Two Views – European Tax Changes for American Corporations: How are CFOs Adapting?

Bruno Dirringer

Thomas, as Tax Partner at Deloitte, advising a broad base of customers, you are observing what US based Corporations experience during European tax changes, specifically in light of post elections in most of the biggest economies. What are the trends and areas of vigilance you would point out?

Thomas Perrin

We have all noted a global trend for increased transparency, and many countries, such as France, are facing a loss of tax sovereignty due to international pressure from public opinion, the OECD and even EU Institutions, which have maintained ambitious tax policy agendas despite the coronavirus crisis.

One could mention the country-by-country reporting obligation (fiscal CbCR) introduced in 2016 and recently supplemented by a “public CbCR”, which should give rise to a first publication in 2025, declaration of cross-border arrangements by tax intermediaries (DAC 6). And the years to come will bring specific declarations for platform operators (DAC 7), the proposed “ATAD 3” directive concerning “shell companies” and the Carbon Border Adjustment Mechanism, which targets activities with high carbon emissions and could consequently disrupt globalization strategies. So, as you can see, the tax world is very creative!

In practice, these affect member states’ internal tax rules and can become a source of instability for taxpayers, notably US multinationals which have already improved performance through good tax policy management.

Discussions with tax administrations on topics such as transfer pricing can be difficult due to political pressure, ethical considerations and “anti-tax fraud” regulations leading to criminal sanctions and pressure on local management. That said, we also need to be fair and to point out a willingness to improve relationships with major multinationals—the “enhanced relationship” concept—and to reinforce attractivity: corporate tax rate down to 25%, measures to attract R&D projects, reduced taxes on industrial assets, etc. This is what I would call “the carrot and the stick policy”!

And you, Bruno, having worked both for Private Equity firms and US listed companies on both sides of the Atlantic Ocean, what do you observe when it comes to managing evolving tax risks?

Bruno Dirringer

Thomas, this may surprise our readers, it has been a somewhat ambiguous experience!

Let me explain…while tax matters impact both serving Senior Debt and returning Value to PE investors or maximize Earnings Per Share and dividends to listed companies’ shareholders, many companies still put EBIT/EBITDA measurement first for Business Leaders. Tax matters are often coming after, and mostly in hands of corporate experts/outside counsels.

From my point of view, this is changing and being balanced by engaged CFOs and local Financial Directors for two reasons:

First, there is a legal responsibility that remains with local Management and legislators are acting towards tax moralization and penalization. Companies are engaged in conducting business operations ethically and transparently. This fosters for example in France the “tax partnership” signed by over 2,500 companies, aligned with the OECD initiative of “enhanced relationship” and “co-operative compliance”.

Second, business performance metrics are increasingly driven by cash flow metrics. Companies are trusting local Finance leaders to observe and identify tax and other new opportunities and review them with their tax experts (internal or external). As an example, I am aware of a local group of companies that has recently streamlined its lending structure to generate annual cash flow saving with better apportioned tax charges.

Coming back to the ambiguity factor stated above, my view is that it will be addressed by internal Finance and Tax talent, working together, looking at the bigger picture, observing how tax jurisdictions evolve and working in collaboration with external tax advisors. I have seen great examples across my experience driven by smart performance metrics, I am very optimistic about the future!

Bruno Dirringer | LinkedIn

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Thomas Perrin | LinkedIn