How to ensure your corporate tax culture thrives in the new normal
Pieter Janse van Rensburg says companies must position themselves to deal with complex tax matters.
The “new normal”. We have all heard the term and tried to unpack its implications. We have deep-dived and taken discussions off-line. All good and well, but how is the tax executive supposed to put Zoom’s and Teams and Google Meets into something constructive, so they gear up for and adapt to this phenomenon known as the “new normal”? Below are some of the matters which, in our view, qualify for inclusion on the to-do list, or should perhaps even fall off that list altogether when it comes to doing post-pandemic business.
Culture clash: creating a company tax culture
Human capital professionals are often tasked with creating a company culture, sculpting what is accepted, what is frowned upon, and what is entirely taboo. These rules are often unwritten and engraved in the company DNA – how things are done. With less facetime and office interaction between employees, this is an unenviable task.
Tax is no different. At the core of tax planning compliance and overall engagement, a company must now establish a tax culture, somewhere on the spectrum between permissible avoidance to completely pro-fiscum – again, how things are done. The company must position itself to deal with tax matters, taking cognisance of its risk appetite, commercial realities, and stakeholder interests. Yes, the fiscus is a stakeholder, but should it be the only stakeholder? Inevitably, the company tax culture will extend beyond the company tax reference number.
The Tax Administration Act contains various provisions relating to tax practitioners’ conduct and tax status. There is also plenty of anecdotal evidence that SARS is confronting regulated controlling bodies on their members’ (delinquent) tax status. Moreover, as promised by Finance Minister Tito Mboweni in the February budget, SARS has sent out its first round of engagement letters (signed personally by Commissioner Kieswetter, nogal) to high-net-worth individuals from the new office, created especially for them.
It seems, therefore, that tax is no longer a tripartite relationship between the fiscus, the taxpayer and the tax practitioner. A company’s tax culture extends to all its stakeholders, particularly employees. A blotch on the record of an employee, particularly one whose matters are attended to by Mr Kieswetter’s office, is a blotch on the company record. Creating a company tax culture appropriate to deal with issues that extend beyond its scope is of utmost importance.
First, manage perceptions
Spur, BMW, Volkswagen, Massmart, Sasol, Absa, MTN, Telkom. Apart from being rated top employers, contributing value to their stakeholders and being recognised as market leaders in their industry, these blue chips share another common trait. They have all been involved in litigation with SARS over the last 24 months on various issues. The immediate public perception is that they engaged in activities that are untoward, or juggled the figures.
On the contrary, these companies acted appropriately in litigating their tax positions – whether they were ultimately successful or not is of no consequence to the principle. They sculpted tax laws and created precedent. If the tax executive has a responsibility towards SARS and the fiscus, but also to all stakeholders, a balance should be struck between those inevitably conflicting interests: even if one needs to litigate to achieve those outcomes.
Tax controversy and litigation is part and parcel of being a corporate citizen, and it should not be avoided at all costs. And for those who do try to avoid it, the cost of doing so will become ever increasing. With SARS (rightfully so) bulking up on skills, using artificial intelligence in its search for inappropriate transactions and with talk of affording it prosecuting powers, tax litigation will increase into the future. The challenge for the executive is how these perceptions around litigation and tax controversy are managed and positioned in the market.
Charity begins at home (or at least on the continent)
The United Nations Economic Commission for Africa estimates that the Africa Continental Free Trade Agreement (ACFTA) will boost intra-African trade by 52 percent by 2022, which is not insignificant. This, combined with South Africa’s extensive treaty network with approximately 20 African states, creates an interesting dynamic in international trade and by extension, taxation. But is the ACFTA the holy grail of future cross-border transactions? Will tariff-free trade solve economic hardship?
One would be pardoned for being at least somewhat sceptical since this is not the first agreement of its sort, and many have been filed in the bottom drawer without having achieved their desired outcomes. The lessons? The tax tail should not wag the dog. Yes, tariff-free trade and treaty reliance sound idealistic, but do not come without its challenges, especially on the continent that we call home. Transactions should first and foremost make commercial sense. Undoubtedly, the ACFTA should make tax executives sit up and take notice of opportunities, but whether it necessitates a change in the way business is done, particularly post-pandemic, is doubtful.
In conclusion, the world of business and tax is changing fast and only those tax offices which understand and adapt to the ‘new normal’ will be able to stay a step ahead of the pack.