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Oct 15, 2015 2015-10 Accountancy

Lyceum – Marilyn Gerdes and Patrick Roxworthy

By Tom Hanlon

Corporate Tax Outside the Code

Students at a recent accounting lyceum received straight-shooting advice, an insider’s look at what it takes to prosper in the corporate tax world, and more than a few war stories from a pair of recently retired, highly successful senior tax executives. The lyceum, moderated by Norma Lauder, director of the MS Tax program in Chicago, featured Marilyn Gerdes, formerly with the Sara Lee Corporation, and Patrick Roxworthy, who retired last year from Hyatt Hotels Corporation. Both Gerdes and Roxworthy served their respective companies as senior vice presidents of tax. Gerdes, who graduated summa cum laude in 1974 from the University of Illinois (and in 1977 from the U of I’s Law School), was responsible for Sara Lee’s global tax function; the company operated in more than 100 countries. Roxworthy’s professional tax career spanned 37 years. He serves on the Department of Accountancy Board of Advisors. Both Gerdes and Roxworthy also serve as members on the Advisory Board for the Illinois MS Taxation program at the Illini Center in Chicago. So they both had plenty of experience, and experiences, to share with students, and they did so in an engaging and interactive manner, after Lauder’s opening remarks.   CTOs: Highly visible and important “If accounting is the backbone of business,” Lauder said, “tax is the wrapper. You cannot avoid tax. In the corporate environment, it’s 35 percent of your bottom line.” Lauder noted that tax professionals “Need deep technical knowledge of tax law, and they have to understand the businesses they serve, because tax implications are different for different businesses.” Even more, she stressed the importance of strong professional skills. “Across the board, people in the business world would say of all the professional skills, communication is the key. You need to be able to communicate to people – especially those who don’t talk in tax code sections and acronyms – in a way that they can understand.” Lauder outlined the corporate tax department structure: CEOà CFO à CTO (chief tax officer). The CTO is in charge of tax planning, tax accounting, tax compliance, and tax controversy. “CTO is a very high visibility position to be in,” she said.   A prime goal: Getting the lowest effective tax rate From there, Gerdes engaged the students in some role playing. “Let’s say you’re CEO of a large U.S. multinational,” she said. “I’m your chief tax officer. What are you going to pay me for?” A student responded, “To save me money.” “And how am I going to save you money?” Gerdes asked. Another student responded “By beating the tax laws.” “Yes,” Gerdes said, “by beating the tax laws – legally. If I beat the tax law legally, what happens? What does every company judge their tax on specifically? The effective tax rate. If I get a low effective tax rate, I’m going to get a bonus, because cash is king. I have to get a low effective tax rate, and I’ve got to get a low cash rate. People who buy your stock like a low cash rate.” Gerdes noted that the US corporate tax rate of 35 percent is higher than many other, including European, countries. For example, the United Kingdom’s is 20 percent. “So you’re going to pay me the big dough as your CTO to get that rate down so we can compete with other countries around the world,” she said. “On the other hand, if I have a 37 percent tax rate and my peer companies have a 22 percent rate, you’re going to replace me.”   Tax Audit and Controversy Large companies are constantly audited all around the world by state and country tax authorities such as the IRS.  Only half joking, Gerdes referred to government agents as the "villains in her world".  She told several amusing stories of how adversarial these audits can be, including one story concerning the audit of a foreign facility which manufactured hundreds of millions of men’s white briefs —“tighty whiteys" as she called them. Gerdes and Patrick Roxworthy bantered back and forth throughout the lyceum, and while Roxworthy laughed at Gerdes’ audit stories, he did say that you have to respect the IRS and other government auditors. “It’s about mutual respect,” he said. “They have a job to do as well. If you treat them with respect, they generally will treat you with respect.” “Their job,” Gerdes added, “is to take the corporation’s money, and mine is to keep them from taking it. But you can never, ever lie. If you do, you will find yourself in big trouble.”   “The most important thing that we do” Of the four primary functions of a CTO – tax planning, tax accounting, tax compliance, and tax controversy – all four have to work together, Roxworthy said. What comes out of those four areas will be reflected in the financial statements, “and they can’t be siloed,” he said. “Where you get in trouble is if you screw up the financial reporting. You have one chance to get it right. If it’s not correct, you could have a big problem down the road. “Financial statements are the most important thing that we do.”   International decisions Gerdes noted that many companies are going overseas to profit from being in lower tax jurisdictions. “You’re going to pick the place that makes the most money,” she said. “Although,” Roxworthy noted, “We’ve had situations where the tax benefits were quite solid, but the operational difficulties and disruptions were such that we decided not to go ahead. It’s a business decision, a tradeoff.” Gerdes said that while many companies will move parts of their business overseas to take advantage of cheap labor and tax rates, not many go through the corporate inversion process (re-incorporating a company overseas to reduce the tax burden on income earned abroad). “There are some pretty big rules about that,” she said. “You can get whacked with a pretty big number – if it’s an old company and you move it overseas… outbound transactions are very tricky.” Conversely, Roxworthy acknowledged that many international businesses are buying US multinational companies. “By doing that, they get the international business of the parent company out of the US tax net,” he said. “That’s been a trend recently.”   “It’s a people’s business” Bringing it back down to what it takes to forge a successful tax career, Roxworthy said “You have to work cross functionally with everyone within the corporate arena. And it’s also important that you work well with your CFO. He or she is the person who’s going to give you the resources to make sure you get the job done, and will make sure that all the things that you’re doing will get in front of the audit committee.” It might be a career filled with numbers. But, as moderator Lauder said, “It boils down to this: It’s a people business.”