CTA INTERVIEW Vodafone's group head of tax Joel Walters can ...

CTA INTERVIEWChallengesfor a globaltax directorVodafone’sgroup head oftax Joel Walterscan draw on theexperiences of arollercoastercareer, as hetells BobReynolds14 TAXADVISER – May 2008

CTA INTERVIEWIn April this year, the high court in Mumbaiadjourned a writ issued by VodafoneInternational against a $2bn (£1bn) taxdemand until late June. India’s tax authoritiessought the money after the company’sacquisition of Hutchison Essar in May 2007.They claim that capital gains tax is due fromVodafone as a result of the purchase.The deferment was aimed to allow changes– relevant to the case – to the Income Tax Actto be included in the Finance Bill. Vodafonehas always maintained that no CGT is payablebecause the transaction was conductedbetween offshore structures. The companysaid that Hutchison was responsible for anytaxes due from the deal.This battle is typical of the high-profilechallenges faced by multinational companiesin their dealings with national tax authoritiesworldwide. Some of these have achieved aconsiderable profile in the case of Vodafone,and form a key part of the role of group headof tax Joel Walters.Asked how he views the attitude of taxauthorities, Walters says: ‘I think that variesdramatically. Some countries are at one end of thescale and other countries are at the other end. It’sreally hard to talk too generally in that respect. Iguess what I would say is that there is a danger, Ithink, that multinational corporations in particularare perceived as avoiding tax in respect of how theystructure their operations, and the first thing I’d sayis that tax avoidance, defined as not paying theamount of tax the law requires, is actually very rare.‘Secondly, I think that to the extent thatthere is a view in taxing authorities that tax isdriving the business decisions inmultinationals, I think that is also very rare.The reason that those things are very rare isthat corporations have obligations to theirshareholders, they have governance aroundthe decisions they make and how theymanage their business and as a result, I don’tthink that these kinds of activities are ascommon as might be viewed. The danger isthat in a multinational context, there may bedisagreement with the government onindividual issues.‘Disagreements between multinationals andthe government with respect to tax issues areactually a very small number of issues. Theycan, however, be around relatively bignumbers and that creates, I think, an illusionthat there are significant amounts ofdisagreements over significant numbers ofissues. Then I’m concerned to some extentthat once this perception begins to permeatethe taxing agency, what tends to happen isthat the focus comes on enforcing the tax lossin response to what, I think, is largelyoverestimated tax avoidance, and all the effortgoes on enforcement in those areas.’Walters has been group head of tax for‘If a country viewstheir tax system aspurely a tool toextract revenue,that will take itdown a set ofchoices strictlyabout maximisingthe tax on theactivities’Vodafone for two years. In that time he hasseen battles with various revenue authorities,some of which, like recent ones in India, havespilled over into the courts. The dramaticallycompetitive nature of the worldtelecommunications market has also been apressure, along with the difficulties ofmanaging and retaining a tax team in a worldwhere high-quality people are at a premium.‘I think that the first most overarchingobligation of a multinational corporation,’ saysWalters, ‘is to pay the amount of tax it is legallyobligated to pay and in the context, as I wassaying before, of reducing the overall cost ofoperations, reducing the cost of the tax it pays onthose business operations within the law. That isthe responsibility of a multinational corporationand, by definition, a corporate tax department.’Walters comments that questions of ethicsand morality in the tax law are really aboutintegrity. ‘A corporation, and individual taxpeople, must feel that they are comfortablewith the actions they have taken and the waythey have gone about doing their business.’Routes to the topRecent surveys show that many heads of taxtake defined routes to the top, usually througha career to partner level in a Big Fouraccountancy practice or a major law firm, andthen a strategic decision to shift into corporatetax management. Walters’ career could becharacterised as far more diverse. He hasworked for a range of companies and hasbeen recruited for two that were outside taxaltogether. His brief to date has includedburgers, ice cream, a low-cost airline, abottled-water company, a global drinkscompany and now a telecoms company.He is a quiet and cultured American whoseapproach is best characterised by the assertionthat ‘you should expect the unexpected andtake opportunities when they come’.Walters took accountancy at university. Heprogressed to law school, with the intention ofmoving into a legal career. In 1983, after threeyears’ training for the legal profession, hediscovered there were too many lawyers andnot enough jobs.He joined an accountancy firm in his hometown of Minneapolis that led him toWashington DC. ‘It was an extremelyfortunate time to be in Washington. Tax lawwas in the process of what ultimately becamea substantial overhaul of the rules. I was luckyto be there at that time and focus onunderstanding and mastering the new lawsand ways of working. It was a greatopportunity for me.’He joined the UK-based Grand Metropolitanin 1993 as tax director of Burger King beforebecoming head of tax in North America forGrand Met, when he was responsible for thetax affairs of brands such as Pillsbury, HäagenDazs and Pearle Vision, as well as Burger King.Grand Met merged with Guinness in 1997to create Diageo, and he relocated to London.He became head of tax for Diageo at the endof 2000. He received the call to join Diageo atDisney World. In 1997, he had taken his familyaway for a week’s holiday.‘I had settled into the role of senior vicepresident,North America for Grand Met. Theholiday was a bit of a celebration that I was inthe right role for me and I could focus on thechallenges it brought without interruption orchange for a while.’The years that followed embraced a rangeof activities, which included running thefinance departments of a start-up airline andthe bottled-water company. It was the secondoccasion in a long business career when hemoved out of tax.TAXADVISER – May 2008 15

CTA INTERVIEWHe says that both experiences gave himrenewed edge and wider perspective. ‘Both ofthese experiences changed the way I thoughtabout business. I realised just how hard it is forentrepreneurs to take a great idea and developit into a successful company. Many of thehurdles to success and opportunities for failurefor a business come down to money, whetherthat is finding investment capital or managingcash flow during the early period when theburn rate exceeds revenue growth. Further, somuch of the difference between a successfuland growing start-up company and one thatfolds is down to luck – there are so manyindividuals and groups out there withincredible ideas which deserve to besupported, and sometimes it can simply be alottery as to which ones succeed.’Walters runs a tax function of around 60people globally, with about half the group atthe Newbury head office in Berkshire. Thedepartment does most of the company’s taxwork itself. He says that he uses externaladvisers only when they can add skills that arenot available in the company.His style is strategic rather than micromanagement.His approach can be seen in hisrecruitment of a deputy. John Connors arrivedfrom the large business unit at Revenue &Customs last year. Connors says the role wasall about strategy, its development andimplementation. The appointment was ashrewd one because Vodafone had beenlocked in a series of battles with the Revenue,and they knew each other well.‘Vodafone advertised in the Financial Timesjust at the time I was really looking andconsidering my options. I’d met Joel Walterson a couple of occasions, as part of the 100Group and as part of the consultation processon links with big business.‘There are a lot of issues in domestic andinternational tax where Vodafone has animportant role to play and has an importantvoice at the table,’ says Connors. ‘The role isabout setting a strategic direction, workingwith Joel, being a public face of Vodafone in aleadership role; I’m expected to roll my sleevesup, get my hands dirty and get involved insome of the technical issues and add value.’Walters says that running a tax function inVodafone is not greatly different from runningone elsewhere. ‘The difference I would say isthat multinational corporations are driven bythe commercial aspects of the businesses theyhave to run and, as a result, tax activitiesfollow behind the business decisions and thecommercial strategy.‘What’s different about Vodafone ascompared to Diageo or a consumer productcompany is the business that we’re serving.Vodafone is in a complex business with a vastglobal footprint, with significant marketvariations in respect to the competitors thatwe deal with and the environment in whichwe operate. The tax activities become verydifferent because of the business that drivesthe decisions we make day-to-day, and that’sthe piece that has been challenging for me, tolearn a new, more complex business.’Tax and its impact on businessIn the end, the role of the tax director will belargely driven by the relationships he or shemakes. These are within the company, withgovernments and tax authorities and withclients. At Vodafone, there is an acute awarenessof tax and its impact on the business in seniormanagement and among board members.As far as national governments and taxauthorities are concerned, a company will ask,Walters says, whether they want to use the taxsystem as a vehicle to energise investment andbusiness activities or as a tool to extract revenue.‘If a country views their tax system as purelya tool to extract revenue, that will take itdown a set of choices strictly aboutmaximising the tax on the activities. If insteadthe choice is made to attract investment, youmake a separate set of choices about how youstructure your tax environment, in respect tobase, in respect to rates and in respect to howit encourages investment in thatenvironment.’He also pointed to the approach to freemarkets. ‘Again, two sets of choices. One isabout when capital and business activitiesmove across the border, to tax those activitiesor have an impact on that free movement, oralternatively, say we live in a world in whichcapital and business activities have flexibility tomove and we’re going to allow that tohappen without creating a boundary at theborder when that happens.’Many tax directors say that when the taxteam is well integrated into a business and therole of tax is understood, the tax discipline canperform best. ‘The team in Vodafone tax isvery well connected to the business, very wellintegrated,’ Walters says. ‘There is no doubtthat no matter how close that relationship isand how integrated the tax organisation is,there is still always an element of being a greatbusiness partner with that business.‘This includes being able to talk aboutcomplex tax issues in terms that can betranslated into the impact on the business andhow that fits with the overall business strategy;we can always do better at those kinds ofthings, but I think the team is quite good at itand well integrated.’We will continually strive to be an everbetter business partner, which includes thatkind of interaction and high level ofcommunication about how tax fits in theoverall business strategy.’Dreaming of running your ownaccountancy practice?Now’s the time.Don’t keep promising yourself it’ll happen.Loosen yourself from the shackles of employment and run your own TaxAssist Accountants practice.TaxAssist Accountants currently has over 24,000 clients and over 160 offices and shop fronts. 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