How to create an in-house tax function

This article appears in the May issue of our International Corporate Structures Newsletter.

I was lucky in my career. I got to build my own in-house tax team, virtually from scratch, with the freedom to choose roles and individuals to fill them – all within pre-negotiated budgets.

This article focuses on tax teams for general industrial and commercial companies. The additional requirements for specialist industries like financial services or property are not covered here.

Let’s visualise a growing international company which has always outsourced the tax function. Now the CFO wants to establish an in-house tax function. What should that function look like?

The goal should be a team that collectively and individually has the following attributes:

• Technically strong and highly commercial business advisers
• Knowledgeable about the company’s business, products and systems
• Collaborative
• Willing to learn and cope with change
• Good negotiation and communication skills
• Capable and enthusiastic users of technology
• Users of logic and common sense

Clearly, this will require an investment of time and effort. In my opinion, the team should consist of individuals with different backgrounds and levels of experience. Just hiring tax technical people with only theoretical knowledge is not a good basis for any in-house tax team.

I think externally-trained tax people mixed with internal hires is likely to create the right balance. When I built my team, I deliberately included more internal candidates with finance backgrounds from different departments such as legal entity reporting, management accounting and treasury. This cross-section proved invaluable when dealing with tax audits – we were not just tax people but had direct hands-on experience of other relevant areas. I decided it was easier to teach them tax rather than trying to teach external tax advisers about the company. All were encouraged to take professional tax exams, and the company provided financial support and appropriate study leave. Later additions included external hires to add to the then existing expertise.

Ongoing training of a tax team is crucial, not just in technical matters but also in automation opportunities. Appropriate tax software to increase efficiency, avoid errors and simplify processes should be a high priority for any company. The costs to comply are greatly outweighed by the negative impact of bad publicity from tax defaults.

The roles an in house tax team should perform will be determined by the nature of the company’s business and the countries it operates in, but should cover:

• Tax policy development
• Tax audit management and resolution
• Tax governance and risk management
• Corporate Tax and Transfer Pricing – planning and compliance
• Tax accounting
• VAT – planning and compliance with 100% VAT recovery returns prepared within Finance and reviewed by Tax
• Other indirect taxes – depending on the nature of the taxes involved and only if Tax has direct input to provide
• Global mobility and employee taxes – better suited under Payroll and HR but with a link to Tax on policy and tax audit issues.

The importance and relevance of each of these roles will not only be driven by the company’s business but also by its global tax strategy and attitude towards compliance.

The efficiency and competency of an inhouse tax team will generally be determined by the qualities of the appointed Head of Tax who should ideally have the following main attributes:

• Technically sound but not blinded by detail
• Strong leadership skills
• Good communicator with tax- and non-tax people
• Commercial, proactive and innovative
• In conjunction with other key stakeholders, able to develop and achieve the company tax strategy
• Ability to influence peers, teams and colleagues of all levels of seniority.

The Head of Tax is crucial, not only for building and developing a strong tax function but also in acting as a business adviser and providing support to the CFO and senior management team.