Three Pressing Challenges for the Tax Leaders of Tomorrow

Year: 2021

The following article has been adapted from a speech and presentation given by Annalise Foong at the Crowe Global International Transfer Pricing conference on June 21, 2021. The audience was made up of a network of Crowe Global tax and transfer pricing advisors from around the world.

Some issues described in the speech have progressed since the event, namely the Inclusive Framework agreement on BEPS 2.0 announced by OECD on 1 July 2021. You can read FMG’s insights on that here.


In 2017, when the US and China trade tensions started escalating, followed by populist protests around the world – with much of the global spotlight on Hong Kong – not to mention the continuing fall-out from the Brexit decision, I felt that this was the start of the world quickly transforming. As the Head of Tax in a HKSE-listed company at the time, the flurry of decisions and pressures from all angles were overwhelming. But in my moments of quiet, I recall being grateful that we were still dealing with man-made political tensions, and the speed of human destruction would still pale in comparison to the power of nature.

Yet nobody could have foretold the plans Mother Nature had afoot in the form of the Covid-19 pandemic that arrived in late 2019 to truly transform our world. Covid-19 may in itself be unprecedented, but the muddled global response to it represents a symptom of one of three fundamental challenges I identify as those facing tax leaders today. I share my perspective of these challenges below and offer suggestions as to how we, as tax leaders, can bring value to our clients.

Challenge No.1: Competing and Conflicting Requirements

Tax Leaders who have responsibility for the entire scope of taxation are generally presented with operational choices that entail choosing between a range of unfavourable outcomes.  As any tax practitioner knows, transfer pricing in itself is a delicate conflict management exercise in the allocation of profits across the globe. Beyond the respective tax specialisations, conflicts abound across specialisations – for example, decisions that are conservative from the corporate tax point of view can result in aggressive customs outcomes. In such cases, sometimes the driving consideration goes beyond tax concepts. For instance, customs risks that can cause goods to be stuck at the border would create customer issues that an in-house tax leader would go to great lengths to avoid.

Advisors who can appreciate the competing pressures faced by clients and provide practical advice that balances these considerations are highly valued. In my past commercial role, I greatly appreciated my transfer pricing advisors who understood transfer pricing risks and mitigation approaches in depth.

However, advisors who can demonstrate two key characteristics will be valued not just as a trusted advisor but will be elevated to the status of a valued business partner. First, these are the advisors with the ability to recognise the need to balance transfer pricing risks against corporate tax risks, international taxation, personal taxation and wider commercial risk. Second, these practitioners recognise the need for risk mitigation and proposed practical risk management approaches.

Challenge No.2: Stakeholder Management

Stakeholder management is becoming increasingly difficult to manage. For a while now, “Tax Policy” has been appearing on the agenda of Board Meetings, with increasing importance being placed on this once-obscure area of business. Tax leaders need to manage the competing pressure of tax efficiency alongside the need to be perceived as good corporate citizens.

As an in-house tax leader, the quarterly financial announcements are always accompanied with the need to explain the group’s Effective Tax Rate (ETR). Guiding C-Suite executives on how to explain fluctuating ETRs to shareholders, oftentimes caused by fluctuating profit margins, is not always easy.  These explanations invariably bring the group’s Transfer Pricing (TP) policy to the forefront.

The goalposts of the Tax Function also continue to shift.  A decade ago, a low ETR was a good outcome. Today, with the pressure for corporates to be seen as good corporate citizens, a low ETR is as disconcerting as a high one.

As tax rules become increasingly complex, the ability to communicate complex rules in a way that is conceptually simple is invaluable. Yet the risk of stakeholder education in a fast-moving environment is that key business partners can come to perceive themselves to be in possession of a solid understanding of taxation based solely upon simplistic concepts. This in turn can lead them to make decisions, without consulting the Tax Function, that are based upon simplified and generally incorrect parameters that do not reflect the complexity of tax rules.

Stakeholder management becomes even more pertinent in merger and acquisition projects. Whilst tax aspects of deal structuring and negotiation get ample attention, the true challenge that oftentimes falls into the laps of the Tax Function is the integration process. For mid-tier companies without specialist post-acquisition integration teams, the Tax Function is generally the only function that has to continue to have detailed oversight of the newly acquired group. This is due to two areas of accountability within the Tax Function: First, its obligation to ensure tax compliance obligations are fulfilled. Second, the responsibility to harmonise intercompany transactions within the newly acquired group, as well as between the existing and newly acquired group.

The value of advisors who are able to support the C-Suite and business partner communication process cannot be understated. The ability to communicate the technical aspects is a given. But advisors who possess the X-factor are those who support the tough conversations and have the soft skills of diplomacy and conflict management.

For regional and global advisors, part of the secret lies in understanding cultural differences. I cannot count the number of times I have sat in tense conversations with stakeholders from different regions of the world who spoke a common language but had different understandings because of cultural differences, as well as differing domestic tax rules and approaches. As such, knowing your client and being open to understanding the different cultural communications patterns can make a phenomenal difference.

We need to remember that the most valued advisors are those who are brought in to deliver bad news – such advisors need to have confidence, technical excellence and diplomacy.

Challenge No.3: Lack of Foresighting Ability

Finally, the ability to have foresight of how the commercial environment and tax policies will change has become an increasing challenge, especially over the last 5 years or so.  For many years, being a good tax practitioner involved achieving mastery of a certain discipline. The sequence went:

  1. Get the facts
  2. Apply the rules
  3. Make a good and balanced recommendation

Increasingly, this way of working is no longer possible as decision-making becomes more fast paced, complex and interrelated.

Foresighting skills and their importance is an evolving area within the tax profession. Large players recognise and plan ahead by building up their resources, leveraging on technology, focusing on tax policy and lobbying where possible. However, my observation is that the majority of in-house professionals are still frantically trying to fight fires. For tax leaders working in such environments – while there is often little choice due to business pressures – unless there is investment in planning, resourcing and stakeholder management, managing the Tax Function is going to be incredibly challenging, especially now in the midst of the pandemic. C-Suite buy-in to invest in resourcing is a promising way to overcome this limitation; however, again, this requires strong communication and persuasion skills.

I will elaborate most on this third challenge of foresighting because I believe it will prove most critical in determining the characteristic of the future tax professional. The change we are looking at is fundamental and the very DNA of the future tax professional will need to adapt to the new normal.

Why do I say this?  Many of today’s senior tax leaders have at least 15 years of experience. We are people who graduated at the turn of the century. What did our education system look like? We had a static syllabus, deep content expertise, mastery of factual knowledge and – typical of tax professionals – we had the focus and determination necessary to master complex rules.

What does today’s education system look like? It is dynamic, flexible and personalised. It is less and less based upon mastery of knowledge but on using knowledge to exercise creative thinking. In a world that is flooded with easily accessible knowledge that is increasingly volatile, uncertain, complex and ambiguous, the way education approaches are changing reflects the fundamental mindset shift that we need to adopt.

The traditional approach of solving problems through design thinking, which involves looking at a problem statement, empathising with its users and developing solutions, is no longer adequate on its own. Increasingly, the future tax professional needs to go wider and adopt systems thinking, which is essentially a holistic approach to analysis that focuses on the way that a system’s constituent parts interrelate and how systems work over time and within the context of larger systems.

Still, we cannot ignore the depth of technical expertise that is required for us to perform our roles.  And therein lies an incredible challenge for us. Rigour and attention to detail – what I believe to be the hallmarks of a good tax professional – will continue to be essential ingredients. But the tax practitioner’s world needs to expand; we need to understand our environment so that we can move faster and use all our senses to recognise when and how to make braver and faster decisions.

Need for Speed

This need for speed has been seen in three key events over the last five years, namely:

  1. The US-China Trade War
  2. The BEPS 2.0 Agenda
  3. Covid-19

  1. US and China Trade War

First, towards the end of 2017, the Trump Administration started wielding trade tariffs as a weapon against trade partners. Within less than a year, major economic powers found themselves embroiled in some form of tariff discussion or dispute with the spotlight on the Trade War between US and China. By May 2019, the Trump Administration had placed trade sanctions on Huawei, which led to the de-coupling of supply chains and bifurcation of technology eco-systems.

This was the start of fast-moving, adaptive, and agile supply chain models. For the Transfer Pricing professionals, it meant that transfer pricing models that were premised on globalised supply chains could not be assumed to remain unchanged. Being aware of both the political climate and business responses was critical to remain a step ahead of the game. Having foresight of how politics and trade could affect business decisions meant the difference between being able to look ahead and make plans, and being purely reactive.

  1. BEPS 2.0 Agenda

The second event refers to developments surrounding the BEPS 2.0 agenda. Since 2015, starting with the 15 BEPS action items, the tax solution to the digitalised economy has been brewing.  Yet, since January 2019 – when OECD released the policy note that introduced the two-pillar approach – discussions have become increasingly driven by politics.

I have written at more length on issues surrounding the BEPS 2.0 agenda here, here and here. My broad summary in this piece focuses on the key takeaways that will affect transfer pricing outcomes.

Pillar One

Putting aside the scoping debate, for companies which are subject to Pillar One rules, the plan is for a formulaic approach to be applied where an economic nexus is evident.  Essentially, multinationals will be required to pay tax on what is known as “Amount A” in the market jurisdiction based upon a percentage of profits known as a “Reallocation Percentage” that exceeds a predetermined profitability threshold. Clearly, this approach goes against transfer pricing fundamentals due to the failure to consider the trinity of functions, assets and risks in the market jurisdiction.

While the blueprint does attempt to harmonise transfer pricing with the Amount A taxing base, and recognises the need to consider the impact of transfer pricing adjustments, for now no solution is offered.

For completeness’ sake, I must point out that the rules around “Amount B” – related to fixed remuneration attributed to distribution and marketing functions that take place in the market jurisdiction – are also unclear at present and subject to review.

We will have to watch this space until October 2021 to see if the OECD and the Inclusive Framework can come up with compelling answers to these questions posed by Pillar One.

Pillar Two

Pillar Two is conceptually simpler as it provides a global minimum tax regime through a complex web of rules that are intended to trigger a top-up tax when the effective tax rate of a large multinational in each jurisdiction falls below a predetermined threshold. From a transfer pricing perspective, if successfully implemented, the global minimum tax will not have a direct impact, but indirectly, it will dissuade aggressive transfer pricing positions to allocate profits to low tax locations, or locations which are eligible for tax incentives.


The power of political discourse becomes particularly evident when observing the U.S.’s role in the BEPS 2.0 developments. In the latter half of 2020, when the US pulled back from discussions to focus on its elections, this effectively stalled proceedings. By contrast, the US’s return to the table in April 2021 has seemingly turbo-charged “progress” – optically, at least.

In early June 2021, the G7 Finance Leaders and Bank Governors reached a much-publicised political agreement to commit to the following:

“Reaching an agreement that is based on taxing rights on at least 20% of profit exceeding a 10% margin for the largest and most profitable multinational enterprises. This included appropriate coordination between the application of the new international tax rules and the removal of all Digital Services Taxes, and other relevant similar measures, on all companies.”

The G7 Finance Leaders also committed to a global minimum tax of at least 15% on a country-by-country basis.

In order to gain greater foresight into the likely outcome from this agreement, an awareness of the politics at play behind key players is critical. Only one week after the G7 Finance Leaders Communique, the murmurings of disagreement from key G20 countries could already be heard, giving us a better sense of how much weight we should place on the G7 Finance Leader’s political agreement.

  1. Covid-19

The third event that will play a transformational role in how the tax profession works is the Covid-19 pandemic, which has proven to be a catalyst for transformation in myriad areas.

Changing Demands of Governance Structures

Wealth inequality issues, which had already been brewing since the Global Financial Crisis, have led to renewed pressure for high wealth individuals and corporates to be more transparent and pay more taxes. No country has remained unscathed; some have had the ability to expend significant sums on fiscal stimulus, while others operate in a severely limited fiscal space.

The role of the public and private sectors in enabling recovery is transforming. Increasingly, there is a move towards a “Whole of Nation” approach to governance, where collaboration between the public and private sectors is being seen as the approach to respond to challenges and opportunities. Corporates are increasingly expected to have a positive societal impact and adopt progressive practices that demonstrate values of Environmental Sustainability, Social Inclusion and Governance (ESG). At the very least, community expectations around tax transparency are continually rising, with increased demands on corporate reporting obligations globally.

As transfer pricing and taxation reflect the changing business environment around us, any shifts in the business environment are relevant to us.

In Singapore, the Emerging Stronger Taskforce identified six key shifts and implications for Singapore that I believe apply equally to many countries. As I think the list succinctly captures the changes in the business environment and forms a suitable platform to articulate the business transformations we will see in value chains, I summarise these shifts below:

The changing global order: as the world becomes increasingly fragmented, growing geopolitical, and economic tensions will result in a change in the global order.

Accelerating industry consolidation and churn: businesses are likely to consolidate in response to Covid-19’s economic and financial implications. The dominance of large private companies will increase while new players could face difficulties.

Rebalance between “efficiency” and “resilience” in supply chains can production: Covid-19 forced businesses to re-evaluate supply chains and diversify operations to reduce over-reliance on any single country. Supply chains are likely to be simpler, shorter and regional.

Accelerating digital transformation and innovation: Businesses have adopted technology enabled alternatives, including digital communications, remote working and contactless e-commerce and e-services. R&D has intensified and product development cycles have become shorter.

Changes in consumer preferences: Consumer behaviour will become more contactless with higher standards for safety, health and hygiene. There will be greater consciousness for environmentally-friendly products and business practices

Increased focus on sustainability: Calls for greater focus on environmental, economic and social sustainability have gained greater momentum with opportunities in the green economy.

Across the globe, even the approach to monetary policy and fiscal policy is transforming. Some countries have been highly nationalistic while other groups of countries have taken a regional approach, such as the European Union and even ASEAN, who realise that there is a need to look to and work alongside countries in the region. Each of these levers will influence what tax policies countries adopt to achieve recovery. They also provide an insight into how aggressive the future audit approach is likely to be.

Sustainability Agenda

Covid-19 has shone a spotlight on the sustainability agenda and the importance of Sustainable Development Goals. Increasing scrutiny is being placed on carbon taxation and carbon pricing. The green agenda will come to feature with greater regularity in the value chain, functions, assets and risks for multinationals when performing transfer pricing analysis.

Climate-related risks encompass both physical risk and transition risk drivers.

In general, physical risks can be linked to the impact of physical climate hazards. This will be informed by sectors, severity of hazards, time horizon factors and geospatial idiosyncrasies.

Transition risks refer to the shift from a high to a low carbon economy. The EU, which has been particularly active in green recovery measures, has introduced several EU-wide measures which may set the trend for the world:

  • First, they have introduced a non-recycled plastics packaging waste tax to be paid by the Member states into the EU budget.
  • Second, the EU also has plans for a carbon border adjustment mechanism that will further elevate the green agenda globally.

More widely, on a global scale, carbon taxation has been introduced across multiple jurisdictions with ever-increasing rates proposed in order to achieve carbon neutral goals.

A recent example of the potential impact of the green agenda on business viability arose recently when A.P. Moller-Maersk., the world’s largest container shipping line, called for a US$150-per-tonne Carbon Tax on shipping fuel – a levy that would effectively double fuel costs if imposed today. Maersk’s aim is to bridge the price gap between fossil fuels and green fuels; and while the rise in fuel costs will present challenges, large players like Maersk can benefit from economies of scale and pass on marginal costs to consumers. This pricing is effectively the pricing needed in 2030 to decarbonise by 2050. To give a sense of how far off the mark the off-road transport sector is, it is interesting to note that currently only 13% of carbon emissions in this sector are priced at this level.

One of the reasons that Maersk was able to propose such a high carbon tax level was because it had been pioneering green fuel experiences and would therefore be able to mitigate increased carbon tax impacts. However, smaller players and those who have not invested in green fuel research options will encounter cost impacts that may even challenge business continuity. Nevertheless, the consumer impact arising from the increased carbon prices necessary to achieve decarbonisation is no trivial matter and likely to become a critical part of the value chain.

The commitment from the G7 Finance Leaders during the June 2021 meetings to green the global financial system so that financial decisions take climate considerations into account will solidify the triple bottom line approach of people, planet and profits. The G7 leaders have indicated a move towards mandatory climate-related financial disclosures that provide high quality, comparable and reliable information on climate risks and baseline global reporting standards for sustainability.


In conclusion, as the global order changes, the Tax Function is going to go through unprecedented challenges. These challenges require a change in mindset to think broadly and creatively, move quickly and with foresight. Tax advisors who can lead clients through this transformation will be recognised as a true business partner.

For transfer pricing professionals, in particular, you will be presented with the conundrum of mapping value chains that are already in motion. But at the same time, these complex challenges also provide us with a treasure box of ideas to frame business models in new and innovative ways.

The importance of being agile in the way companies respond to or even take advantage of exogenous shocks can make or break a company. Similarly, as tax advisers, how well we can influence our clients to react with agility will prove instrumental.

Annalise Foong is the Director of Financial and Tax Advisory at the Future-Moves Group. She has extensive experience in this field, in particular with a focus on Compliance, Tax Policy and Transaction Advisory. If your organisation is grappling with a complex tax puzzle and looking for professional and practical consultancy support, do get in touch at