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

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