Globalization and technology are making the role of corporate tax professionals more demanding than ever. Tax specialists talk to Nicky Burridge about key developments in this field, and how they increasingly collaborate with companies to form business strategies.
Being a corporate tax specialist used to be about helping companies minimize their tax burden – but times have changed. Concern about the bad publicity companies such as Google, Amazon and Starbucks have incurred due to a perception that they have not paid their fair share of tax, has made businesses more mindful of the reputational damage they can suffer if they are too aggressive in their tax planning.
Eugene Yeung, Director of Corporate Tax Advisory at KPMG, says: “In the past, we tried to minimize tax as much as possible, but now we are telling clients you need to pay a fair amount of tax. The public is placing more emphasis on tax and reputation issues.”
He adds that companies are also putting more resources and emphasis on making sure their tax matters are properly managed. “There are occasions when clients will tell us they don’t want to go too aggressively for social responsibility and reputational reasons,” he says. Yeung points out that tax is also fast becoming a hot topic in the boardroom as companies realize the importance of getting it right.
There is a misconception that working in corporate tax involves little more than completing companies’ tax returns and ensuring compliance standards are met. But the field is actually a varied and dynamic area in which to specialize as practitioners guide their clients through increasingly complex and constantly changing international tax laws.
This special report on the corporate tax specialism explores the various areas within the field; the current developments that make this specialism challenging and dynamic; how technology is having a significant impact in this area; the skills corporate tax experts should have, including a good sense of “smell”; and how the rapidly changing international tax scene provides interesting careers opportunities for those looking to specialize in this field.
A varied specialisation
Corporate tax is a highly varied area in which to specialize, with practitioners covering everything from corporate restructuring to tax litigation. “There are a number of different areas, the basic one is handling Hong Kong tax compliance work, completing tax returns and handling enquiry letters from the Inland Revenue Department (IRD),” Doris Chik, Director of Tax and Business Advisory Services at Deloitte, says. “The next level involves tax advisory work after more experience is gained. Some areas are of more specialization, for example transfer pricing, mergers and acquisitions, international tax and tax controversy.”
Chik works on Deloitte’s tax technical team. Before that, she had spent more than half of her career focused on client services. Her current role involves providing in-house tax technical consultation, conducting research, closely following any new tax developments and writing articles and newsletters about them for clients and colleagues. She also handles internal tax training. “The objective of a tax advisor is to act as a trusted business partner of our clients, to offer them advice and guidance when they are uncertain about tax treatments or when there is new tax development, or advise them how to run their business in a more tax efficient way,” she says.
Sharon To, Senior Manager, International Tax and Transaction Services at EY, spent the first few years of her career focusing on China tax, before going into her current area of work. “I look at corporate restructuring, including the holding structure and business model of a company. That is day-today for me,” she says.
To enjoys the international dimension there is to her work, and the fact she often needs to collaborate with other overseas offices. “Because the rules are dynamic and the work involves multiple jurisdictions most of the time, you cannot work alone and think about your own plan. You need to work as a team and think about the whole picture before you can move anything. Otherwise it might lead to serious consequences and issues you cannot imagine. This is quite critical in tax,” she says.
Yeung agrees that there is a strong international aspect to the work of a corporate tax specialist. “If a Chinese client wants to invest overseas, they want the appropriate legal and operational structure that will enable them to grow with a reasonable tax cost on a global basis,” he says.
He adds that a practitioner may be based in Hong Kong but they could be managing tax compliance for a company with international businesses, meaning they would have to file a tax return in Malaysia, for example, or manage a tax audit in India. “You need to consider the laws in other jurisdictions. That’s what makes the work interesting,” he says.
Yeung adds that corporate tax can also be about litigation and helping to resolve disputes between taxpayers and the IRD. “There are certain circumstances where, if we cannot reach a settlement, we will see each other in the court. I actually went to the Court of Final Appeal once with one of our clients. That was an interesting experience.” He jokes that he decided to specialize in corporate tax area because he enjoys arguing. “I enjoy convincing people to agree with my viewpoints, and in our role, we need to do this with the tax authorities on a regular basis,” he says.
Cynthia Lam, Senior Manager, China Tax and Business Advisory Services, at PwC, started out working in Hong Kong but later volunteered to transfer to Mainland China. “I think China’s tax and business environment are dynamic and I have an interest to learn and experience the working lifestyle there, that is why I transferred. It was a good choice for me as there are lots of new challenges,” she says. Lam points out that while much of her work is client-facing, she has also done work for the government in Mainland China, carrying out research and providing suggestions to support policy-making.
“They wanted us to assess the tax business environment, how they were perceived by the community and what areas they could improve on. We proposed that action should be taken so that revised filing can be done electronically, not only on paper. We are glad that they have adopted our suggestions,” she says.
Benjamin Chan, Chief Assessor at the IRD, taking charge of various international tax matters, comes at corporate tax from the other end of the spectrum. “My current profile includes treaty negotiations, exchanges of information (EOI), advance pricing arrangements (APA), and mutual agreement procedures (MAP). I also help take forward the relevant tax initiatives promulgated by the Organization for Economic Cooperation and Development (OECD) in Hong Kong,” he says.
He adds that a career in tax appealed to him because tax is very law-related and rules-based, while there are still many different aspects that need to be considered. Chan explains: “In taking forward an international tax initiative, we need to consider if the proposed initiative is consistent with our existing tax principles and tax system. We should also strike a balance so as to maintain our simple tax system and to avoid imposing an undue burden on taxpayers. We have to ensure the whole initiative, when implemented, is beneficial to Hong Kong and will not hinder the development of our economy,” he says.
Changes and developments
A rapidly changing environment
One of the biggest challenges practitioners in corporate tax face is the rapid pace of change in the international tax environment. Yeung says: “Tax is very dynamic. It is always evolving and keeps moving.”
Chik points out that international tax is also complicated compared with Hong Kong’s more simple tax concepts. “We need to be prepared to study and learn all the new tax rules,” she says.
Chan agrees, adding that for the IRD, capacity building is a major challenge because of the dynamics of the international tax landscape in recent years. “The OECD has launched many initiatives and a number of them have been implemented in Hong Kong. Tax officers need to keep pace with all these developments to ensure taxpayers are compliant.”
He adds that tax officers have to understand not only the technicities of the initiatives, but also the way in which they should be implemented. “If a jurisdiction is considered as having implemented the initiatives not in accordance with the international standards, it will be a big problem.”
He explains that the OECD has established the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) for monitoring the implementation of the BEPS package. Currently, the Inclusive Framework has 135 member jurisdictions including Hong Kong. The member jurisdictions perform peer reviews on the BEPS minimum standards, looking at how well they have implemented the standards and making recommendations for improvement if necessary. “We are very concerned about our compliance as well as our reputation,” Chan says.
He adds that it is also important for Hong Kong not to end up on the European Union’s (EU) list of non-cooperative jurisdictions for tax purposes. “To achieve this, Hong Kong has to meet various criteria including the implementation of the BEPS package as well as the automatic exchange of financial account information, the two major initiatives of the OECD,” he says.
Managing transfer pricing
One of the most recently discussed topics in the field of corporate tax in Hong Kong has been international pricing arrangements. Hong Kong codified new transfer pricing rules in July last year as part of its response to the OECD’s BEPS initiative. The rules surprised the accounting profession as they went beyond the level that was expected.
The change created uncertainty for companies, which have previously used transfer pricing arrangements to take advantage of tax differentials in different tax jurisdictions to lower their effective tax rate. “Tax jurisdictions have become more concerned about transfer pricing from the BEPS perspective. Both the OECD and the EU adopt compliance with international transfer pricing rules as one of their criteria for evaluating the harmfulness of a jurisdiction’s tax practices. There was thus pressure for Hong Kong to put in place a comprehensive set of transfer pricing rules in its domestic laws which are consistent with the OECD rules. To further enhance certainty, a statutory APA regime has been introduced to enable taxpayers to agree with the IRD the appropriate transfer pricing methodology before controlled transactions take place,” says Chan.
He points out that many Hong Kong-based enterprises have operations in other jurisdictions. These enterprises want to make sure they are complying with the transfer pricing rules. The IRD has issued guidance to help them understand how the new rules will be implemented.
Taxing digital gains
Despite having only just implemented BEPS 1.0, as it has come to be known, tax practitioners are already gearing up for BEPS 2.0.
While in the past, corporate tax has been largely determined by where companies have a physical presence, the digital economy means companies can make a profit in jurisdictions where they have no base, such as through downloads and e-commerce, making it difficult for them to be taxed using existing laws. The BEPS 2.0 initiative is looking to address this situation by assessing whether companies have an “interest” in a jurisdiction even if they do not have a physical presence there.
Lam explains: “We have to abandon the traditional thinking of a permanent establishment or physical presence. In today’s digitized world, business can be carried out in many ways. Traditional international laws may not be efficient, and they may need to be revised.” She does not expect the process to be simple, and anticipates there being significant debates between countries as they try to decide how to allocate companies’ profits. “Individual countries will have their own objectives. Some will want it to be based on market value, some on intellectual property,” Lam says.
Chan at the IRD explains that the BEPS 2.0 initiative consists of two pillars, with the first pillar covering the new nexus and profit allocation rules to address the tax challenges arising from digital economy. “The old tax rules, which allocate taxing rights on the basis of physical presence, are considered not sufficiently able to relate the profits to the place where value is created. The G20 therefore tasked the OECD to explore a new nexus unifying the concepts of user participation, marketing intangibles and significant economic presence, with a new method for allocation of profits to the market jurisdictions.”
He explains that the second pillar seeks to develop some global anti-base erosion rules to ensure multinational enterprises will pay a minimum level of tax. “The OECD is still working on the rules for the two pillars. The target is to release the final outcomes by the end of next year,” Chan says.
He adds that Hong Kong will need to consider its response to the BEPS 2.0 initiative very carefully, as the initiative will affect the multinational enterprises which carry on business in Hong Kong and the stakes are very high. “We are keeping a close eye on the development. We have been attending the relevant OECD meetings to understand more about the initiative and map out our strategy and response in the most appropriate manner,” he says.
Tax as an economic tool
In the meantime, Hong Kong continues to introduce tax incentives to help shape the local economy. Indeed, tax is continuously used as a tool to drive economic developments.
Chan points out that Hong Kong has introduced a number of tax incentives to encourage certain businesses in the city, such as the half-rate corporate income tax (CIT) concessions for corporate treasury centres, professional reinsurers, captive insurers, aircraft lessors and aircraft leasing managers, as well as the enhanced tax deductions for research and development (R&D) expenditure. He adds that further tax incentives will be introduced in the future for specified insurers, licensed insurance broker companies, ship lessors and ship leasing managers.
Lam expects to see other tax incentives introduced to help boost certain sectors within Hong Kong’s economy. She explains that China has introduced a lot of policies to help companies through reduced tax rates. For example, technology companies pay CIT at a reduced rate of 15 percent, compared with a standard rate of 25 percent. She points out that this rate is below Hong Kong’s standard CIT rate of 16.5 percent. Lam adds that China has also recently increased the R&D incentive for companies from a 150 percent tax deduction to a 175 percent one. Speaking of promoting emerging business, it should be noted that a relaxed taxation regime is also available for small and medium enterprises (SME) in China.
But Yeung cautions that using tax to help boost certain sectors is not always straightforward. “Nowadays it is all about crossborder investment, and tax incentives by a local government can become an international issue. For example, if a tax rate is too low, some countries will see Hong Kong subsidiaries as controlled foreign companies, triggering complex tax implications. Therefore, in formulating the local tax incentives in Hong Kong, we have to not only look at our own situation but also what the rest of the world is doing,” Yeung says.
Chan agrees, pointing out that any tax incentives introduced by Hong Kong in relation to geographically mobile activities have to be reviewed by the OECD’s Forum on Harmful Tax Practices (FHTP) to ensure the incentives are free of harmful features. He adds that introducing new tax incentives is always a balancing act. “While ensuring the effectiveness of a new initiative, we should not compromise our commitments to complying with the FHTP’s criteria.”
The specialist skills needed
Given the complexity of corporate tax, there are a number of key qualities that CPAs hoping to specialize in this area need to have. Chan thinks having strong research and problem-solving skills are the most important qualities, while Yeung places a strong emphasis on curiosity. “You need to find out why the law is written in a certain way or why in a court case the judgement went a certain way,” Yeung says.
Lam thinks that taxation should be analysed from an international perspective in view of the needs of multinational companies and the development of the international tax system. It requires practitioners to have the ability to understand tax rules in different jurisdiction in order to help clients find the best solution. “You have to fully understand their plan and help prioritize clients’ different objectives before you can advise them what to do in different locations. Sometimes you have to balance the view of different teams, which can be quite challenging,” she says.
To agrees: “When clients come to you, they may have a number of issues. Some may be about China, some about international tax. They see you as a business advisor, so you need to be an all-rounder and be their trusted advisor and first contact point.”
She adds that tax practitioners also have to be good with people. “You need to have good communication skills to work with the other professionals like the bankers and the lawyers. I think that is quite important. We are not looking only at the numbers, we are talking to people as well.”
Chan points out that communication is an essential part of the IRD’s work. Tax officers not only need to communicate with taxpayers, but they also need to reach out to various business groups, such as professional bodies and chambers of commerce. “You should have very good communication skills to convey your message and be very good in different languages. Internally you can speak in Cantonese, but with taxpayers or tax officials from other jurisdictions, you need to talk in English, Putonghua and even other languages,” he says.
He adds that tax officers should also have a good business sense, particularly when dealing with transfer pricing cases, as they need to gain an in-depth understanding about the functions performed, risks assumed and assets used by the taxpayers. “The pace of development in business sectors is very fast – you have to work very hard and have a very good willingness to learn,” Chan says.
Yeung highlights that tax practitioners need to pay attention to details: “Sometimes, within the legislation, for a sentence whether there is a comma or not can make a great difference,” he says.
Corporate tax specialists also need to develop the ability to “smell” when something is not right, such as if a client is not being entirely honest with them. Chan says: “As a tax administrator, you have to develop very good professional knowledge and analytical ability. You should be able to tell whether something is not right even the information in hand is limited.”
Yeung agrees: “We are trained to find exceptions. I think that is very true.”
How to specialize in corporate tax
The Institute runs a number of programmes and initiatives to help members who would like to specialize in corporate tax. It offers two professional diplomas in taxation, namely the Professional Diploma in China Tax and the Professional Diploma in Hong Kong Tax, which look at the different aspects of Hong Kong and Mainland China taxation, and the primary principles that underpin them.
Both diplomas are taught part-time, with workshops held on Saturday afternoons and tutorials held on weekday evenings, to enable members to study for them while working full-time.
It also offers an international tax course to give members a grounding in key international tax concepts, and help them acquire the practical taxation skills they will need to provide advice on cross-border transactions. A similar course is offered in China tax, while the Institute also has an Advanced Hong Kong tax course, which provide in-depth knowledge of key contemporary tax practices so that members can create tax planning solutions.
The Institute also has a Taxation Faculty, which coordinates all the technical, advocacy and liaison work it does in this area, as well as running tax seminars, networking events and producing e-newsletters for members. The faculty also helps to raise the profile of the taxation profession in Hong Kong and provide a stronger voice for members working in this field.
Sharon To, Senior Manager, International Tax and Transaction Services at EY, says the Institute’s Qualification Programme gave her a very good foundation in understanding both tax and business and financial management, setting her up well for her career specialization. “What I learned is still really useful for me when I handle different cases,” she says.
She encourages accounting graduates to find out more about corporate tax as a specialization. “Students don’t have a good idea about what corporate tax involves and there is a gap between their understanding and what we do day to day,” she says. She also suggests specialists in the field should spend more time communicating what they do to help people become more engaged with the field and encourage students to consider it as a potential longterm career.
The virtual consultant
Chik points out that technology can be harnessed to carry out more efficiently some of the routine work practitioners do. “Work such as tax computation and tax return completions can be taken up by machines. We can design software programmes to do tax compliance work more efficiently. This saves time for tax professionals to do more advisory level work,” she says.
Lam agrees: “In China we used to spend a lot of time doing basic compliance work. Now with technology enhancements, we spend less and less time on this basic work and do more value-added services.”
Yeung says he has seen a growing number of clients exploring using technology to automate compliance work. “Now we can use a robotic process to extract data from the ledger and turn it into a tax computation. The outcome may not be 100 percent complete, but the additional work will be reduced. This represents an opportunity and also a threat to tax professionals.”
He also cautions that with the advance of technology, information has become much more easily available, which is also making tax practitioners’ jobs harder. “When I joined the profession, clients would ask questions because they didn’t have access to the laws or the local practices in China. Some of the questions would be quite straightforward to answer and we would still be able to charge a fee, but now when clients come to us the first question is no longer something simple. Another way to look at it is: it makes our work more challenging.”
He adds that another aspect of information becoming more readily available is that IRD officers can also go online and easily find out things about taxpayers beyond the information they have been given. “That is also a challenge,” he says.
To agrees: “The challenge is that transparency is very high now. You need to have a very strict protocol on documentation. Everything can be seen by the tax authorities.”
Chan confirms this, pointing out that not only does the IRD have its own database, but it also receives information from other jurisdictions through the OECD’s country-by-country reporting initiative.
Technology can also be used to make the process of filing tax returns more efficient. Lam points out that the tax bureau in China is very technology advanced and has not only introduced online filing but also offers virtual interaction with tax officers if taxpayers or practitioners have an issue that they need assistance with. “They are using technology to improve their service,” she says.
China also uses advanced technology, such as big data and artificial intelligence, to select targets for further investigation. “We suggest taxpayers take preemptive action and address problems at their root, instead of using window-dressing techniques which just delay the problems,” she says.
Chan says the IRD is also in the process of harnessing technology to enhance its services, and it plans to extend the scope of electronic filing of profits tax returns to all taxpayers. It is also looking at how technology can be utilized to improve its efficiency in terms of managing workflow and monitoring cases. He adds that electronic filing will be necessary to address the OECD’s concern on the tax filing rate of Hong Kong companies in the context of EOI.
The future specialist
Going forward, Chik says: “Tax advisors will play a more important role to businesses and there will be a higher demand for tax technical knowledge because of all these complicated rules.” She also expects tax practitioners to become more specialized due to the growing complexity of international tax law. “Even within the tax professionals we have different streams of specialization,” she says. Despite this, she still expects there to be demand for generalists. “Some companies will still have general issues. Practitioners will need to have a knowledge of other areas so that they can “smell” the issues and refer those to the appropriate specialists,” she says.
Yeung agrees, pointing out that tax practitioners will still need a strong general foundation, even if, as they move up the career path and become more senior, they specialize in one or two areas.
A talent shortage in the sector also creates good career opportunities. Yeung says: “We don’t have enough talent. It is very difficult to recruit good people with the right experience and the right skill set.” As a result, he says firms are prepared to invest time and resources in training graduates in this area. “There will be good career prospects,” he says.
While there is no doubt that corporate tax is a demanding specialization, practitioners also see it as a field in which talent is nurtured. Yeung says the most memorable experience of his career was when he handed over some of his clients to a newly-promoted manager who he had spent many years training. He remembers that one of these clients later said: “I am very happy with him. I can rely on him as much as I rely on you.”
Chik points out that there is also a strong sense of camaraderie. She says: “For me, the most memorable time goes back to when I was a junior. During peak season, we needed to work overtime and we would order dinner to the office. Juniors and seniors, even managers, would put our drawer cabinets together to form a big dining table to have dinner like a family. It was really memorable because of the peer support.”
This article was originally published in the November 2019 issue of A Plus. You can read the digital version here.