“These days aggressive tax planning is frowned upon,” says Kent Karro, partner and chairperson of the Cape Town based accounting and advisory firm Horwath Zeller Karro. As a highly experienced tax specialist and honorary life member of the South African Institute for Chartered Accountants (SAICA), Karro has noticed a great emphasis on ‘tax morality’ in the last few years. “In the past the job of the CFO and his tax advisors was to pay as little tax as possible and non-disclosure was considered to be part of tax planning. Now there is a shift towards a substantially greater amount of transparency.”
According to Karro it is very important for CFOs to be aware of this new dynamic, because directors these days ask serious questions if the tax bill is lower than the 28 percent tax rate, something that would have been unthinkable in the past. “In the UK, companies like Starbucks and Google got in trouble by paying what appeared to be too little tax, even though they did not do anything illegal. After that they apparently paid the tax collectors, but cynics might ask what those additional payments were for if they weren’t legally required – donations, bribes?”
One of the practices that have come to the attention of tax collectors worldwide is creative transfer pricing. “CFOs better know this needs to be on their minds,” says Karro. By letting a related party in another country pay a higher or lower price for goods or services, the lowest tax rates can be utilized. “The world is a smaller place. If you pay a related party overseas 1.20 dollar per item, while my tax authority says it should have been 1.00 dollar per item, it gets complicated as my home country tax authority wants tax on 1.20. In theory double tax treaties between countries should deal with this, but different countries have different interests. What is worrying me is that it is companies and their shareholders that are being squeezed.”
Horwath Zeller Karro is a member of Crowe Horwath International, which consists of over 140 independent accounting and advisory firms with 560 offices globally. The firm is ranked in the top 10 accounting and advisory services firms worldwide, but cherishes its status as a 2nd tier firm, preferring to let the quality of service delivery dictate the size of the localised firms. The international network gives Karro a head start, he has noticed over the years. “For example when I have a client who wants to buy property in France, I can just phone my colleague there, whom I know very well. The tax laws are very peculiar there, but our international network makes the process very quick and easy.”
“My father started this firm 75 years ago,” Karro proudly tells CFO South Africa. “There is also a Johannesburg office, but we operate independently.” The Cape Town firm consists of 9 partners and over 80 employees, many of whom have attained postgraduate and international qualifications in various subjects. Specialised areas of operation include estate planning, income tax, value-added tax, curatorship, exchange control, labour dispute mediation and financial management advice to owner-managed businesses. “Today more than 50 percent of the accountancy intake is female and there are growing numbers of black accountants. We have 2 female and 2 black partners. Most of our partners have been articled here, as I was with my father in 1963.”
“In this field we have to run faster and faster to stay in the same place,” Karro remarks. “Our emphasis is on practical advice: appropriate, timely and legally sound. I have worked with both accountants and lawyers and I always look for practical answers. It is however extremely challenging to keep up-to-date. New tax legislation is published at various dates during the year. I know the law now, but if a client runs into a problem relating to something 2 or 3 years ago, I need to know what the law was then. There are many amendments to amendments coming through. It is a silly situation.”
According to Karro his firm was one of the first South African accounting firms to start issuing newsletters about the tax laws in 1976. “To be up-to-date in tax requires an enormous investment of time. A lot of text books are being published, a lot of articles are being written. I am the chairman of the SAICA-panel Integritax that writes a monthly tax newsletter for CAs. I personally also write a budget newsletter in February, less than a week after the budget speech. That is a 32 page A4 booklet.”
Karro lectures on tax matters and also works with SAIPA, the South African Institute of Professional Accountants. The advice Karro has for young tax practitioners, is something all finance experts can take to heart. “Follow the path of integrity and honesty. It is just as essential to mentor juniors as to expect it from your superiors,” says Karro. “What is also often overlooked is an approach that underpromises and overdelivers. I tell people upfront that I need an extra week for a certain task. I then deliver it a few days early. Other people say they going to try to do it in time, but fail. We might both eventually deliver on the same day, but my client is happy.”
In the picture the partners of Horwath Zeller Karro:
Standing: Clayton Jonkers, Yolanda Rybnikar, Kent Karro, Ethel Hamman, Gil Gogulho, Charles Gurland.
Seated: Ronnie Glass, Rob Spies, Joel Berkowitz.
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