Reshaping Global Tax: Strategies for a Compliant and Agile Future

Discussion with Angelo Chirulli

Angelo Chirulli, a prominent figure in global tax advisory, serves as Tax Partner at Gunnercooke LLP and Lexefiscal LLP, CEO of Vectigalis AC Tax Ltd., and an external tax advisor to Bain & Company. As a lecturer for the UK Chartered Institute of Taxation’s Advanced Diploma in International Tax (ADIT) and an advisor with Diacron International, Chirulli’s experience spans across the globe, offering deep insights into corporate tax, transfer pricing, and regulatory compliance. In this conversation, Chirulli delves into the complexities and evolving nature of international tax compliance, cross-border strategies, the role of technology in tax management, and the importance of transparency. His insights provide critical takeaways for executives who navigate today’s intricate tax landscape.

The Evolution of Tax Regulations and Compliance

The global tax landscape is undergoing a profound transformation, largely influenced by the OECD’s Base Erosion and Profit Shifting (BEPS) framework and digital tax initiatives. Chirulli explains how these frameworks are compelling multinational corporations to restructure their operating models to align taxation with economic substance. “The push towards aligning profits with the jurisdictions where substantial business activities take place has made tax restructuring essential”, he shares. This shift has led companies to rethink where core functions like intellectual property ownership, research, and supply chain management are located, especially in sectors like technology and entertainment.

Through his role as CEO of Vectigalis AC Tax Ltd., Chirulli has worked closely with firms adjusting to these BEPS standards. One client, a tech company with high-value IP assets, needed to shift research and development operations to its primary end-market region to meet compliance demands and reduce exposure to potential disputes. “By aligning our client’s operations with BEPS requirements, we help them position profits where significant activities are occurring”, Chirulli explains. This shift in operational alignment has become vital for reducing double taxation risks and improving tax efficiency, particularly under the stringent provisions of BEPS Pillar One and Pillar Two.

Moreover, the OECD’s focus on digital taxation is reshaping tax planning for digital corporations, where revenues are largely remote. “For companies in digital industries, establishing regional hubs and adhering to local tax reporting has become essential”, Chirulli notes. In his experience, localized reporting ensures compliance and helps minimize audit risks by demonstrating a transparent and cooperative relationship with local regulators.

Cross-Border Compliance Challenges and Best Practices

One of the most intricate aspects of managing a multinational enterprise is ensuring cross-border compliance amid varying regulatory standards. Chirulli emphasizes that while a centralized tax strategy is critical, it must be flexible to accommodate local regulatory nuances. “Local reporting standards, timelines, and interpretations differ widely, making a one-size-fits-all compliance approach ineffective”, Chirulli explains. The challenge is further amplified by different regions placing varied emphasis on regulatory aspects, which can be critical in one jurisdiction but secondary in another.

To navigate these complexities, Chirulli advises clients to implement centralized compliance management platforms that consolidate regulatory obligations. “By using a centralized system, clients can track deadlines, address region-specific compliance requirements, and maintain consistency in reporting”, he shares. Such platforms are invaluable for multinational corporations operating across multiple regions with diverse tax laws. Chirulli also stresses the importance of creating dedicated regional compliance teams, a strategy he used with a major client operating across Asia and Europe. These teams, while maintaining centralized oversight, are empowered to adapt strategies to meet local regulatory requirements. “Combining centralized systems with local expertise allows companies to stay ahead of regional tax changes”, he adds.

Routine compliance checks across regions also serve as a crucial mechanism to identify gaps in compliance practices and proactively implement corrective actions. “Regular compliance self-checks can help detect inconsistencies early, minimizing the risk of penalties”, Chirulli notes, reinforcing the importance of regional compliance checks in effective cross-border tax management.

Transfer Pricing: Meeting the Challenges of a Scrutinized Area

Transfer pricing continues to be a challenging area in global tax compliance, particularly as tax authorities worldwide focus on ensuring that intercompany transactions reflect arm’s-length pricing. Chirulli describes transfer pricing as one of the most scrutinized areas in tax, especially for companies with complex structures and valuable intangible assets. “Transfer pricing is under heavy scrutiny; authorities want to ensure that intercompany transactions align with market conditions and are priced fairly”, Chirulli explains.

Chirulli’s approach involves conducting detailed functional analyses and benchmarking studies for clients to establish a robust, data-driven policy. For a recent pharmaceutical client, where IP and intangible assets are central, he conducted extensive functional analyses and used benchmarking tools to support the intercompany pricing policy. “By documenting the contribution of each entity in the value chain, we were able to align transfer pricing policies with real market conditions”, he shares. This structured approach is crucial for avoiding disputes and ensuring compliance, especially in high-risk jurisdictions.

Documentation is critical to support transfer pricing policies, and Chirulli encourages clients to regularly review and update their documentation. “Transfer pricing inquiries can last years, so thorough documentation is essential to avoid costly disputes”, he notes. Chirulli also mentions that establishing intercompany pricing policies for royalty payments and supply chain services can reduce the risk of disputes, particularly in regions with strict transfer pricing regulations.

Navigating Tax Risks in M&A and Private Equity Transactions

Cross-border mergers and acquisitions (M&A) and private equity transactions introduce complex tax risks, such as deferred tax liabilities and exposure to foreign tax rates. Chirulli emphasizes the importance of due diligence in identifying these risks before proceeding with M&A transactions. “Deferred tax liabilities and foreign tax exposures are often hidden risks in cross-border transactions”, he explains. This due diligence includes evaluating both direct and indirect tax positions, which Chirulli describes as critical for ensuring that post-transaction integrations proceed smoothly.

Chirulli’s role often involves advising clients on structuring acquisitions to minimize withholding tax on dividends and capital gains taxes associated with asset acquisitions. “By maximizing available tax credits and structuring acquisitions to optimize repatriation of profits, we help clients avoid unnecessary tax liabilities”, Chirulli shares. After the transaction closes, Chirulli works with clients to align the tax position of the acquired entity with the corporation’s overall tax strategy. “Post-transaction, we ensure compliance with substance requirements and update intercompany loan structures to mitigate ongoing tax risks”, he adds, highlighting the importance of aligning acquisition structures with long-term tax objectives.

Balancing Corporate Transparency and Stakeholder Expectations

With increasing calls for corporate transparency, tax practices are now a focal point for both governance and stakeholder trust. Chirulli explains that companies are under pressure to disclose their tax policies as part of broader environmental, social, and governance (ESG) strategies. “Tax transparency is becoming a cornerstone of corporate governance, especially for companies with significant public and investor scrutiny”, Chirulli says. For one hospitality client, he developed a public tax policy statement that outlined the company’s commitment to fair and responsible tax practices, aligning with the client’s ESG strategy.

In addition to formal policy statements, Chirulli emphasizes the importance of consistent messaging across regions, which requires conducting training sessions with finance teams to maintain unified communication. “Ensuring that finance teams are on the same page strengthens the company’s reputation for transparency and consistency”, he adds. This proactive approach not only builds trust with stakeholders but also aligns the company’s messaging on tax practices globally.

Chirulli also recommends developing standardized templates for tax disclosure and establishing governance policies to guide decision-making. “Creating a standardized approach to disclosure enhances trust with stakeholders and ensures that tax policies remain consistent across all regions”, he explains. This alignment of tax governance with broader corporate transparency efforts supports the company’s standing with investors and regulators alike.

Leveraging Technology for Strategic Tax Planning

The integration of data analytics and artificial intelligence (AI) is reshaping tax planning, offering predictive modeling, compliance automation, and enhanced decision-making capabilities. Chirulli points out that these technologies allow companies to streamline processes, improve data accuracy, and derive insights into tax positions across multiple jurisdictions. “AI and data analytics are transforming tax planning by allowing companies to predict and respond to tax exposures more efficiently”, he explains.

AI plays a significant role in transfer pricing. Chirulli describes a retail client that implemented data analytics to automate transfer pricing documentation, which saved time and improved accuracy. “By automating documentation, clients can align transfer pricing policies with local regulations and avoid lengthy compliance processes”, he says. Data-driven insights are also invaluable for benchmarking intercompany pricing, ensuring that companies remain compliant with arm’s-length standards.

For larger firms, Chirulli observes that creating bespoke AI solutions offers more effective support than relying on off-the-shelf software. “Large companies typically develop internal AI tools tailored to their specific requirements, as these tools can adapt to shifting regulations”, Chirulli notes. This approach allows businesses to respond quickly to changing tax laws and regulatory expectations without relying on generalized solutions that may not meet their unique compliance needs.

Outlook on Global and Regional Tax Harmonization

As companies navigate the demands of regional tax policies within a global strategy, Chirulli advocates for a “core and local” approach. This involves establishing central policies and guidelines that align with a company’s global tax strategy while allowing flexibility for local adaptations. “Companies need a consistent global tax strategy that can adapt to local regulations without compromising core objectives”, Chirulli shares.

For a client with operations in 15 countries, Chirulli developed a global tax strategy that emphasized profit allocation, transfer pricing, and substance requirements. Regional teams then adapted this strategy to comply with local regulations, ensuring both consistency and flexibility. “Regular alignment reviews across regions help maintain a cohesive strategy and adapt to regulatory changes”, Chirulli adds, underscoring the importance of a coordinated but adaptable approach.

This strategy, he notes, positions companies to respond quickly to evolving tax laws while maintaining a unified compliance framework. “In a disruptive world, a flexible yet cohesive approach is essential for managing tax risks on a global scale”, Chirulli concludes, offering a clear roadmap for executives facing the challenges of harmonizing regional and global tax strategies.

Key Takeaways for Executives in a Rapidly Evolving Tax Landscape

Chirulli’s insights provide valuable guidance for executives navigating the complex tax landscape. As he summarizes: “To stay compliant, businesses must regularly review and adapt their structures. A centralized tax framework with regional flexibility is crucial, and leveraging technology, such as AI and data analytics, is essential for accuracy and efficiency”. This proactive approach not only mitigates risk but also enables companies to adapt to new regulatory challenges.