal Services, KPMG InternationalE: [email protected]

Stuart FullerGlobal Head of Legal Services, KPMG InternationalE: [email protected]

mailto:[email protected]







Responding in phases

COVID-19 blog

seriesGovernments put priority on administrative tax relief in light of challenging times

Resilience Recovery New realityReaction

Indirect tax & compliance perspectives






Expected global tax trends arising from COVID-19Immediate Term

(Reaction / crisis phase)2nd half of 2020 to early 2021 impacts(Resilience and early recovery phase)

Medium-Long term(New reality phase)

―Helping teams adjust to new ways ofworking

―Responding to impact of tax legislation on immediate income tax reporting

―Managing VAT impacts on cashflow

―People not where they are supposed to be: PE and residency risks

―Focus on tax filing and payment deferrals; adjusting tax instalments

―Cash-based tax focus – accessing incentives, subsidies and benefits

―Longer-term projects and capability enablement put on hold….but not out of mind

―Business restructuring & associated tax impacts

―Risk of unilateralism on BEPS2.0 grows (e.g. India, Indonesia). Taxing the digital economy more heavily where ‘super profits’ being earned

―Business playing catch-up on earlier tax deferrals

―Tax compliance sourcing models under scrutiny – expectation of greater levels of outsourcing as business refocuses on ‘core’

―Growth of e-invoicing

―Solidifying impact of change in business, tax regulation, etc. on global tax reporting

―Temporary VAT/GST rate reductions to stimulate demand (Germany) or in specific sectors

― Supply chain planning – near-shoring, regionalization (risk mitigation)

― Growth of alternative taxes, turnover taxes, environmental taxes, specific excise taxes, tariffs (under discussion in EU)

― Potential increase of VAT/GST rates (Saudi Arabia); removal of reduced VAT/GST rates; expansion of VAT/GST base (under discussion in EU)

― Clamp down on tax loss utilization

― More aggressive tax authority audit activity

― Technology enablement of tax functions & tax authorities

― Leverage lessons learned to be prepared but also to develop better ways of working

8© 2020 KPMG International Cooperative ("KPMG International"), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 8© 2020 KPMG International Cooperative ("KPMG International"), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Possible outcomes― Loss of ‘corporate knowledge’ if key tax and business headcount reduced through pandemic― Attack on legal privilege (and tax-related privilege concessions); confidentiality shields removed― Rebalancing from self-assessment back to approvals based system (in higher risk areas of compliance)― Enhancing tax authority priority as a creditor in winding up― Less focus on global tax rate competition, but greater use of local subsidy and incentive arrangements― Environmental taxation shifts to a ‘stick approach’ in preference to ‘carrot approach’ – anything from plastic bag levies, to road

congestion charges, to higher excises/taxes on carbon or in extractive industries

― Weighing of budgetary pressures with enhanced tax authority adoption of a data driven approach to tax compliance through:

― Automated data feeds to tax authorities – real-time reporting (e.g. UK, many EU countries);― Government regulated invoicing systems & invoice matching (e.g. China, India, Korea, Indonesia,

Vietnam, Taiwan)― pre-filling of tax returns by tax authorities (e.g. Poland)

― Removal of simplifications which are prone to abuse or fraud (e.g. mobile phone deductibility, motor vehicle expense simplifications)

― Increased community focus driving enhanced tax transparency & reporting― Enhanced accountability of tax agents― Enhanced procedures for tax officials to waive penalties or compromise newer tax debts― Enhanced focus on directors actively managing tax debts (and being personally liable)― More commercial approach to settlements of longstanding disputes (eg India)― Greater use of withholding regimes and reverse charge to mitigate fraud and non-payment risk― Unilateralism reigns supreme – not only in digital economy taxation (e.g. India), but also in deeming PEs (e.g

Indonesia), increases in Customs duties and tariffs and cost of doing business for non-residents

What governments & tax authorities may do post-pandemic

Likely outcomes

A lazy response is that the tax authorities will be more aggressive. A more nuanced response is::


Top 10 post COVID-19 predictionsAs we move into the recovery phase, we predict it’s likely:

Increased reliance on indirect taxes

(rate/base expansion),

environmental taxes and/or specific turnover taxes

Greater intervention by tax authorities to

reduce risks of under-reporting and non-

payment through real-time reporting, pre-filling, withholding

measures, priority as a creditor

Community expectations around tax transparency will

be enhanced, leading to increased

reporting

Greater taxation of non-residents with

sales in local jurisdictions

(VAT/GST, deemed PEs, Pillar 1, DSTs, other specific levies)

10 9 8 7



Increased outsourcing of compliance –

moving from specific taxes to all taxes to

‘lift and shift’

No country will be able to successfully rely only on taxation as their way back to

economic prosperity –taxation must be

complementary to broader economic

reforms

Transfer pricing will be a major audit

battleground

Innovation coming out of this crisis will breed new ways of working, solutions and approaches,

with better contingency

planning

6 5 4 3



There are only two certainties in life – ‘death and taxes’ – as we move out of this crisis we will

(hopefully) have less of the former, but it may come with more of the

latter

2

“The art of taxation consists in so plucking the goose of feathers as to procure the largest amount of feathers with the least possible

amount of hissing.” Jean-Baptiste Colbert

1

Polling reflections

Brahma D SharmaGlobal Head of Clients and Markets, Tax & LegalKPMG InternationalEmail: [email protected]



Where we were and where we are now – Polling question 1

40%

39%

15%

6%

Directly involved in business continuity planning;enhanced involvement; a key stakeholder for thebusiness; adding a lot of value; performing aboveexpectations

Some involvement in business continuity planning; aseat at the table; helping out in some areas;performing to expectations

Minimal involvement in business continuity planning;not seen as a key stakeholder in this crisis; could domore

Yet to be impacted by COVID-19

How would you describe the performance of the tax or finance function in helping your organization during COVID-19:

10%

39%

15%

6%



6%

59%

29%

6%

Measures have been excessive and/or poorlytargeted

Measures have been appropriately targeted, timelyand/or proportionate

Measures have been inadequate, delayed and/orineffective

No (or limited) measures have been adopted to date – my location is largely unaffected at this time

Which statement best describes your view of the tax policy and administrative response to COVID-19 so far by the central government / member State in your location:

6%

59%

29%

6%


10%

23%

18%

23%

12%

14%

Little change for up to a year after business returns to usual

Dealing with tax implications of operational change business has gonethrough (for example, DEMPE, permanent establishment, supply chain)

Increased focus on entity reduction/group organizational simplification

Learning lessons from remote working and putting in place acontingency plan should this type of event arise again so that yourinternational tax team can continue its work unaffected

Increased tax audits due to unexpected losses in various countries

Financial statements – preserving attributes to avoid reserves or valuation allowances

What do you think your top three priorities will be after the pandemic lifts (check 3)?


10%

23%

18%

23%

10%

10%

Most-often selected as Top 3 priority

Mobility perspective




Mobility trends arising from COVID-19

REACTIONH1 2020

RESILIENCE to RECOVERYH2 2020 to H1 2021

NEW REALITY2021+

o Employee location and risk assessment

o Repatriation considerations

o Gradual, ad-hoc opening of borders

o Global Mobility & Business Traveler drivers & foot-print

o A new “War for Talent”

o Employees demand more when travelling

o Working from Anywhere policies

o Virtual Mobility & Global or Regional roles

o Cost optimization & real time risk assessment

Short term disruption, long term acceleration



REACTIONH1 2020

o Employee location and risk assessment

o Repatriation considerations

o Gradual, ad-hoc opening of borders


Income tax, social security, payroll tax, PE, residency and immigration risks assessed individually or by population

Security, health and family considerations as well as ability to work and regulatory restrictions. HR, Tax and Compliance collaboration

Clear communication on expectations combined with constant re-evaluation of BCP and employee Duty of Care plans


o Global Mobility & Business Traveler drivers & foot-print

o A new “War for Talent”

o Employees demand more when travelling


RESILIENCE to RECOVERYH2 2020 to H1 2021


Identify mobility/travel requirements to sustain the business and accelerate growth. ESG in addition to geography and cost

Flexibility flooding in has torn up the rules of the recruitment and retention game. Balance corporate compliance and culture with cost and availability

Increased expectations require enhanced tracking, risk assessment and employee education


o Working from Anywhere policies

o Virtual Mobility & Global or Regional roles

o Cost optimization & real time risk assessment


NEW REALITY2021+


Introduced as New Reality during Resilience by some companies. Some variation considered by most, across markets and industries

Requires Tax involvement to ensure governance framework considers Transfer Pricing, PE and other exposures

Tax, HR and Legal called upon to be business enablers. Immediate indication of compliance and cost implications essential

Legal perspectives




Learnings and Insights from COVID-19What we said

(Reaction phase)What we have seen

(Resilience and early recovery phase)What is likely to happen

(New Reality phase)

Commercial resilience: Contracts Deals, Capital Raising Real Estate But: BAU impaired

Operational resilience: Health and safety of employees Compliance Governance Asset management

Government regulatory response: Insolvency Restrictions / controls Facilitation and incentives Governance Document execution Foreign Investment

Automation projects and introduction of tech into the value chain required more than ever, but the budgetary timing is bad

Force Majeure and “active contractmanagement” being exercised with caution (finding a way through rather than a way out)

Fast capital raises, sidelined dry powder, slow deal execution – but opportunities and winners starting to emerge

Employment arrangements in transition (reshaping for the long term)

A (relatively smooth) move to the world of virtual governance and stakeholder engagement

BAU disruption: people and paper are problematic, driving higher interest in automation

Early movers starting to consider: Business restructuring Supply / Value Chains Role of Legal

The need to “fix the issues” from the COVID-19 period

The need to manage big decisions made at speed in imperfect conditions

Implementation of resilience measures and mechanisms:

• Supply chain • Business reorganisation• Regulatory engagement / response

• Diligence and Deals – technology enabled execution

• Automation and technology enablement of legal service value chain (tasks, documents, processes, decision support)

• “Build Back better” – retain and leverage the lessons learned, but also to develop better ways of working



Hindsight will be used as a powerful weapon, shaping both corporate

strategy and claims

Governance and compliance will return,

but will not be the same

Regulatory, political and community

expectations continue to increase,

leading to more demands on

business and on Legal

The role and value of Legal is redefined in an organization:Legal is Business

AndBusiness needs

Legal

10 9 8 7



Augmentation of Legal through Automation

Simplify, Modernize and Digitize

A Decade of Digitization in a

Week: law schools, limbs of

government, law firms, court systems

Legal and economic sovereignty will

continue:Foreign Investment

TradeImmigration

Resilience will trump Efficiency: Legal will be the “muscle” and

the “connective tissue” of the

enterprise

6 5 4 3



Market dynamics and demand will be elastic

and will drive a new era of “Collabortition”

Collaborationand

Competiton

2

Solutions, Services and Client Experiencewill triumph over

Advice, Expertise and Legacy Relationships

1

The new reality for tax





Virtual panel


Virtual panel













Questions?

30© 2020 KPMG International Cooperative ("KPMG International"), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 30© 2020 KPMG International Cooperative ("KPMG International"), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Resources

Tax News Flash — COVID-19

KPMG’s ongoing roundup of COVID-19 measures taken around the world in response to the situation

https://home.kpmg/us/en/home/insights/2020/04/taxnewsflash-coronavirus-covid-19-developments.html

Responding to challenging times

KPMG site dedicated to business implications of COVID-19 on a global scale – tax, legal and mobility focus

https://home.kpmg/xx/en/home/insights/2020/03/responding-in-a-crisis.html

https://home.kpmg/us/en/home/insights/2020/04/taxnewsflash-coronavirus-covid-19-developments.html

https://home.kpmg/xx/en/home/insights/2020/03/responding-in-a-crisis.html


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© 2020 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Managing through challenging times: tax and legal impacts · 2020-06-17 · ―Risk of unilateralism on BEPS2 ... Managing through challenging times: ... predictio\ ns transparency