Following the ratification of its new network structure PricewaterhouseCoopers today announced the following appointments to its Network Executive Team (NET). The NET, which reports to PwC’s Network Leadership Team will be responsible for key service line and functional areas across the PwC network. The appointments were announced by PricewaterhouseCoopers’ Global CEO Samuel A. DiPiazza, Jr. “Since its formation ten years ago, PricewaterhouseCoopers has experienced strong, sustained global growth. We are very fortunate to have intelligent, strong leaders who will assume the critical responsibilities of guiding our global network through the next phase of our development and help us to build on our growth over the last ten years,” Mr. DiPiazza said.

Donald A. McGovern Jr. of the U.S. has been appointed Global Leader for Assurance. Mr. McGovern succeeds Rob Ward of Australia who had served in the post since 2005 and has returned to PwC Australia. Mr. McGovern has served as Global Engagement Partner for such significant PwC clients as Cisco Systems Inc and Schlumberger Ltd. He led the PwC office in San Jose California and was prior to his new role Vice-Chair Markets, for the New York Metro region of PwC U.S.

Richard Collier-Keywood of the U.K. has been appointed Global Leader for Tax. Mr. Collier-Keywood has led the UK tax practice for the past five years. and succeeds Gene Donnelly, who had been Leader of both the Global Tax and Advisory practices and has returned to PwC U.S. Mr. Collier-Keywood will also serve as Managing Partner of PwC U.K.

Juan Pujadas of the U.S. has been appointed Leader of Global Advisory and also will continue in his role as Leader of Advisory for PwC U.S. Mr. Pujadas has spent much of his career in the financial services industry and is experienced in many markets around the world.

Moira Elms of the U.K. has been appointed Global Leader of People & Culture, Brand & Communications. Prior to this appointment Ms. Elms was the leader of Marketing and Business Development and Knowledge as well as Brand and Communications for PwC U.K. She previously was the Human Capital Leader for the U.K. firm and has served as Chairwoman of the PricewaterhouseCoopers Global Gender Advisory Council for the last two years. Ms. Elms, a tax partner, succeeds Richard Baird of the U.S., who was Leader of Global Human Capital and has returned to PwC U.S.

Edgardo Pappacena of the U.S. has assumed the newly-created role of Leader of Global Strategic Sourcing. Mr. Pappacena has been Global Leader of Strategy as well as Brand and Communications. In his new role, he will focus on the development of new business and delivery models.

Peter Wyman of the U.K. has been appointed Global Leader of Public Policy & Regulatory Matters. He succeeds Richard Kilgust, who has retired from PwC after 36 years of service. Mr. Wyman, a tax partner, has been leader of the Public Policy and Regulatory Matters for PwC U.K. and serves on the profession’s Global Public Policy Committee.

Donald Almeida of the U.S has been appointed Leader of Global Clients and Markets He succeeds Alec Jones who has returned to PwC U.K. Mr. Almeida currently serves as PwC’s Global relationship Partner for IBM. He has served as U.S leader of the Technology, InfoComm and Entertainment practice, combining industry management skills with large account-management experience.

Pierre Coll of France has been appointed Global Leader of Risk & Quality: He succeeds Michael Gagnon of the U.S. who has retired after 35 years with PwC. Mr. Coll was previously our Leader of Assurance for PwC’s continental European firms. He has worked in the US and Germany, and has served large multinational clients throughout his career.

Tony Harrington of Australia has been appointed Global Leader of Global Strategy and Network Transformation. Mr. Harrington has served for the last eight years as the Territory Senior Partner for PwC of Australia. He has been a member of the Global Extended Leadership and served on a number of high level global PwC programmes.

In addition to the new appointments, Javier Rubinstein of the U.S. will remain in his role as PwC’s Global General Counsel, and Paul Boorman of the U.K. will remain in his role as our Global Leader of Operations.

PricewaterhouseCoopers today disclosed that total gross revenues for its worldwide network of firms rose to a record US$28.2 billion for the fiscal year ended 30 June 2008, an increase of 8 per cent at constant exchange rates. At variable rates of exchange, growth was even higher at 14 per cent.

Revenues from tax operations were up 13 per cent to US$7.5 billion, reflecting strong growth across the full range of service offerings. For the first time tax and advisory accounted for more than half of PwC’s global revenues, 51 per cent, compared with 48 per cent in FY2007 and 44 per cent four years ago.

Corporate tax rates continue to fall worldwide, finds KPMG’s Global Corporate and Indirect Tax Rate survey

Corporate tax rates fall by just under one per cent worldwide to an average of 25.9 per cent (2009: 26.8 per cent)

Corporate tax rates across the world have continued their decline, with the average dropping 0.9 per cent to 25.9 per cent from last year’s 26.8 per cent, according to KPMG’s Global Corporate and Indirect Tax Rate survey 2008.

And despite a two percent cut this year, at 28 per cent, the UK’s corporate tax rate remains higher than this latest global average.

The UK also remains higher than the EU average rate which declined one per cent year on year to 23.2 per cent. According to this latest survey, the UK now has the 19th (equal with Sweden) lowest corporate tax rate of the 27 EU member states, a slight improvement on last year’s 21st position. At 23.2 per cent, the EU remains the global region with the lowest average corporate tax rates.

Sue Bonney, head of tax at KPMG Europe LLP, commented: “Undoubtedly, the corporate tax rate is an important factor for businesses but it is far from the only factor. Other issues such as political stability, infrastructure, access to new markets, a skilled labour force and so on are all huge considerations, as demonstrated in KPMG’s recent survey of Global Capital Flows*.

Chris Morgan, head of international corporate tax at KPMG in the UK, added: “Nonetheless, tax does play a role and its importance was highlighted recently with more companies announcing their intentions to relocate their headquarters outside the UK. But this is not about the rate itself – it’s about how the UK system is able to tax foreign profits. And the argument is not about whether these profits should be taxed at 28 per cent – it’s about whether they should be taxed by the UK at all.”

For the first time, not a single country raised its corporate tax rate

The survey revealed that, whilst not every country analysed had reduced its headline rate of corporate tax in the year under review, for the first time since 1994, not one single country in the 106-strong sample had raised its corporate tax rate.

According to KPMG in the UK, this continued downward pressure on worldwide and European corporate tax rates will add to the pressure on the UK authorities to address the UK’s perceived lack of competitiveness on tax.

Chris Morgan continued: “The challenge to the UK authorities is to find a way to improve the country’s tax competitiveness that is genuinely revenue-neutral. They can’t afford a tax giveaway but business will not welcome a major hit in terms of extra taxes. The only way to find an acceptable solution is for all parties to really engage in the debate. It’s important that the various working groups established have a mandate to make real proposals and are not just talking shops.”

Sue Bonney added: “As corporate tax rates fall worldwide and corporations become more fleet of foot in relocating to favourable jurisdictions, national governments can no longer rely on corporate tax receipts. But they still need to collect revenues and they are looking towards indirect taxes to do this.”

A switch to indirect taxes

For several years there have been signs that governments throughout the world have been switching their attention to indirect taxes, but this year that trend has become much clearer.

The generally accepted idea is that indirect taxes compensate for reduced corporate tax yields. From this, it could be expected that regions with low corporate tax rates have higher indirect tax rates. The survey supports this to some extent: against a global average indirect tax rate of 15.7 per cent, the EU (with its low average corporate tax rate) has the highest average indirect tax rate among the world’s regions at 19.49 per cent.

Looking at the UK, in contrast to its corporate tax rate (well above the EU average), on indirect tax, it is the 4th lowest in the EU at 17.5 per cent. This relatively low rate plus a system that has remained stable for several years are likely to be the factors behind the UK being voted the best country in the world to deal with from an indirect tax perspective in a recent KPMG survey **.

Taking a global perspective, whilst corporate tax rates have been falling worldwide, indirect tax rates have remained relatively stable, suggesting that if indirect tax yields are compensating for declining corporate tax yields, this is being achieved in other ways: namely a widening of the indirect tax base and a stricter application of the rules.

Sue Bonney concluded: “Although, indirect tax rates on the whole have not changed, while corporate tax rates have been pushed steadily down, more and more governments are introducing indirect tax systems. There are currently 135 countries with these systems in place and more in the pipeline. There is also a steady expansion of the transactions that these taxes are applied to, and a new focus from tax authorities on efficient collection of indirect taxes through corporate tax departments.”

Against a background of turbulent and complex markets, Deloitte in the UK reported a strong performance for the year ended 31 May 2008. Gross revenues grew by 11.5% to reach GBP2,010m, just exceeding the GBP2 billion target set two years earlier. Net revenue (revenues net of client disbursements) grew by 11.8% with good growth in each division. Profits available for distribution to partners and retired partners increased by 19.4% to GBP683m. Deloitte has appointed 60 new partners in the year and 1,400 new graduates will join the firm in the next few months.

John Connolly, Deloitte Global Chairman and UK Firm Senior Partner and Chief Executive, commented:

Markets and Business Performance
“Following a continuous period of high growth, the environment for advisory services was adversely impacted for much of this year as the US sub prime crisis and its wider consequences reduced the level of business opportunity across the firm. Our performance, which I regard as very strong in these markets, reflects a continuous and relentless twin focus on our clients and our people.

“On the client side, we have combined an obsessive commitment to quality with a sharpened focus on clients’ needs in these changing and challenging markets. We have re-emphasised our actions to retain our people seeing the value of being fully and appropriately resourced, especially as the economic and credit environment improve.

“The significant reduction in the number and value of M&A transactions and the marked reduction in the level of real estate activity had an adverse impact on our revenue across the firm, but especially so in Corporate Finance and Tax where we have a leading position in Private Equity.

“Achieving double digit growth in the firm and each division reflects the strength of the Deloitte brand, the scale and value of our client relationships in all segments, the resilience of our broad-based capabilities and particularly our efforts to identify and capture high growth opportunities which emerge in this environment.

“Our Audit practice built further upon the winning position it has attained in the last few years achieving net revenue growth of 11.1% with particularly strong performances from our security, risk and regulatory teams, combined with a continuing flow of new clients in our core audit division. New clients this year included Barratt Development, Corus, Gallaher and Taylor Wimpey. Deloitte is now the co-leader in share of FTSE 250 audits.

“Tax had a very good year, notwithstanding the significant impact of the downturn in M&A activity. Net revenue growth was 10.6% fuelled by our leading position in many service lines and the opportunities offered by a tax environment that remains uncertain with continuing legislative change leading to a demand for our compliance, reporting and accounting services. The accelerated interest in the UK from emerging markets has led to a healthy demand for the services of our international tax team.

“Consulting net revenue grew by an exceptional 13.2%, with particularly strong performance in enterprise applications, the business systems planning and implementation unit. From an industry perspective, the highest growth was achieved in the financial services and the technology, media and telecommunications practices. A particular success in the year was securing a number of major contracts which were supported by our key propositions, including finance transformation, enterprise cost reduction and business critical programmes.

“Finally, our Corporate Finance division achieved extremely robust net revenue growth of 13.1% notwithstanding a significantly reduced rate of growth in the last quarter. Whilst boom time M&A work has tailed off, growth was buoyed by debt, forensic and restructuring work and our agility in responding to changing client needs. Of the five significant Structured Investment Vehicles (SIVs) restructurings that occurred in 2008, Deloitte led the four largest projects including the headline grabbing $9bn receivership of Cheyne Finance. Our forensic and dispute services group has seen tremendous growth over the past year, with revenues up 50% and our corporate finance advisory team had a successful year assisting with multinational deals particularly those involving Infrastructure or Sovereign Wealth Funds.

Profit
Profit before tax grew by 16.0% to GBP654m and total profit available for distribution to partners and retired partners increased by 19.4% to GBP683m.

The average profit per partner increased to GBP970,000 (GBP877,000). The profit share of the Senior Partner and Chief Executive was GBP5,696,000 (GBP4,656.000) and the share of profit allocated to the partners who were members of the Executive Group, which includes the Senior Partner, totalled GBP44m (GBP34m).

Audit Transparency Report
Simultaneously with the publication of our Annual Report, we will publish an Audit Transparency Report a year ahead of that required under the Statutory Auditors (Transparency) Instrument 2008. This early release underpins our commitment to delivering quality and openness.

The Audit Transparency Report presents an overview of our approach to governance, quality, quality control and risk management, and outlines our standards relating to independence, conflicts of interest and ethics.

The report includes financial information designed to highlight the importance of the auditor’s statutory audit work as required by the Statutory Instrument. Key features of this information include:

• Audit division gross revenues of GBP619m (GBP557m) represents 30.8% (30.9%) of the firm’s revenue;
• The revenue earned from undertaking statutory audits was GBP367m (GBP332m) representing 18.3% (18.4%) of the firm’s revenue.

Corporate Responsibility and the Community
Emphasising the value our people place on the firm taking a leading position in contributing to the wider community and running our business responsibly, this year we set a new benchmark in commitment showing leadership in the business community.

In December 2007, we announced the ground-breaking sponsorship of the London 2012 Olympic Games and Paralympic Games alongside our appointment as the official provider of professional services to the London Organising Committee for the Olympic Games and Paralympic Games. Our appointment is a source of great pride to our people and reflects our longstanding commitment to the ideals of the London Games and our market-leading position in the business of sport. Our work in support of LOCOG will bring to life the depth and breadth of Deloitte’s capabilities, and our exceptional track record in delivering the most complex and challenging projects. We are already seeing the difference our association with the London 2012 Games is having on our graduate recruitment, and in motivating and retaining our people.

We are also proud to have an equally exciting partnership with the British Paralympic Association and SportsAid, where our support for disability sport at the grassroots has been hailed as transformational by the Olympic Minister, the Rt Hon Tessa Jowell MP, and where our financial backing for talented young athletes means that 23 Deloitte-supported athletes will be joining the Paralympics GB team at the Beijing Paralympics.

Alongside the 2012 development, we also announced a five year partnership with the Royal Opera House to stage a new annual cultural festival, Deloitte Ignite, which is targeted at young professionals. The first festival will be in September this year.

Our new Green Agenda programme, now in its second year, addresses what Deloitte needs to do to develop a sustainable and environmentally-friendly business, and supports our increasingly broad portfolio of client services in the environmental and sustainability areas. Our environmental impact comes mainly from the way we serve our clients, including business travel and premises and our focus has been on long term investment and innovation: for example, 50% of the carbon emissions from our business travel are now offset through our Barclays corporate charge card programme, and the architectural and engineering solutions we employed in our London campus refurbishment were both practical and far-reaching, with a green wall and roofs incorporated into designs, 87% of surplus furniture recycled, and achieving 80% of waste recycling across our London offices. These and other achievements set us well on our way towards achieving ISO14001 accreditation in 2009.

We are proud of our reputation as leaders amongst business in our commitment to corporate responsibility. Highlights include our selection as one of The Sunday Times 50 Best Green Companies and securing a Gold rating in the Business in the Community Corporate Responsibility Index.

Looking Ahead
“I can add little to the long trail of negative economic and market assessments. We are unlikely to see much growth in most business segments of the UK economy in the next year but a pick-up is likely in the latter part of 2009 or first half of 2010. Economic activity has held up in many parts of the world. I believe the US economy has the capacity to rebound more quickly than generally expected and to be a positive influence on the global recovery. For the UK the key driver of the recovery will be an improved supply of credit and lower market interest rates.

“Notwithstanding the market outlook, how do I see the position for Deloitte?

“Over the last few years we have achieved market leadership largely for two reasons. First, we have a broader range of skills than any other professional services firm. We seek to anticipate the changing needs of our clients in deploying these skills and in helping our clients develop and implement pragmatic business solutions. Secondly, we are relentless in our pursuit of quality and innovation. The market and our clients increasingly recognise this.

“Even in low growth markets there will be winners in every business segment. We have exceptional people and we nourish and develop their talent. I remain very optimistic that the winning business in our professional services market will be Deloitte.”

Operating segment analysis

Operating Segments
The group has four reportable operating segments; Audit, Tax, Consulting and Corporate Finance. The audit segment provides audit, internal audit, regulatory, risk & control and accounting & financial reporting services. The tax segment provides business tax, employer and personal tax services. The consulting segment provides strategy, operations, human capital, enterprise application and technology integration services as well as actuarial & insurance solutions. The corporate finance segment provides transaction support, reorganisation services, forensics & dispute services and advisory services.

The reportable segments reflect the group’s principal management and internal reporting structures and are strategic business units that offer different services. They are managed separately because each business requires different skills and methodology.

The accounting policies of the operating segments are the same as those described in the summary of accounting policies. The group evaluates the performance of the segments on the basis of revenue and profit or loss from operations before finance income, finance cost and tax expense.

Performance assessment of the segments includes a review of certain assets such as client receivables, amounts to be billed to clients and prepayments, segment liabilities reviewed include accruals and specific staff liabilities. All other assets and liabilities, including non-current assets, balances with partners, cash, provisions and retirement benefit balances are controlled centrally and are not allocated across service lines.
Inter-segment revenue is not material as revenue is shared proportionately by those service lines delivering services to clients.

Nearly two-thirds of senior executives around the world say they have experienced some form of actual or attempted corruption in their business dealings, according to a report by PricewaterhouseCoopers LLP. The report ‘Confronting Corruption: The business case for an effective anti-corruption programme’ finds that almost 80 % of executives say they have anti-corruption programmes in place at their company, but only 22 % are confident the programs are effective. PricewaterhouseCoopers commissioned the Economist Intelligence Unit to conduct a global survey and in-depth interviews with senior executives and anti-corruption specialists. Survey respondents, comprised of 390 senior executives from 70 countries, indicated the significant operational impacts of corruption:

• 63 % said they had experienced some form of actual or attempted corruption;
• 45% said they had not entered a specific market or pursued a particular opportunity because of corruption risks;
• 39% said their companies had lost bids because of corrupt officials; 41% said their competitors paid bribes.

Executives say they feel particularly vulnerable to corruption when doing business in expanding markets such as China, India, Russia and South America. In addition, 70% of the executives surveyed stated that a better understanding of corruption would help them compete more effectively, make better decisions and improve corporate social responsibility as they enter new business environments. This sentiment is further backed up by the UK responses to PricewaterhouseCoopers recent Global Economic Crime Survey citing that nearly half (49%) of UK fraud cases involve an overseas party. The possible impact of economic crime is considered a significant factor in about half of investment decisions, with 90% of UK respondents citing corruption as their major concern when doing business with emerging economies.

Andrew Gordon, partner, forensic services, PricewaterhouseCoopers LLP said:

“The rapid growth of corruption and bribery as a form of fraud in the UK underlines the increasingly globalised business world in which we operate. As emerging economies become increasingly important business partners, companies now have a compelling business case to support the development and implementation of a formal and strategic anti-corruption programme.

“In recent years, companies caught breaking anti-corruption laws have individually paid hundreds of millions of dollars in fines and several chief executives have stepped down in disgrace. This situation is not limited to UK companies. Globally, we are seeing a marked rise in enforcement actions that should cause C-Suite officers to ensure they have adequate programmes in place to mitigate this risk.”

In addition to the obvious monetary damages corruption causes, the damage to a company’s reputation is also of major concern. When asked about the fallout from corruption allegations, 55 % of respondents to the survey say the most severe impact would be to their corporate reputation – a greater percentage than the combined total of those who say legal, financial and regulatory impacts would be the most severe.

Andrew Gordon partner, forensic services, PricewaterhouseCoopers LLP continued:

“As management and staff become distracted and demoralised, customers and business partners distance themselves from the company and even internal safeguards against such things as theft and financial statement manipulation eventually become suspect. Without a strategic action plan in place, a company may not even be aware of its vulnerability until it is too late.”

While companies are generally responding to the risk of corruption, the survey indicates that many companies’ underlying policies and controls do little to identify and mitigate risk due to poor design or implementation:

• Slightly less than half say their programme is clearly communicated and enforced;
• Rigorous risk assessment, a crucial step in programme design, is overlooked by more than half of those surveyed, and only 25 % perform proactive risk assessments or monitoring;
• Only 40 % of respondents believe their current controls are effective at identifying high-risk business partners or suspect disbursements.

It is not, however, all bad news; drawing from interviews with experts and real life case studies from global companies, the report provides practical guidance for operating in challenging environments. Leveraging efforts by leading non-governmental organisations focused on the issue, the report also includes a model for an effective anti-corruption programme that can be tailored to any environment.

Deloitte has announced two new senior appointments to partner within its burgeoning private client services practice – tax specialists Kirsten Tassell and Adam Waller.

Commenting on the new appointments Paula Higgleton, head of UK private client services for Deloitte, said: “Our ongoing commitment is to help wealthy individuals protect and enhance their assets by providing them with advice and a compliance service that is second to none. Kirsten and Adam bring a wealth of experience and will further strengthen the private client services practice at Deloitte.”

Kirsten Tassell specialises in providing tax advice to high net worth individuals. She has significant experience in the private client tax area providing bespoke solutions to tax issues. She also acts for a number of trustees both in the UK and offshore and is a regular speaker at conferences both within the firm and externally to clients and other professional organisations. Kirsten is based in the Cambridge office.

Adam Waller is a member of the Employer and Personal Tax team within the private client services practice working on a diverse portfolio of private clients. Adam works with business leaders and entrepreneurs, advising them on their personal, family and business tax affairs. He qualified in 1998 and is based in Leeds.

Paula Higgleton added: “This is an exciting time for the private client services practice which has seen rapid growth and recognition in the market. We recently received the award for Accountancy Firm of the Year for the second consecutive year at the 2008 Citywealth Private Client Awards.”

Deloitte has named David Cobb as the global head of its research and development (R&D) tax group with immediate effect.

Alberto Terol, global head of tax at Deloitte, said: “I’m delighted that David has agreed to take on this pivotal role leading our R&D tax specialists worldwide. His experience of working not only with UK but also overseas headquartered companies, including some of our largest and most important global clients providing strategic, tax and transaction services has made him the natural choice for the role.”

David Sproul, EMEA head of tax at Deloitte added: “David’s appointment comes at a time when the opportunities for multi-national groups to claim tax based R&D incentives around the world are increasing as more countries introduce new regimes and others enhance what they already offer.

“Europe in particular is an area of increasing opportunity for R&D incentives, however there are also a great many opportunities in the Americas and Asia Pacific making sense for this role to be based in the UK.”

David Cobb commented: “The global Deloitte R&D network is very strong and I am proud and excited to have this opportunity to lead this part of our business. Our international team has a coordinated approach to preparing R&D claims on a local country basis and a very effective approach to helping our clients review and optimise their global position. My aim will be to ensure that we bring this skill and expertise to many more groups.”

David has been a tax partner since 1997, working in international tax and transfer pricing. In 2003 he established the UK R&D Tax Services team.

Multinationals put the UK at the top of the VAT-friendliness league and three quarters of major global businesses believe that governments will rely more on indirect taxes (such as VAT or general sales taxes) in the future according to a worldwide survey of senior finance professionals at over 500 large corporations in 22 countries around the world commissioned by KPMG International.

The research, some of the most extensive KPMG has ever commissioned on this subject, helps to provide further evidence of the increasing importance of VAT and other indirect taxes globally. It also provides evidence on the level of VAT which global organizations are struggling to manage every day, with 82 percent of those who responded indicating that their organization’s annual VAT throughput was between US$200m and US$1bn per annum.

Niall Campbell, KPMG’s Global Head of Indirect Tax and partner in the Irish firm, said: “This survey, one of the largest and most comprehensive we have ever commissioned on large multinationals’ views on indirect tax, helps to confirm what we have been seeing on the ground in recent years, namely that indirect tax is becoming increasingly important for global businesses as corporate tax rates decline.

“The levels of VAT which global businesses are now handling are quite staggering and are clearly causing finance directors and tax directors real concern. As the cost of getting VAT wrong is so material, it makes sense that errors in VAT compliance have now been identified as the biggest tax risk for these businesses – quite a shift in attitudes away from the traditional focus on corporate and income taxes.”

Within the UK, 70 percent of respondents forecast that government’s reliance on indirect taxation is set to increase in the next five years, just slightly below the overall sample’s 75 percent.

Commenting on the UK results, Gary Harley, Head of Indirect Tax at KPMG in the UK, said: “British businesses predicting a swing towards indirect tax is not surprising given both the efforts that HMRC have gone to in recent years to combat missing trader fraud, through a combination of legislative change and high profile litigation both here and in Europe, and the need to maintain the tax yield at a time of uncertain economic outlook and an increasingly uncompetitive tax environment.”

The concerns over VAT compliance reflect what KPMG has heard anecdotally. Gary Harley continued: “It is interesting that half of the global finance directors surveyed saw VAT compliance as their top global tax risk and certainly echoes what we are seeing on the ground with many organizations starting to think very objectively about how they manage their transaction tax obligations. Taking Europe as an example, despite having a common VAT code, the rules concerning VAT differ significantly from member state to member state, making compliance a real challenge.”

League table of VAT-friendliness

When asked which jurisdictions the respondents had found it most easy or most difficult to do business in from a VAT perspective, the UK came out as the most VAT-friendly with a net 10 percent of the sample saying it was easy. Italy was cited as the most difficult with the respondents remaining relatively neutral on other countries, according to the sample.

Gary Harley said: “The fact that the UK scored so highly is no doubt in large part due to the tax authorities’ approach to dealing with VAT errors. However this could be set to change as, on 1 April 2007, Her Majesty’s Revenue and Customs introduced a new, stricter, penalty regime which will be applied to VAT returns from April next year.

“If a company makes a mistake on a VAT return but tells the tax authorities first, pays any outstanding tax and takes steps to fix the problem, HMRC is usually quite reasonable and understanding. However, this could well change under the new penalty regime as HMRC seem to be adopting a harsher approach whereby they will levy a penalty unless the taxpayer can demonstrate that they acted with reasonable care.

“Given the likelihood of increased penalties in the UK and the global concerns over VAT compliance, minimizing the risk of VAT errors needs to be a priority for British businesses,” Gary Harley concluded.

Other Key Findings

• Complex VAT legislation is the number one issue for global businesses in the next five years, concerning two thirds of those interviewed, closely followed by compliance obligations (55 percent concerned) and the threat of penalties (45 percent concerned).
• Investment in training and technology key priorities for effective VAT management: 66 percent of global businesses believe that their organizations need to invest in training to raise employee awareness of VAT and 42 percent believe that investment should be made in improved VAT systems and technology.
• Low level of awareness of opportunities presented by VAT: only 11 percent of finance directors identified VAT as a potential source of competitive advantage.

Niall Campbell continued: “Our research indicates that while businesses are now becoming increasingly aware of the scale of their global VAT risks and obligations, there is still a gap between awareness and actually investing in effectively managing the issues on a global basis. The results deliver a very strong message that if businesses want to adequately deal with the challenges which VAT is expected to present over the next five years, they will need to seriously engage and invest in areas such as employee VAT awareness training, VAT systems and technology, additional internal resources and relationship building with tax authorities and regulators.

“There are also significant opportunities which more effective global management of VAT can produce for businesses. However, our research shows that there is currently a low level of awareness of those opportunities, especially amongst the finance directors in the sample group. Combined with the strain on internal resources within many organizations, this may be causing significant savings to be lost to many organizations.

“In addition, our research shows that the majority of businesses view VAT as purely a compliance obligation. However there appears to be a growing number of businesses that see VAT in a more external, market focused way. There is a clear competitive advantage to be gained by those businesses that can achieve an optimal VAT position when making a range of business decisions from product pricing, outsourcing and new business locations. As shareholders continually challenge management to improve business performance, finance directors who now engage and invest in managing VAT risks and realizing VAT opportunities can deliver real shareholder value.”

Ernst & Young today announces that its Global Executive and the Global Advisory Council approved the proposed integration of all of its 87 country practices in Western and Eastern Europe, the Middle East, India and Africa into a new EMEIA Area. It also confirmed that more than 700 partners in the Far East had supported a similar integration across 15 countries and territories.

The EMEIA Area will operate as a single unit, led by a single executive team and, where allowed by laws and regulations, be underscored by formal combinations of practices. The new Area will be a US$11.2 billion organization with more than 60,000 people. The 3,300 partners of EMEIA will vote on the integration by the end of May. The new EMEIA Area will be effective from 1 July 2008.

The integration of the Far East Area creates a US$1.2 billion organization, with more than 20,000 people. The new structure will also be effective from 1 July 2008.

Mark Otty, currently the head of our UK practice, has been nominated to be the EMEIA Area Managing Partner, while David Sun and Jim Hassett were confirmed as Far East co-Area Managing Partners.

The Administrative Tribunal of Lyon issued a decision on 20 November 2007 in a case involving France???„?s implementation of the anti-abuse provision in the EC Parent-Subsidiary Directive (McKechnie). If the anti-abuse rule applies, the exemption from withholding tax on outbound dividends paid to an EU parent company will be denied. Under France???„?s implementation of the EC Parent-Subsidiary Directive (i.e. article 119 ter of the French Tax Code), dividends paid by a French subsidiary to its EU parent company are exempt from withholding tax if certain requirements are met. For example, the exemption will not apply where the French subsidiary is controlled directly or indirectly by companies outside the EU, unless the French taxpayer can demonstrate that the main purpose for interposing EU companies in the shareholding chain is not to obtain the benefits of the exemption.

According to guidance published by the French tax authorities, the taxpayer???„?s burden of proof is satisfied when the total amount of withholding tax in the entire chain of companies is at least equal to the amount of French withholding tax that would have applied to dividends paid to the non-EU company. In addition, the taxpayer will be deemed to meet the burden of proof when the participation chain existed before the Parent-Subsidiary Directive became effective. The McKechnie case involves a French subsidiary that paid dividends to its U.K. parent company, which was indirectly controlled by two companies based in Jersey. The French tax authorities denied the right
to apply the withholding tax exemption on the dividends on the grounds that neither of the circumstances referred to in the guidelines were present. The company???„?s only argument was that at the time the group was acquired by the Jersey companies, the French company was already held by its U.K. parent and the U.K. company continued to
manage and control its French subsidiary under the same conditions.

The Tribunal concluded that the facts presented by the taxpayer were sufficient to show that the chain of shareholdings did not have as its main objective the avoidance of tax. The decision indicates that the taxpayer is not confined to any particular method to demonstrate the absence of abuse for purposes of the application of the withholding tax
exemption. The Tribunal also was of the opinion that the fact that the French company was already a subsidiary of an EU parent company (i.e. the U.K. company) when the group was acquired by the Jersey shareholders was sufficient to overcome a presumption of abuse.

Without specifically addressing the compatibility of France???„?s anti-abuse provision with EC law, the Tribunal ruled that the wording of the antiabuse provision in article 119 ter had no application to the case. In fact, the taxpayer???„?s contention made no reference to the purpose of the reorganisation nor did the Tribunal require any statement from the
taxpayer as to that purpose to demonstrate that the reorganisation was not tax driven. If confirmed, the decision provides a strong guarantee against reassessments based merely on the existence of a non-EU ultimate parent company.

This decision appears to adopt principles enunciated by the European Court of Justice (ECJ), according to which an anti-abuse provision is compatible with EC law only if its scope of application is restricted to artificial schemes (see, for example, the 2006 decision in the Cadbury Schweppes case). The Lyon Tribunal has thus taken one step towards integrating French tax law with principles outlined by the ECJ, and it comes at a time when the European Commission has been challenging the anti-abuse rules of a number of EU Member States.