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The LCN Interview: Philippe Paumier

Interviews

Intercompany Agreements

18 November 2021

 

Philippe Paumier is a transfer pricing expert with over 20 years’ experience, most of it acquired as an in-house expert in major multinationals. In 2019 he founded VECTOR TP, which combines in-house know-how on transfer pricing with extensive international practical experience.

 

Tell us more about VECTOR TP: what makes it different?

I started with a very basic idea: that there was a gap to be filled between in-house and outsourcing, and that co-sourcing could be an interesting answer. Co-sourcing has been used for a while in certain areas, but it’s still in its infancy in tax. The idea has gained momentum recently, as covid has generated some significant budget constraints for companies, and even hiring freezes.

In co-sourcing you act as an external resource, and bring your knowledge, and hopefully useable solutions; but the main difference is that you actually work with the teams and pass on that know-how.

Another thing that clients appreciate in co-sourcing is that the trust you build allows you to formulate honest opinions and solutions that are adapted to the reality of the company, not only to principles or guidance. I like to believe that I sell practical and useable solutions to my clients. You could say I sell hope, not fear.

In co-sourcing you also help teams by running an informed diagnosis of their TP situation; this helps them to optimise their remaining resources for smarter outsourcing.

There's a misconception that this ‘co-sourcing’ approach can replace consultants. That's actually not true at all. No single person or small team can match the intellectual firepower of a big consultancy firm. What you can do, though, is to help your clients to better define where they need additional help.

 

So do you start a new client relationship with the expectation that it will end as you pass on your know-how?

I think it should be your goal. If you have something to give, your clients should get progressively more and more independent. When you implement a solution or TP framework with a client, there is no reason to stay there forever!

It's a scale. So you deal first with the easier topics, and you eventually reach the most complex technical topics. So you can continue to deliver value to a company for a certain amount of time.

But then usually one of two things happens. Either they build their own know-how to the point where they need less help, or they decide to recruit. I’ve actually helped some of my clients to recruit. At that point, you tend to switch to a more traditional role where you are ‘consulted’, and do not produce as much as before.

 

How did you get into transfer pricing in the first place?

Well, like most people of my generation (I'm 47) that are not tax trained, mainly by coincidence. I was hired back in 2000 by a pharmaceutical company that put an ad out looking for somebody with some understanding of tax and legal, a strong basis in economics, in finance and value chain analysis. (These are the key components of transfer pricing for tax and financial analysis.)

Prior to that, I was an economist, in the French Ministry of Cooperation, in Cameroon, as an advisor in macroeconomics and fiscal policy.

When I saw the ad I applied, not really knowing what transfer pricing was about. I applied more because of the combination of areas and the mindset behind they approach they were selling, a holistic approach. (Before the word ‘holistic’ became trendy.) I have a Masters in corporate strategy and a Masters in economics. So not at all a tax background. At that time, for me Transfer Prices were something that at the end was equal to zero in the accounts!

A lot of TP economists of my generation started like that.

 

So you specialised in transfer pricing after that?

Yes. After three years, I was really thinking about going back to finance and economics. I had the very naïve view that TP was actually quite simple. (Remember, this was the era of ‘over-simplification’ in TP, or so I thought.)

And then came a job offer from GE. I was fascinated by all these gigantic companies, and GE was one of the biggest corporations in the world. So therefore I stayed in TP.

And then I started to realise the next level of complexity. That's when I really began to dive into the tax-related TP issues, specifically the US tax issues. That's when I basically began to really specialise, thanks to all the education I had received in my prior job. That was the steepest part of my learning curve. And I just loved it so much that there's no way I would go back to doing anything other than TP. An addiction? Probably yes, to a certain way of doing TP.

 

What is it specifically about TP that fascinates you the most?

TP is a construction. It's a theoretical construction. The very basic and fundamental point of transfer pricing, is that parties have to behave as if they were not in the situation that they actually are. It's pretty odd, when you think about it.

And over the last 20 years this job has become more and more interesting. It used to primarily be financial analysis. Then it became more like financial and economic analysis. And now it’s almost like game theory, with deep economic value chain analytics.

So this job keeps on changing every six or seven years. What else could you want, as a professional? You want a job that makes you progress: that shows you all those things that you don't know. A job that requires you to renew your knowledge every six or seven years is a blessing.

I always thought it was extremely important to know what you don't know. And this job basically just reminds you every now and then that there are many things out there that you don't know, and you need to work and keep yourself constantly busy in an intellectually challenging environment.

So that's why I've always found it fascinating. Also, ever since I was in business school, I have always been extremely interested in open systems. And transfer pricing is an incredible open system. I'm very passionate about my job, or – to be precise – about the way I do my job, and the way my clients allow me to do it.

 

What is the next set of big changes that you think we're going to see?

I see it like a pendulum. You have a wave of sophistication that is followed by a wave of simplification. The oversimplification of the 90s and early 2000s generated a tremendous amount of controversy because tax administrations (and/or the OECD) felt that this simplification did not reflect the complexity of global value chains.

 We are in the middle of two trends of changes in this moment, some of which are making thing more complex and some which are in some ways a simplification.

The 2017 BEPS package has made things much more complex. We are almost going too far: some people out there, including myself, are sometimes a bit lost on how to use some of the concepts in the package. Because in many instances, there's no clear guidance. That’s when all the business background that I have accumulated over 20 years comes in handy, just to be able to come up with satisfying and pragmatic approaches for my clients while reflecting the principles of the package.

However, the most recent measures pushed by the OECD, Pillar One and Pillar Two, I see as some level of simplification. (Most people see them as an extreme complication.) The OECD is saying – at least for some companies, and maybe for more in the future – that you're going to allocate a share of those global profits in a formulaic way. A formula is the easiest thing in the world. Also the most complex! But at least it creates a possibility that you’ll avoid disputes and negotiations.

So I think this is clearly a simplification for companies and for tax administrations. Because at the end of the day, most taxpayers I know want the same thing: to pay their taxes properly, but only once, without double taxation.

 

When you say ‘satisfying and pragmatic approaches’, what do you mean exactly?

I mean that I'm more interested in having a solution that is good enough to reach an understanding with a tax administration than in being perfectly right and getting into a tremendous dispute. Of course, it depends on the client’s needs, and on the documentation, but that principle is an excellent guide in my opinion.

That's one of the things that I work on a lot with my clients. Where the risks really are, because there are some risks that need to be addressed and some risks that actually might not need to be addressed. They're low impact, low occurrence. So that's actually okay.

This comes from when I was Head of TP for a big pharma company for ten years. We had a dozen people in the transfer pricing team and we did everything internally. So you learn hands-on what is acceptable, and what might be less acceptable within the many TP positions you need to handle on a daily basis. Not only in your jurisdiction, but actually in a more global manner. I have field experience in 20 jurisdictions.

So that’s what I try to bring to my clients: that level of fair risk assessment. Not a risk assessment because you want to push compliance or policy design work, but a risk assessment that delivers value. In co-sourcing that’s how you stay in sync with your client. If you push too much work with limited actual value, then you don’t get to stay. That’s a no-go zone for co-sourcing.

 

Looking back on your career, have you had any mentors or role models?

Yes, of course. I think each period of your life has its own mentor: you meet them and you recognise that you should really listen to them and learn from them. I had two incredible mentors in university. One in particular that had a great influence on how I analyse things, on my mindset if you like.

He was John Caris, who sadly died this year. He was a teacher in the US and delivered courses in Mexico about open human systems and game theory. A very innovative teacher, who adored combining lots of different fields together. He was talking about nanotechnologies, corporate strategy, obscure financial theories based on patterns, personal development and organisational psyche theory and all this, basically to try to define what management was and how to develop a good problem-solving mindset. And that was really incredible. I'm still emotional thinking about it, because those courses, those six months, were extremely important to me.

And of course, then there's the people that gave me a first chance. My first boss in transfer pricing, Marie-France Demade, who published the ad that got me interested in TP. And then I had a boss for 15 years, Catherine Henton, who was Head of Tax for Sanofi, who is the one that really made me stay in transfer pricing. She gave me the opportunity to run a department and to engage in incredible negotiations. It’s with her that I learned that seeking the truth in TP is not as important as developing a sound tactical approach sustained by concepts that are understandable by internal and external stakeholders.

 

Do you think that if you'd met different people at a different time, you would now be doing something completely different, or do you think you were always going to end up in transfer pricing?

I think it's one of many possible outcomes. I never had a plan of what I wanted to do. Otherwise, I would have never chosen transfer pricing, as I was not really aware of what it was. The only thing I always knew was that I wanted a job that made me see the world a bit – not necessarily travelling, but just being international, and TP is by essence transnational. And the second point is I always knew that I would do something that is about connecting dots.

But, honestly, if you asked me what my dream job would have been, I don't know. Maybe finding music for movies. That could have been my dream job, I think. Finding the right music, so that the music and the images are in sync… that must be an awesome job.

Look at a film like Barry Lyndon. An incredible combination, almost like painting and music together. Or think of Reservoir Dogs. I am still completely unable to listen to some of those songs without seeing the images from Reservoir Dogs that went with them. Even though, in some scenes, the action is at odds with the music. Connecting without boundaries. That should have been my strapline for VECTOR TP! (Well, it’s pretty close to the actual strapline: ‘With you till it sounds in tune’.)

 

What do you do to relax? What are your hobbies?

Well, I have a few of them. I spin turntables. I don't play for anybody – just my family and maybe a couple of friends. It's really just for myself. I've been doing that for years now, and I find it extremely relaxing. Even when it means spending three hours on a three second sound just to make it sound right, or sound right to me anyway!

I'm a big fan of sampling. When you think about it, transfer pricing is pretty much like sampling. Maybe that’s why there are quite a few TP people out there that are also DJs.

And I do some sports. I surf and I golf as well. Probably I should be more precise and say that I try to surf and do my best to properly learn golf.

 

What is your biggest extravagance?

I'm a bit of a techie. I cannot resist a new toy. Computers and DJ stuff. I just need to find some more room to put everything in!

 

If there was a film of your life story, what actor should play you?

That's a tough one. The easiest answer would be my twin boys. It would certainly make the life of the producer easier.

 

How would you describe yourself in three words?

Creative. And – I’m not sure what the right English word is, somewhere between resilient and persistent – I can’t resist solving a problem, especially when the cause seems lost. And thirdly, outspoken.

 

Who would be your ideal guests at a dinner party?

First from the heart. I was born and raised in Latin America, and my family is almost more a tribe than a family. So for sure, family that I don’t see as often as I should, and friends from here and from over there, are always the ideal guests.

Then the soul, creativity. Who has not dreamed of crossing the path of a creative figure, in any field, who can share their creativity and the secrets behind it. That does not exclude TP people: I’ve met accomplished artists in this job, in various fields! If I had to choose one person, probably John Lennon. I’d like to hear again the stories behind the inception of St Pepper, which I think is an insane album.

Finally, the brain. It feels a bit like everything is becoming more and more conflicted in our societies. Anyone that could give me an insight on how to build consensus in a peaceful and non-divisive manner would be welcome. Of course, Gandhi then.

 

What advice would you give your younger self?

Know what you don't know and go for it and learn. Just learn. Humility, in a way.

I think that's really important wherever you are in your life. I have twin sons and a younger son, all extremely different, but the quality they have in common, which I hope is somehow related to their education, is that they love to learn. And they can be themselves because they love to learn and they're not totally frustrated by what they don't know, and they do not hesitate to question things when they don’t understand. Young kids are like that, and we somehow tend to lose that on the way.

I often find myself saying, “I don't know. We'll need to work it out,” when I don't know something. It’s become an unusual or difficult thing for people to admit they don’t know something. You cannot know everything. But you can find out what you don’t know, and you can learn or reach out to someone that might know.

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Article by
Paul O’Regan

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