One minute with Ali Kennedy, group head of tax at Sophos Group plc.
What’s keeping you busy at work at the moment?
2018 has been a busy year on two fronts. Firstly, there has been a high pace of legislative change and considerable time has been spent working through the impact of the US Tax Cuts and Jobs Act of 2017. We are a UK headquartered group but with a significant US presence, so the changes had to be built into our tax forecasts. A March year end meant that we had to do this far sooner than many other groups. We have also been looking at legislative change across the EU and in India.
This year was also a good time to look at how we approach tax reporting and forecasting. With multiple legislative changes across the globe we needed to run tax models that could calculate and forecast tax quickly and efficiently. We have invested in updating our systems so that we can turn around a whole group forecast in a very short period and have built in flexibility to manage and model change. I strongly believe that a modern tax team must be able to support the business with data on as close to a real time basis as possible.
What caught your eye in the Budget?
The Budget appeared to be designed to be a potential vote winner, rather than a revenue raiser. However, the proposed digital services tax is a concern. The UK deciding to jump ahead of the EU and the OECD in legislating for a DST interim measure makes little sense other than as a sound bite on ‘fair taxation’ for the electorate. The OECD is working through a project to find a long-term solution to taxing the digitised economy with a view to providing an update in 2019 and measures by 2020. It would make sense to give them time to do so and align to the outcome rather than have two significant changes in quick succession. The tax clearly targets large US technology companies but there is a danger that others will get caught if the rules are not tightly drafted (the diverted profits tax being an recent example of this). Companies are already dealing with the Brexit impact of European relationships, so it doesn’t feel like the right time to lead the way in also upsetting trade with the United States.
What’s your view on the various proposals concerning taxing the digital economy?
I think that it will require a fundamental change to the international tax system to tax companies that remotely engage with an economy. The digital company is reaching into a territory using digital means and engaging with the citizens of that country without the traditional bricks and mortar establishment. It is believed that this interaction creates value that should be taxed once a nexus has been reached. Where the users do not voluntarily provide details of their location e.g. via a credit card payment then we get into the very disturbing requirement for technology companies to track their users to pinpoint the country that they are ‘clicking’ from. The EU General Data Protection Regulation attempts to protect users from such an action, as do many technology solutions such as virtual private networks. I don’t believe that it is possible or advisable for digital companies to accurately track the location of users, so this proposal is flawed from the outset. I feel that the engagement of computer scientists in crafting proposals would be worthwhile at this stage to avoid the legislation becoming an expensive white elephant.
What advice would you give to tax policy makers?
Spend more time on thinking about dispute resolution. In the cyber-security industry, we encourage developers to design security into their products from inception rather than as an afterthought. Tax policy makers could learn from this. When a new tax or a significant change is proposed then the first thing that should be considered is how they are going to resource and resolve controversy. In particular, if a digital tax is implemented where a value has to be placed on data or taxing rights have to be allocated between jurisdictions this is going to inevitably lead to differing interpretations of the location of value creation. Solving the issue of how disputes are going to be resolved from the outset would give taxpayers greater certainty and faith in the system.
Where do you see corporate international tax reform heading in five to ten years’ time?
I think that the days of the arm’s length principle are numbered. New business models now no longer fit the scenarios that it was designed to deal with. I also think that the debate around whether or not it still makes sense to tax profit will continue. The digital services tax is already challenging this by proposing a tax on revenue that is not a consumption tax like VAT.
What do you know now that you wish you’d known at the start of your career?
My early career was spent steadily progressing up the tax ladder. However, I now have other board roles, some in the technology sector, which are non-tax related and very interesting. I wish that I had thought to broaden my expertise sooner e.g. by taking on more non-tax committee and charity roles. They provide great leadership experience and gaining access to experts in other sectors strengthens your own skill set and network. I am especially keen on meeting great technology innovators and entrepreneurs and trying to transfer their approach to problem solving to the tax function.
Finally, you might not know this about me but…
I enjoy running longish distances, while listening to music and pondering the issues of the day. I have finished the London marathon three times and am interested in completing an ultramarathon challenge. I am married with four children (including identical twins) who are all keen athletes, so I am considered to be the lazy one in a super fit family.
One minute with Ali Kennedy, group head of tax at Sophos Group plc.
What’s keeping you busy at work at the moment?
2018 has been a busy year on two fronts. Firstly, there has been a high pace of legislative change and considerable time has been spent working through the impact of the US Tax Cuts and Jobs Act of 2017. We are a UK headquartered group but with a significant US presence, so the changes had to be built into our tax forecasts. A March year end meant that we had to do this far sooner than many other groups. We have also been looking at legislative change across the EU and in India.
This year was also a good time to look at how we approach tax reporting and forecasting. With multiple legislative changes across the globe we needed to run tax models that could calculate and forecast tax quickly and efficiently. We have invested in updating our systems so that we can turn around a whole group forecast in a very short period and have built in flexibility to manage and model change. I strongly believe that a modern tax team must be able to support the business with data on as close to a real time basis as possible.
What caught your eye in the Budget?
The Budget appeared to be designed to be a potential vote winner, rather than a revenue raiser. However, the proposed digital services tax is a concern. The UK deciding to jump ahead of the EU and the OECD in legislating for a DST interim measure makes little sense other than as a sound bite on ‘fair taxation’ for the electorate. The OECD is working through a project to find a long-term solution to taxing the digitised economy with a view to providing an update in 2019 and measures by 2020. It would make sense to give them time to do so and align to the outcome rather than have two significant changes in quick succession. The tax clearly targets large US technology companies but there is a danger that others will get caught if the rules are not tightly drafted (the diverted profits tax being an recent example of this). Companies are already dealing with the Brexit impact of European relationships, so it doesn’t feel like the right time to lead the way in also upsetting trade with the United States.
What’s your view on the various proposals concerning taxing the digital economy?
I think that it will require a fundamental change to the international tax system to tax companies that remotely engage with an economy. The digital company is reaching into a territory using digital means and engaging with the citizens of that country without the traditional bricks and mortar establishment. It is believed that this interaction creates value that should be taxed once a nexus has been reached. Where the users do not voluntarily provide details of their location e.g. via a credit card payment then we get into the very disturbing requirement for technology companies to track their users to pinpoint the country that they are ‘clicking’ from. The EU General Data Protection Regulation attempts to protect users from such an action, as do many technology solutions such as virtual private networks. I don’t believe that it is possible or advisable for digital companies to accurately track the location of users, so this proposal is flawed from the outset. I feel that the engagement of computer scientists in crafting proposals would be worthwhile at this stage to avoid the legislation becoming an expensive white elephant.
What advice would you give to tax policy makers?
Spend more time on thinking about dispute resolution. In the cyber-security industry, we encourage developers to design security into their products from inception rather than as an afterthought. Tax policy makers could learn from this. When a new tax or a significant change is proposed then the first thing that should be considered is how they are going to resource and resolve controversy. In particular, if a digital tax is implemented where a value has to be placed on data or taxing rights have to be allocated between jurisdictions this is going to inevitably lead to differing interpretations of the location of value creation. Solving the issue of how disputes are going to be resolved from the outset would give taxpayers greater certainty and faith in the system.
Where do you see corporate international tax reform heading in five to ten years’ time?
I think that the days of the arm’s length principle are numbered. New business models now no longer fit the scenarios that it was designed to deal with. I also think that the debate around whether or not it still makes sense to tax profit will continue. The digital services tax is already challenging this by proposing a tax on revenue that is not a consumption tax like VAT.
What do you know now that you wish you’d known at the start of your career?
My early career was spent steadily progressing up the tax ladder. However, I now have other board roles, some in the technology sector, which are non-tax related and very interesting. I wish that I had thought to broaden my expertise sooner e.g. by taking on more non-tax committee and charity roles. They provide great leadership experience and gaining access to experts in other sectors strengthens your own skill set and network. I am especially keen on meeting great technology innovators and entrepreneurs and trying to transfer their approach to problem solving to the tax function.
Finally, you might not know this about me but…
I enjoy running longish distances, while listening to music and pondering the issues of the day. I have finished the London marathon three times and am interested in completing an ultramarathon challenge. I am married with four children (including identical twins) who are all keen athletes, so I am considered to be the lazy one in a super fit family.
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