Outsourced Tax Directorate for SMEs, ETIs and international groups

Structure the tax function when the complexity of the enterprise increases

The need to structure a tax function does not depend solely on the turnover of a company.

An SME carrying out a significant part of its international activity, with several subsidiaries and carrying out regular intra-group transactions, may encounter more complex tax problems than a significantly larger undertaking with an essentially French activity in a simple legal structure.

As the organization develops, the issue evolves gradually.

It is no longer just a question of determining whether the tax obligations are properly fulfilled.

It is also important to know who, within the organisation, is responsible for anticipating the tax consequences of the decisions envisaged, coordinating the various councils and maintaining an overall view of the risks and issues of the group.

For SMEs, ETIs and some large enterprises with a structured financial management but not necessarily an internal tax department adapted to all their needs, the Commission has externalised fiscal management is a possible organization.

The firm Edouard Pruvost works in this context with companies and groups dealing with issues such as company taxation, international taxation, transfer pricing, intra-group flows and strategic operations.

Company size is not the only criterion

It would be tempting to determine the need for a tax authority from a turnover threshold.

The reality is more complex.

Two companies with the same turnover may have radically different tax needs.

A French company operating a single activity through a single legal entity may retain a relatively simple tax organisation.

Conversely, an intermediate group may comprise several holding companies, operating subsidiaries, foreign companies, intra-group financing and cross-border flows.

Tax complexity depends in particular on:

  • the number of companies in the group;

  • the number of courts in which it intervenes;

  • the importance of intra-group flows;

  • the nature of the activities carried out;

  • the existence of financing between related companies;

  • transfer pricing policy;

  • the frequency of acquisitions or restructuring;

  • changes in ownership;

  • international development projects;

  • the frequency of decisions requiring upstream tax analysis.

The need to structure the tax function therefore arises mainly when subjects become Recurrent, interdependent and significant enough to require continuous pilotage.

Externalised Tax Directorate for SMEs

Not all SMEs naturally need a tax director.

In many companies, the existing organisation, which combines management, DAF or financial manager and accountant, perfectly meets current needs.

However, the situation can change rapidly.

An SME can open a first foreign subsidiary, make an acquisition, bring in an investor, set up a holding company, develop flows with related companies or start to meet regularly with international tax issues.

The company then changes its level of complexity without necessarily immediately changing its economic category.

The first signs of a need for structuring

Several situations may constitute signals.

The DAF regularly solicits several tax advices according to the operations.

Some questions come back without a group-specific tax doctrine actually being formalized.

Intragroup flows are developing.

Transfer pricing becomes a subject.

Decisions are taken before their tax consequences have been fully analysed.

A first international establishment creates new obligations or interactions between several laws.

An assignment, acquisition or transmission transaction is beginning to be considered.

In these situations, the use of an outsourced tax department allows for the introduction of permanent senior tax jurisdiction without immediately creating a full-time internal position.

Outsourced Tax Directorate for ITEs

ETIs are naturally a particularly suitable field for this type of organisation.

Their structure may present a complexity similar to that of much larger groups, while their supporting functions often remain more concentrated.

They generally have an experienced financial management, sometimes important legal and financial teams, but not necessarily a tax department sufficiently sized to deal with all the problems encountered.

Yet the stakes can be considerable.

Internationalisation, financing, acquisitions, transfer pricing policy, tax integration, restructuring, dividend returns or shareholding trends require a coherent fiscal vision.

In this context, the externalised tax director acts as specialised reference staff of the Financial Directorate and Directorate-General.

Its role is not necessarily to carry out all the tax work.

It involves identifying important topics, prioritizing risks, anticipating decisions and organizing necessary interventions.

An organization also relevant for some large companies

The externalised tax department is not exclusively concerned with SMEs and ETIs.

Some large companies may also use permanent outsourced tax expertise.

Several situations can justify this.

A group may not have an internal tax director despite its size.

An existing tax authority may need additional competence in certain areas, such as international taxation, transfer pricing or some complex transactions.

A company can also go through a period of significant transformation temporarily requiring a strengthening of its tax function.

Outsourcing can then make it possible to complete the existing organisation without changing the internal staff immediately.

In large organisations, the role of the firm will often be more that of specialized senior support or an extension of the existing tax function than that of a complete replacement of the tax department.

The international dimension as a factor of complexity

International development is one of the main factors justifying a stronger structuring of the tax function.

Since several courts are concerned, an operation cannot generally be analysed solely under French law.

A decision taken at the parent company level may have consequences at the level of a foreign subsidiary.

A flow may be subject simultaneously to the internal rules of several States and to the provisions of an international tax convention.

Key issues may include:

  • permanent establishments;

  • Source deductions;

  • dividend returns;

  • interests;

  • fees;

  • intra-group services;

  • financing;

  • transfer prices;

  • tax treaties;

  • cross-border restructuring;

  • the creation or acquisition of foreign subsidiaries.

The issue is no longer just to master each rule taken separately.

We need to organize their Coordination.

The outsourced tax department precisely maintains this overall vision and, where necessary, coordinates the intervention of local councils in the various jurisdictions concerned.

DAF at the heart of the organisation

In an SME, an ITE or a large company without an autonomous tax department, DAF often becomes, by default, the main coordinator of tax matters.

This situation makes sense.

The financial management has a thorough knowledge of the group's flows, investments, financing and projects.

But international taxation or complex transactions may require a level of expertise that naturally exceeds the financial function.

The outsourced tax department then complements this organization.

DAF retains financial and operational control.

The externalised tax director provides a permanent tax analysis capacity.

An effective relationship allows the FAD to report early enough:

  • a proposed acquisition;

  • a new establishment;

  • a significant change in flows;

  • a financing operation;

  • a significant distribution;

  • restructuring;

  • a draft transfer.

The tax officer may then intervene before the decision is finally decided.

A complementary function of the accountant

The outsourced tax department does not replace the accountant.

It shall retain the accounting, reporting and compliance tasks entrusted to it.

The outsourced tax department intervenes in another register: pilotage, anticipation and structuring.

The aim is therefore to create a complementary organisation:

Directorate-General for strategic guidelines;

DAF for financial pilotage;

Accountant for accounting and compliance within its mandate;

externalised tax director for tax governance, international taxation and high-level decisions.

Depending on the transactions, this organization may also include corporate lawyers, notaries, M & A consultants or foreign tax practitioners.

International taxation and transfer pricing

For international groups, transfer pricing policy is often a central element of tax governance.

Flows between related companies must correspond to the economic reality of the functions performed, the assets used and the risks incurred.

A coherent policy therefore requires a comprehensive knowledge of the organisation.

In particular, the externalised tax department may intervene to:

  • identify the main intra-group flows;

  • assess their economic coherence;

  • analyse the functions performed by different entities;

  • oversee transfer pricing policy;

  • identify documentary needs;

  • coordinate the necessary economic analyses;

  • anticipate the tax consequences of a change in the business model.

Transfer pricing is no longer treated solely as a documentary obligation.

They become a permanent subject of group governance.

Exceptional operations must be anticipated

One of the main values of a permanent tax department appears in exceptional transactions.

Acquisition, disposal or restructuring may require several months of preparation.

Tax consequences sometimes depend on decisions taken long before the transaction is signed.

When the tax board intervenes only at the last stage, some options may already have disappeared.

The role of the outsourced tax director is therefore to identify important projects early enough and to organise the necessary analysis.

It can then intervene directly or coordinate a specific mission when the operation requires significant diligence.

Continuous piloting and transactional execution thus constitute two complementary levels of intervention.

Tax governance proportionate to enterprise

Structure of a tax function does not mean reproducing the organisation of a large listed group.

Governance must remain proportionate to the needs of the company.

For an SME or an ETI, it can be based on a few simple but structuring tools.

A strategic tax review

This review identifies the main subjects of the exercise and examines whether the decisions taken remain consistent with the group's organisation.

Annual roadmap

It prioritizes the topics to be addressed and makes it possible to distinguish emergencies from projects requiring long preparation.

A mapping of tax risks

The Tax Risk Register provides management with a comprehensive overview of key risks and issues.

Regular exchanges with management

The frequency depends on the organization of the group.

The main thing is that the tax officer is informed early enough about important decisions.

Coordination of stakeholders

The outsourced tax director can be the focal point between the DAF, the accountant, lawyers and foreign counsel.

A mainly remote organization

The outsourced tax department can be organised mainly from a distance.

This organization is particularly relevant to the functioning of international groups.

Meetings with the Directorate-General, the DAF, the accountant or foreign councils may be organised by videoconference.

The documents can be shared in a dematerialised way and the main subjects followed according to a timetable defined with the company.

The firm can thus work with companies and interlocutors located in different cities or countries without increasing logistical constraints.

What is the cost of an outsourced tax department?

Fees depend on the level of complexity of the group and the scope of the intervention.

These include:

  • the number of entities;

  • the number of courts;

  • the nature of the flows;

  • frequency of operations;

  • the necessary level of coordination;

  • subjects of international taxation;

  • The importance of transfer pricing issues.

The firm Edouard Pruvost offers its accompaniment to strategic tax management outsourced from 5 000 € HT per month, as part of an annual commitment.

The package corresponds to the permanent management of the tax function as defined with the company.

Operations requiring specific and significant diligence may result in a complementary mission.

Edouard Pruvost's intervention

Edouard Pruvost is a lawyer specializing in tax law and has over ten years of experience in corporate taxation and international taxation.

A PhD in tax law, he devoted his thesis to corporate taxation, which enabled him to develop a particularly technical and in-depth expertise in the tax issues related to the organisation, development and operations of companies.

He teaches business tax law at the University and at law schools.

A holder of the Certificate of Specialization in Tax Law issued by the Conseil national des barreaus, he was also appointed Chairman of the Jury of the Certificate of Specialization in Tax Law of the École de Formation du Barreau de Paris.

Its activity is dedicated to the support of companies, groups and leaders facing issues of corporate taxation, international taxation, structuring, transfer pricing and high stake transactions.

Set up a tax department adapted to your organization

SMEs, ETIs and large companies can face very different tax issues.

The choice between ad hoc advice, outsourced tax management and internal tax function should therefore be assessed in terms of the actual organisation of the company, not on the basis of its own turnover alone.

The firm proposes a first exchange to assess the nature of tax issues, the current functioning of the financial management and the relevance of ongoing support.

Frequently Asked Questions

Can an SME need a tax director?

Yes. The need for a structured tax function depends more on the complexity of the organisation than on the size of the enterprise. An international SME with multiple companies and intra-group flows can face significant tax challenges.

Is the outsourced tax department suitable for ETIs?

Yes. ETIs are often a particularly suitable profile: they have a structured financial management and meet important tax issues without necessarily needing a full internal tax team.

Can a large company outsource its tax department?

Yes, according to his organization. Outsourcing can replace a non-existent function or complement an internal tax department on specialized subjects or during certain transformation phases.

Must we have an international activity?

No. However, the presence of subsidiaries or international flows generally increases complexity and makes the organisation of ongoing tax governance particularly relevant.

What is the difference with the accountant's interventions?

The accountant retains his accounting and reporting duties. The externalised tax department mainly intervenes on anticipation, strategy, international taxation, intra-group flows and coordination of high-risk tax decisions.

What is the price of an outsourced tax department?

The rate depends on the complexity of the company and the scope of the mission. The accompaniment proposed by the firm starts at 5000 € HT per month, as part of an annual commitment.

To benefit from personalized support and to study the establishment of an outsourced strategic tax department adapted to the challenges of your company or group, contact Edouard Pruvost.

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