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Tax World Vision 2021: Facing A New Reality

Tax leaders and professionals from across the globe continually ask us about the obstacles they will face in the post-pandemic tax market of 2021. Our answer: don’t see current market volatility as a challenge, but use it as an opportunity to achieve upside potential and gain a competitive advantage.

Covid-19 and its economic turbulence are the inflection point of a longer process of change in the tax world and global work environment.

Now is the time for tax leaders and professionals to act strategically, and accommodate change before it happens in 2021. At Mason Rak, we execute some of the most challenging tax search assignments and act as a trusted advisor to accountancy and law firms, utilising our market intelligence to add value and create real impact.

The events of 2020 accelerate a decade-long process of change in the tax market – one in which the world’s leading tax professionals have realised that their role should not be reactive, but ‘operational’. Instead of responding to the latest measures imposed by tax authorities, an ‘operational’ tax function asks how tax can be embedded in everything a company does. Tax is not the cherry on top – it’s part of the cake mix.

Achieving this takes talented tax professionals – specialists who have both subject-matter expertise and a flair for building relationships. Teams may become more remote and more multinational, there’s no substitute for genuine local expertise and the skills to build interpersonal relationships with clients, tax directors, and even – as the importance of tax and transfer pricing continues to increase – the boards of companies.

Firms that strategically invest in that talent will reap dividends, not only by being prepared to advise their clients on any tax changes that come their way, but by integrating tax with other business functions to improve performance and efficiency across the board.

After 12 years in which the tax function has taken a defensive role, it’s time to seize the opportunities of 2021.

The rise of tax integration

Across global markets, we’ve seen indirect tax functions being integrated into central sales flow systems. The ‘Wayfair’ ruling in the United States, the introduction of VAT in by the Gulf states, and increasing efforts to automate the VAT returns process around the world: all have shown the need for strategic thinking about how to address a rapidly changing indirect-tax landscape.

Only a truly integrated indirect tax function can do so. As one tax partner put it: “Partners must be ready to apply tax elements to changes in business supply chains”. In doing so, “they become more like consultants”. And since integration means collaboration, accountancy and law firms don’t merely need specialists with the technical skills to cover these areas: they need dynamic leaders, who can drive change and service clients across different jurisdictions and even in a context of increased remote working.

In the hunt to provide the market with these dynamic leaders, ambitious mid-size and boutique firms, as well as some brave law firms, are attempting to break into jurisdictions that are traditionally dominated by the Big Four, such as in the Middle East. Yet, Big Four firms are also active in building their tax business offering, providing a clear challenge for other players seeking to increase market share.

Attracting the very best professionals for pivotal leadership tax roles across the Middle East continues to be a point of strength for Mason Rak, and we anticipate continued strong demand for expertise among professional services firms in the region as countries continue to modernise and expand their revenue-raising capacity.

Post-Covid revenue-raisers

There’s another reason why firms must invest in talented tax professionals sooner rather than later. Our market intelligence shows that, particularly in EMEA and Asia-Pacific, tightening regulations and new revenue-raisers create the need for greater technical mastery on the compliance side and ever greater adaptability on the planning side.

DAC 7 in Europe will continue to squeeze shut regulatory loopholes within European Union member states. Meanwhile, as the UK leaves the EU, its Digital Services Tax comes into force, with major implications not just for established digital firms but also for multinationals looking to transition to a more digitised, consumer-facing business model.

Professional services firms in Europe increasingly seek committed individuals to undertake strategic leadership positions on a long-term basis, ideally with deep understanding of the local market and culture. In a recently completed assignment where we supported a global law firm in Luxembourg to identify a Transfer Pricing Partner, we found an individual with just the right blend of skills and experience to deal with the challenging and extremely dynamic tax environment the continent is facing during the years to come.

In today’s market more than ever, working closely with clients and team members to achieve the best result is crucial: as a result, the partner was bilingual, and able to build vital relationships in both English and French.

Our analysts anticipate that tax authorities will continue to grow bold in challenging tax and transfer pricing arrangements, especially in jurisdictions where governments consider themselves to have limited fiscal headroom to pay back their pandemic borrowing by levying new taxes.

Opportunities lie ahead

Based on conversations with tax leaders across the globe, we anticipate that many corporations will seize the opportunity, if the OECD’s ‘Pillar 2’ minimum-taxation requirement comes to fruition, to move substance into different jurisdictions in order better to align economic substance with their global strategic imperatives.

This will lead to a need for specialists who already have deep experience of minimum-taxation rules, such as the GILTI in the United States. We have already observed elsewhere that the demand for these candidates may provide an opening to boutique advisory firms which draw on local market experience in the USA.

But it’s not only in the US market where international tax specialists will be needed to help companies thrive in the post-Covid tax era. In Asia Pacific, a region where in many jurisdictions the recovery from the effects of Covid is well ahead, substantial changes in the tax and business landscapes will continue to drive demand for top-class tax professionals.

Across the Asian market, Mason Rak are placing tax professionals who bring not only skills and knowledge but also have a good appreciation of regional cultures. This allows them to inspire confidence, capitalise on business opportunities, and get the best from team members as they build tax business and drive business growth.

We have a track record of seeking and securing individuals who have a good cultural understanding of the importance of face-to-face personal interaction in Asia, something that we appreciate even more in an era of remote working.

Strategic thinking

We anticipate a novel but major area of concern in the field of personal-mobility taxation. As offices move to remote working, questions will arise as to whether new hires actually need to physically move to the country in which their new office is located. If they do not, companies will need infrastructure in place to deal with personal income, payroll taxes, national insurance contributions, and other tax-related labour issues in each jurisdiction where they have staff.

In fact, our discussions with market leaders have often drawn a link between the two issues of economic substance and remote working. Smart companies will be able to leverage the opportunities of remote work in order to build an employee base – and therefore economic substance – in desired jurisdictions.

That is the level of strategy on which the sharpest tax experts are operating – and it’s the level at which tax leaders and professionals need to be thinking in order to make the most of the opportunities of the post-Covid era.

Strategic recruiting

In an economic landscape where many accountancy and law firms have implemented hiring freezes, the strategic question remains: how can you gain a competitive advantage and acquire the talent needed to adjust to the specific tax and working requirements of the post-Covid era?

Business growth does not have to stop solely because the pandemic has presented new obstacles. Restructurings and reorganisations in the wake of the pandemic and recession provide an immediate opportunity to find and apply genuine expertise in reshaping tax functions around the world.

We anticipate an opportunity for mid-size and specialist boutique accountancy firms to gain a foothold and increase their market share, particularly in the vibrant North American market.

Our proven track record in delivering superior M&A tax professionals positions us as the go-to specialist tax search firm to support US firms grow their tax teams. We often focus on professionals from the local North American market with strong relationship management and a portfolio of clients, but also tap into the global workforce and overcome the increasing challenges surrounding US work permits for non-nationals.

The challenges posed by the post-Covid economy are not future challenges – they are the challenges of today. Forward-thinking accountancy and law firms understand that the current climate presents a great opportunity to grow through the strategic acquisition of tax talent, capitalising on the current instability to build teams and gain a competitive advantage in the post-pandemic era.

Putting off these decisions is a behaviour that risks being tactical rather than truly strategic – and may have costs down the line.