Insights on key financial services development—Panel interview

What are the key themes of Indirect Tax in Asia Pacific?

Richard: In the context of financial services, the key themes we are observing as follows:

1. The ever-increasing pace of the adoption of e-invoicing mandates in the region. Although many of these mandates have a similar basis or intention, the frameworks adopted by each country contain specific local requirements and nuances. While many businesses have focused on meeting the immediate demands of each local implementation, other businesses are starting to take a more global and regional approach to these implementations by looking to leverage learnings, and methodologies to standardise approaches.
2. Partial exemption and Goods and Services Tax (GST) input tax recovery will be of greater focus for the financial services sector, given the recent developments in Australia (HannoverRe court decision) and Singapore (introduction of special methods).

What are the areas that should be the focus in Australia, especially related to Australian Taxation Office (ATO) risk assessments and tax audits?

Andrew: As part of its ongoing assurance review program, the ATO continues to focus on three key areas—tax governance (i.e., identification, documentation, and testing the effectiveness of relevant controls), data integrity (i.e., performance of general and financial services industry specific tests) and industry-specific tax technical issues (including supply classification, cost allocation and apportionment, entitlement to reduced input tax credits and identification of reverse charges on cross border transactions).

How about China? What is the status of the new Value-Added Tax (VAT) law? What are some of the other key issues?

Candy: The draft VAT law may be submitted to the authorities for further review by the end of August. The outcome of the result will determine whether or not the draft law will be passed. Once the law is passed, the corresponding implementation rules will also be published, and this will provide more details from the implementation perspective. Taxpayers are recommended to pay special attention on this.

Apportionment is in focus given the possible developments with the Singapore Fixed Input Tax Recovery (FITR)? What are the challenges and opportunities in Asia Pacific related to apportionment?

Senthuran: A critical challenge is a lack of consistency in models and approaches. Whilst Singapore is exploring an option to use special or alternative methods of apportionment which is similar to the approaches we see in United Kingdom, Japan, Australia and New Zealand, this is not the case in most of Asia. In general practice, most jurisdictions in Asia limit the methodology to a pure revenue-based formula (i.e., allow recovery based on the total taxable revenue over total revenue). The challenge in using revenue is that from a GST/VAT perspective, ascribing a value to the service performed is difficult (this was why we exempt most financial services). For example, how do you value trading and investment income or life insurance premiums. The use of gross values would not truly reflect the value-add or the compensation received for the service performed. Unfortunately, many jurisdictions take a very simplistic approach to this. However, we are seeing more conversations around appropriately valuing such services, and this can present an opportunity to improve recovery rates.

For the jurisdictions that does allow the use of alternative methods, we have seen challenges in negotiating and agreeing such methodologies with the tax authorities. In particular, authorities can become focused on the outcomes (i.e., the increase in tax claimed) and that often drives the conversation on the robustness of the methodology. There is an opportunity though, to use technology to aid these conversations, in particular by taking steps to get more accurate and detailed data, and through the use of analytics and other available tools to appropriately map and model this data.

Are there trends in GST/VAT compliance in Asia Pacific? Do we see a trend towards outsourcing and greater use of technology?

Richard: Outsourcing of Indirect Tax compliance continues to be a talking point for many large corporations. The nature and extent of these outsourcing arrangements vary in size and form, depending on the need. These can vary from a high-level review or support in discrete jurisdictions, to centralised compliance and coordination of regional compliance, or a more comprehensive solution where the entire function is outsourced. A key driver of this shift is driven by organisations looking to find efficiencies in their compliance processes, for example by better use of technology.

Can you share your thoughts on the use of GST/VAT analytics as a risk management tool?

Andrew: GST analytics should be a key part of any tax function’s risk identification and monitoring process. As mentioned before, data integrity is a key focus area for the ATO and is very relevant in the financial services sector given many taxpayers use multiple source systems and have greater complexity of transactions. Ongoing use of analytics, whether part of a compliance process or a specific exercise, can help efficiently identify any errors or inconsistencies in data and evidence that controls and systems are operating as intended.

What should the indirect tax agenda for Asia Pacific look like as we end 2023 and enter 2024?

Senthuran: The roll-out of electronic invoicing implementations will continue to pick up pace. We are likely to see significant advancements in Malaysia and Philippines on this front, with Thailand to follow suit in 2025. China continues to roll-out in stages with its pilot. A critical focus area for indirect tax teams will be streamlining the approaches to these implementations to ensure that experiences and know-how are adequately leveraged. Some work will also be needed to be done on the advocacy front as the e-invoicing requirements for transaction level reporting do not align with current industry practices. Furthermore, as the key focus of acquiring this data is for tax authorities to become more sophisticated and detailed in their audits, indirect tax functions do need to place a greater emphasis on technology and data. We are already seeing great strides by the ATO in conducting audits of systems and data, and it is a matter of time before this becomes more widespread across the region.

What do you do for fun away from indirect tax?

Candy: Reading books and playing with kids.
Senthuran: A lot of simple things. I love to watch a lot of sports, somewhat a cricket fanatic. I like my gadgets and technology. Nothing beats a good coffee in a quiet café, and of course non-work related travel.
Richard: I would go for a jog, outdoor cycling and do some reading. I have recently started playing touch rugby again after a break.
Andrew: I love to travel (my wife and I are heading to Japan shortly) and enjoy great food. I am also a huge Formula 1 fan, spending the season watching every race and if I am lucky, combining this with my love of travel to be trackside during races.

What is the key to attracting talent to a career in Indirect Tax?

Candy: Good career development in view of the developing regulations and administrative practice.

Senthuran: Indirect Tax is truly global, it has created opportunities for me to work across multiple jurisdictions as conceptually the taxes are similar in each jurisdiction but with some adjustments. It is also an area of tax that requires you to truly understand the type of activities a business is conducting, including getting a deep knowledge of the products and services. It enables you to build that deep industry expertise. Highlighting these benefits including the ability to work on a variety of interesting clients and projects is critical. There is more to Indirect Tax than compliance, it can be a value driver for organisations.

Richard: Attracting talent to a career in Indirect Tax needs employers to be able to demonstrate that the best clients and best people want to do this work. Here are some areas to consider:
Clear career path: The Indirect Tax service line has a clear and structured path to career growth, showing how each individual can progress and the roles they can aspire to.

• Competitive compensation—we offer competitive salaries and benefits packages that align with industry standards.
• Technology and tools—We invest in the latest tax technology and tools to make our indirect tax work more efficient and enjoyable.
• Networking opportunities—we have a strong indirect network globally and have opportunities to work/connect with other local member firms on challenging projects and the biggest clients
• Professional development opportunities—we offer ongoing training, access to soft-skill and technical courses, and we support professional certifications such as Accredited Tax Practitioner (GST) in Singapore.

Andrew: Helping people understand how commercial and varied the role is. I prefer describing GST as an operating tax because it goes to earnings before interest and taxes (EBIT), and is relevant to product design and affects customer engagement. We work across multiple sectors addressing tax technical, governance and data issues, so no two days are the same!