The importance of tax continues to have a prominent place on the Sovereign Wealth Fund (SWF) and Pension Fund (PF) agendas at the KPMG Global Sovereign Wealth and Pension Funds tax network conferences. See below for key insights from the 2016 and 2015 conferences.
Top 5 Trends identified by the participants of KPMG’s 2016 Global Sovereign Wealth and Pension Fund Tax Conference:
Trend 1: Tax is increasingly important in enterprise decision making. Consistent with prior year input, tax professionals continue to work ever more closely with investment professionals. Economic and reputational tax risks have taken on a higher profile, and regular, clear communication with leadership to manage those risks is more important than ever.
Trend 2: Tax groups are facing organizational challenges. The increasing importance of the tax function (Trend 1) is certainly related to our second identified trend: the growth in enterprise size and the expanding geographic footprint of many funds increases the strain on tax functions which continue to struggle with tax department design considerations, human resource constraints and technology needs.
Trend 3: Local countries will continue to surprise. We heard from a number of government representatives, each feeding into the third trend identified: local countries continue to surprise with policy and regulatory developments. First, there was Brexit. The impending withdrawal of the United Kingdom (UK) from the European Union (EU) was anticipated to depress asset values but there is a sense that such withdraw could, potentially, be of advantage to tax managers if Her Majesty’s Treasury (HM Treasury) follows through on indications that it could create a post-Brexit tax regime that strongly ncourages foreign investment. Second, there was a general sense that things could be getting chilly down under. Certain Australian developments could make foreign investment into Australia more challenging, such as ongoing developments in relation to the Foreign Investment Review Board (FIRB) process. Finally, the United States (US) clearly believes that a number of recent actions by other countries (e.g., the state aid investigations in the EU) undermines the consensus reached as part of Base Erosion and Profit Shifting action plan (BEPS).
Trend 4: We can expect more turbulence ahead. Attendees were unanimous with respect to the fourth trend: tax professionals will face a decade of global implementation efforts in relation to the BEPS efforts. Any notions of a globally coordinated panacea have been dispelled. In some markets the BEPS efforts may be accompanied by large scale tax reform, whereas for others it may not. And, of course, there will be unforeseen developments of perhaps even greater significance, such as the effect of a Trump administration and related proposed tax reform.
Trend 5: Sovereign wealth and pension funds are developing a voice. There was a strong, positive sense that policy-makers are beginning to recognize the importance of dialogue with the sovereign wealth and pension industry, as evidenced by the continuing high-level engagement from the OECD and participating governments with our group. This is a positive sign and necessity as the international tax environment continues to evolve; nevertheless, industry dialogue must continue. Many examples remain where tax authorities overlook the distinct characteristics of our industry. BEPS Action Item 6 and Country by Country (CbyC) reporting are two areas where such dialogue has continuing importance.
On the agenda was a range of key tax challenges and trends – from the impact of Base Erosion and Profit Shifting (BEPS) and country-by-country reporting through to designing the ‘optimal’ structure and composition of the tax department. And, through a series of facilitated discussions and collaborative breakout sessions, attendees took the opportunity to engage – not only with each other – but also with key tax authorities and policy makers. Rolling up their sleeves, managers and authorities sat down together in dynamic and practical discussions. Those in attendance heard – first hand – about key challenges implementing the Organisation for Economic Cooperation and Development (OECD) BEPS principles, debated points of misalignment with tax authorities, raised ongoing concerns about global tax structures and the morality debate and shared leading practices in tax management, planning and administration.
During the conference and surrounding events, attendees spoke candidly about not only their concerns and challenges, but also their evolving models, practices and approaches to tax and tax morality. We hope that this report helps continue the dynamic debate and discussion that emerged from the conference and adds to the ongoing body of knowledge on SWF and PF tax. On behalf of the conference organizers and participants, we encourage you to take up the discussion with your peers, advisors, regulators and tax authorities. To discuss these – or any other tax related issues – please contact your local KPMG member firm or any of the contacts listed at the end of this report.
Download the full report below.