Against the backdrop of global regulation and finance transformation, the ability for a multinational company to robustly disclose and report its worldwide tax position in a transparent manner goes beyond the technical implications underlying tax planning and tax compliance. These changes in the way of doing business require new capabilities of in-house tax departments and additional skills other than those traditionally required from heads of tax.

It is this challenge that brought leadership in tax to the forefront of tax function. Strong leadership is required in order to manage the tax affairs of a business effectively and ensure that tax is taken seriously in an organisation. The focus is therefore on the head of tax, whose key skills can be defined as demonstrating the leadership of the tax function by designing and embedding the tax strategy. The definition of a tax strategy is consequently only the beginning of managing tax affairs. A genuine leader is able to use this tax strategy as a communication tool and a contract with stakeholders when fulfilling the role of head of tax.

Is the role of head of tax clearly defined?

There are many people in the industry holding the title head of tax who, if we take a closer look, actually have different jobs. The same goes for the staffing and design of tax departments. From the surface, things look fairly similar. However, just below the surface the differences become obvious. It is rarely seen that a tax department is not involved in tax accounting and reporting. In one company this involvement might be limited to advising the controlling department while, in another company, the tax department takes full responsibility for accounting of income taxes in the financial statements. The same differences apply to involvement in: (i) M&A; (ii) management of teams; and (iii) compliance, among others.

In general, it can be said that the aim and purpose of tax departments or in-house tax functions with multinational companies is to take care of relevant fiscal affairs that arise within the business context and existence of the company. This function of in-house tax departments is common to all companies.

In this context a key leadership skill required of a head of tax, in order to be successful within the organisation, is to understand his/her role and the role of the tax function. Moreover, what is their value-added role in the context of the organisation's business objectives? What is the starting point and what are the boundaries of the playing field for the head of tax?

Leadership: development of the strategic plan

Based on the understanding of what is important within the organisation, a genuine leader will develop a strategic plan. Designing a tax strategy is all about making choices concerning how, who and what? It is all about what to do, what not to do and what the focus should be on. Making choices implies that there are things that the tax head will not do and, if appropriately agreed, communicated and documented, not be held responsible for. Upon designing a strategic plan, the wider context, including influencing factors and operational capabilities, has to be taken into account. Without the right environment and attitude, any strategic document is worthless and cannot be implemented.

The key here is to reach agreement as to what is to be managed by the head of tax as part of an overall tax strategy, as well as excluding that which lies outside the definition. For example, where one company includes all direct and indirect governmental duties, another company may limit the definition of tax affairs to only direct governmental duties and levies regarded as income taxes, ignoring above-the-line items. It is inevitable that the person heading the in-house tax function must obtain a complete overview of this playing field, including its outer boundaries. Not only is taking the initial steps in the design of a company's tax strategy a pre-requisite to being able to successfully manage in-house fiscal affairs, it also forms the fundamentals of establishing a leadership role for tax within the organisation.

Designing a strategic plan does not start with a blank sheet. Structure, business strategy, values, the history of the company and other decisions that were made by the company pre-define the space to manoeuvre in. What does this mean while talking about tax strategy and guiding the direction of the tax function? Whereas in one company certain choices are pre-defined, another company may have pre-defined completely different choices. Take for example a listed company with headquarters in Europe. Due to the nature of their business and core assets, their revenues arise in high-tax jurisdictions. One pre-defined choice of the company is treasury-related: the policy is to finance local subs by means of equity and to repatriate dividend flows to group level. Another pre-defined choice is asset related: the policy is to have core assets in ownership by local subs, no (intra-group) lease or any other similar structure. In an analyst report it is noted that the effective tax rate of the main competitor (whose assets are located in the same high-tax jurisdictions) is significantly lower. At first sight the two companies are fully comparable from a business perspective. However, due to the pre-defined choices of our example company, the possibilities for tax saving structures are limited in comparison to its competitor. The competitor may have other pre-defined choices that do not limit the room for tax planning initiatives. Not only does the head of tax need to be acquainted with these pre-defined company decisions upon designing the tax strategy, he or she (as a great leader) must also, in a condensed manner, be able to demonstrate in what way these decisions affect tax planning abilities. It is up to the CFO or the executive board to define priorities: lower tax rate or treasury/asset policies. Once priorities are defined, it is up to the head of tax to align and focus the tax resources to maximise the contribution to the overall results of the company.

Determining the tax strategic plan is asking the question: what does our company want to achieve with the tax function? Consequently, designing the tax strategy is about providing adequate responses to the needs the company is facing in the field of taxation. In this aim, the head of tax needs to be aware of and fully understand the needs and requirements of the internal and external stakeholders. As the leader, he is able to critically assess and prioritise these requirements and separate needs from preferences. Take, for example, a company operating in the consulting business. Revenues are generated by cross-border consulting projects won through tenders or bids. One of the deliverables defined in the tax strategy is that the tax department is there to facilitate the bid processes. As a consequence, the company's bid managers become stakeholders of the tax function. The resources of the tax department are insufficient for full involvement in all of the numerous bids that take place each year. For the tax department to play a pivotal role, it is the head of tax who must understand the interests of the company's bid negotiators. As the leader, he is able to clearly explain to what extent his department can deliver added value to the bid process. This includes the ability to make the process negotiators familiar with where tax aspects may become crucial and where not. Policy documents may serve to lay down mutual understanding and interests but should be re-assessed continuously and, where necessary, adopted.

Once an agreement has been reached as to which fiscal affairs are to be managed as part of an overall tax strategy and after having understood and taken into account all stakeholder needs, it is time to re-assess the tax strategy plan. This means reassessing whether the defined plan fits pre-defined parameters that cannot be changed. The strategy plan should be supported by and well grounded within the organisation. If not, begin discussion and communication with stakeholders: execution will fail without their support. A tax strategy is worthless if its roots are not well grounded in fundamentals such as culture and values, structure and processes, skills (including training) and attitudes and mindset, all supported by adequate technology, measurement and incentives. Leadership implies familiarity with the company fundamentals, and it is the tax strategy that must be adapted to the company values, not the other way around.

Living the tax strategic plan –the head of tax becomes a process and people manager

The head of tax is there to execute the plan and to deliver, with his team, what the stakeholders require. He or she is no longer only a tax technical expert as in the past but is increasingly a process and people manager. Why?

As the financial and reputational risks of tax make it a boardroom matter, the list of deliverables or responsibilities of in-house tax functions has grown significantly. This can be seen in the area of tax accounting and reporting, where the introduction of complex tax accounting rules and the impact of potential errors on financial accounts has made it a boardroom topic. At the same time, changes in accounting for income tax regulations remain continuous, with the expected convergence of IFRS (IAS12) and US GAAP (FAS 109). Increasing complexity and the increase of responsibilities puts the pressure on in-house tax functions. With a broader responsibility, it is important to realise that focusing on one thing could be lethal. Delivering on all fronts is now standard.

Executive boards demand transparency and no surprises in a world where shareholder value remains the top priority. But there is more: in some jurisdictions, tax authorities (the Netherlands, for instance) are changing their working relationship with corporate taxpayers, requiring adequate processes and controls as the basis for these time and cost-saving working methodologies. Another external stakeholder of the tax function is the external auditor. He looks with growing interest at the details, processes and controls behind the tax position in the annual account. The stakeholders have various interests and requirements, again leading to an increase of pressure on tax departments.

All of the additional attention and pressure from inside and outside the company leads to the fact that in-house tax functions are becoming increasingly complex organisations. If departments are to be headed by incisive leadership, this requires more expanded capabilities than only tax technical knowledge.

The vital leadership skills for the head of tax

As in the past, in today's environment outstanding tax technical, tax accounting or computational skills are inevitably necessary to establish an effective tax function. However, today these skills are not enough. The head of tax needs the skill to communicate at all levels of the company, from the office floor to the boardroom.

With tax departments becoming increasingly complex organisations, there is a growing need for people management. A great tax leader creates the structure that holds things together: he or she implements the processes that make members of the tax team contribute to these items, which then contribute to the broader picture. People management means understanding the art of getting things done through people and understanding cultural differences. In terms of tax departments getting things done through experts with detailed knowledge located around the globe, a leader keeps them focused, motivated and challenged.

Tax experts tend to dive immediately into details. The tax leader has to understand what motivates his people without controlling every single aspect and detail. Hence, he or she needs to see the broad picture and set the parameters for the actors within the tax function. The choices that are made while defining the tax strategy must be communicated, made clear explicitly to staff within and, to a certain extent, without the tax function.

The playing field for the head of tax is spread through the entire organisation: it includes the full spectrum, from day-to-day people management to fully-fledged discussions in the boardroom where he/she must understand stakeholder needs and describe complexity in a condensed form.

When deciding on a potential transaction, the board should be informed about tax issues that have, or can have, a material impact on group financial statements. It is up to the head of tax to abstract the message, utilise the tax expertise of his people to its full extent and translate the tax technical and tax accounting merits into business language. This is of particular importance when communicating with decision makers who do not have a tax technical educational background or expertise.

Internally, the tax function might not be taken seriously to its full extent and may be overlooked or overruled. It is up to the head of tax to arrange the internal credits that are needed. For this purpose, the values of the tax strategy are to be acknowledged and incorporated in contractual arrangements with stakeholders.

Externally, tax authorities and revenue bodies are becoming rather sophisticated and well equipped. Knowledge demonstrated through active involvement in professional organisations and pressure groups helps to create external profile and impact: so do outstanding negotiation skills. An extra flavour is added through communication of the values included in the tax strategy. Additionally, it helps to take the tax strategic plan into account when working with external stakeholders. Most importantly, providing clear responses to the needs of stakeholders is essential. Take a company that obtained external advice on the deductibility of real estate expenses for tax purposes. The 20 pages of advice contained a clear explanation of the tax technical merits of the position taken by the company. The advice could serve as a strong line of reasoning for the company's interpretation of the law in a defence file towards a potential audit undertaken by tax authorities.

The usefulness of the advice was limited for the purpose of signing-off the financial accounts by the external auditor. What the external auditor needed was a firm conclusion that the position taken would, more likely than not, be sustained upon a challenge from the authorities. It goes without saying that the detailed elaboration of a tax technical interpretation alone is not sufficient for this purpose. It is the task of the head of tax to have his or her resources do the utmost to meet all needs and requirements.

Measuring performance

With increased scrutiny of the structure and management of tax functions, the focus will shift to establishing measuring instruments and benchmarks.

At present, the market continues to use the effective tax rate as the measuring instrument for tax functions. But a measuring ratio can be applied successfully only in those situations where tax planning (savings) is the only deliverable of the tax department. What is now required in the industry is that heads of tax and their departments are measured on their overall performance.

What are the available alternatives? From its origin as a cost centre, a tax department can be viewed from the perspective of being an internal service provider. The overall quality of these services, their impact and the value added to the business, as well as their response to the needs of stakeholders, could be measured by satisfaction reviews. The results are to be gathered and summarised in balanced scorecards whereby the parameters of the balanced scorecards are taken one-on-one from the tax strategy. What gets measured gets done. It is also in the interest of the tax leaders in the industry that their performance in their broadened roles is adequately measured. It goes without saying that the importance of adequate measurement goes beyond the merely compensational aspects.

Leadership development increasingly emerges as the factor that will determine the success or failure of the tax function's emerging role. While various members of the tax function will have leadership roles in their own particular areas, the main leadership role will clearly be carried out by the head of tax.

The heads of tax demonstrate leadership of the tax function by designing and embedding the tax strategy within their organisations. Their primary task is to solve complex business problems with their teams and not to solve tax technical issues themselves. Hence, while technical tax knowledge is important, it is leadership and managerial skills, as well as the ability to work effectively with top management and the board of directors, which are critical to the future success of the tax function. For this reason, there is a strong emphasis on broad business management, communication and leadership skills.

This active leadership role is to be supported by a tax strategy, which is the main organisational tool to improve the effectiveness of a tax function. It serves as a primary communication vehicle to the board, management and tax personnel, regardless of their geographic location. Moreover, it constitutes a contract with stakeholders and is a pre-requisite for a best practice tax function.

The challenge is to have performance metrics for the tax function that tie in with the overall tax strategic plan. The performance indicators need to reflect the key strategic goals. Only then will the tax function genuinely be able to show the value they are adding to the business.

We anticipate significant developments in this area in the years ahead and are looking forward to contributing to these developments.

Fabio Dell'Anna
		PricewaterhouseCoopers Switzerland Bahnhofplatz 10 3001 Berne Switzerland Tel: +41 58 792 77 07 Fax: +41 58 792 75 10 Email: fabio.dellanna@ch.pwc.com   Fabio Dell' Anna is a partner with PricewaterhouseCoopers Switzerland and has more than 20 years of experience in advising both Swiss and foreign corporations on complex Swiss and cross-border tax and accounting matters. He is a Swiss certified chartered accountant as well as a Swiss certified tax expert. He leads the firm's Switzerland's tax management and accounting services group, which is a global network of professionals who provide outstanding tax accounting and process-oriented services to multinational clients. In addition, he is the technology, infocomm and entertainment (TICE) tax industry leader in Switzerland for more than seven years.

Andreas Staubli
		PricewaterhouseCoopers Switzerland Birchstrasse 160 8050 Zurich Switzerland   Tel: +41 58 792 44 72 Fax: +41 58 792 44 10 Email: andreas.staubli@ch.pwc.com   Andreas Staubli has been an international corporate tax partner with PricewaterhouseCoopers since 2000. Within PricewaterhouseCoopers Switzerland, he is the tax leader for the country's German speaking part. He is also the Global Insurance Tax Leader of PricewaterhouseCoopers. He is a certified Swiss tax expert and graduated from the University of St Gallen with a degree in finance and accounting. Andreas gained his international tax experience during his secondment to the tax planning group of PricewaterhouseCoopers in New York in 1999/2000. He is the lead tax partner for several multinationals and he specialises in international tax structuring, insurance taxation as well as tax function effectiveness and tax accounting (US GAAP and IFRS).