Research Paper, 2011, 47 Pages
Competitive Pressures upon Tax Consultants by Other Service
The competitive pressure on tax consultants has been on the rise not only as a result of competition within the branch itself but also compounded by allowable service offers of third parties not sanctioned as professional tax consultants 4 . Examples include: x Accountancies and independent account advisors; x Payroll accountancies including payroll accounting centers, and x Business consultancies in economic branches.
Solicitors not working to full capacity in their legal line of work also have been encroaching on the tax consultancy market. Auditors not having participated in or passed the required quality checks (peer review schemes) 5 have been increasing their activities within the classical scope of services of tax consultants 6 as well.
Market dynamics have been accelerating mainly through the activities of accountancies and independent account advisors. Further also independent providers working to lower hourly rates seek market shares in those parts of the consultancy market they are allowed to operate in. In addition, a number of clients are trying to push down the rates of tax consultants and to chalk up savings in economic and/or personnel consultancy. 7
The branch has been called to order given the changing competitive pressures in the market. The scope of operations of authorised tax consultants in Germany has been extended by means of update to the German Legal Services Act 8 as of 2008.
The updated act of law opens up new additional areas of operations for tax consultants. Credit rating advisory services rank as one among the new areas. The first key aim of the thesis is to analyse whether x Credit rating advisory services are allowable for tax consultants, and x What qualification options are there in credit rating advisory activities.
4 Cf. Mayerhöfer, A. (2005). Fibu zu Tiefstpreisen. In: SteuerConsultant. Vol. 7. Issue 5. p. 12.
5 Cf. Engelken, E. (2005). Peer Review fesselt den Berufsstand. In: SteuerConsultant, Vol. 7. Issue 11. p. 12.
6 Cf. Sutter, P. (2005). As above. p. 32.
7 Cf. Bundesverband der Deutschen Volksbanken und Raiffeisenbanken, (Ed.) (2008a). Branchen Spezial, Branchenreport des
Bundesverbandes der Deutschen Volksbanken und Raiffeisenbanken, Bericht 81. Issue March 2008. p. 9.
8 Cf. RDG. Gesetz über außergerichtliche Rechtsdienstleistungen from December 12, 2007. BGBl I 2007. p. 2840. Last amended
by article 6, act. from June 12, 2008. BGBl I 2008. p. 1000.
As held in the introduction, the tax consultancy market has been in the process of change. By means of the Legal Services Act, as of 2008 the allowable areas of operations have been extended for tax consultants. The following visualisation exemplifies the market chances that can be potentially explored by competent and targeted consultancy as additional areas of operation.
Economic and Strategic
Basic Consultancy on Optional
Forms of Financing Bank Reporting
Rating Advisory Services
Demand for Consultancy
Specialties by Medium-Sized
(succession, Corporate Clients
legal form etc.)
Insolvency Administration Start-up Consultancy Branch-Specific
Fig. 2: Market chances with business economic consultancy
But also a shift in the demand has occurred for consultancy skills and competences. The clients of tax consultants need and expect additional consultancy in order to withstand the current general economic environment. The rating grades given by banks have become ever since the Basel II accounting regulations a key variable in credit decisions. The need of consultancy in this particular area is being ignored by the market.
Given the changes in what up to recently has been a rather static tax consultancy market, the particular area of credit rating advisory services and specifically the implementation of the services by the tax advisory branch shall be analysed herein.
So the aim of this paper - as far as the stated below thesis holds true - the following topics and objectives shall be explored:
Main objectives x Is there demand for the new service?
x Is there a potential for credit rating advisory services by tax consultants? x Elaborating the current situation in rating advisory by tax advisors; x Eleborating the potential of turnover for credit rating advisory services; x How to implement the potential?
x How does credit rating consultancy affect the structure of the consultancies? x What happens if a tax consultant were not to offer credit rating advisory services? Secondary objectives x Possibilities of rating education; x Usable marketing instruments to provide the new service; x Recommendations for tax advisors in terms of the new service. The dissertation thesis is postulated as follows:
"Credit rating advisory services amount to an additional and rewarding area of operations for tax consultants in Germany. There is still a potential to develop this particular type of services. This part of consultancy market still entails a significant potential for tax advisors."
In order to be able to verify the dissertation thesis, it is split into a total of four partial theses 9 . The first two partial theses address the tax advisory branch. Partial thesis1:
"There are regulations governing the provision of credit rating advisory services by tax advisors in Germany." Partial thesis 2:
"For due implementation of credit rating advisory services, sanctioned education is needed."
The other two partial theses explore the existence of a potential for credit rating advisory services by tax consultants. The partial theses are worded as follows:
9 Cf. Diekmann, A.(2005). Empirische Forschung. Grundlagen, Methoden. p. 107.
Partial thesis 3:
"There is a demand for credit rating advisory services in Germany that can be satisfied by tax advisors." Partial thesis 4:
"The implementation of credit rating advisory services by tax advisors in Germany by now has been patchy only. This particular consultancy market still entails a significant potential for tax consultants."
In order to be able to verify the above partial theses, they need to be converted into hypotheses. That means that criteria have to be provided for falsifiability of the theses with verification or falsification as a result.
In scientific terms, the hypotheses amount to assumptions that typically are verified by means of deductive and nomological models.
The regulations need to be examined applicable to the profession of tax consultants. Partial thesis 1 is true if there are actual restrictions on credit rating advisory services by tax consultants. If there are no regulations governing the services, the partial thesis does not apply.
In order to be able to verify partial thesis 2, a verification is needed of the actual possibility to gain qualification in credit rating advisory activities. Providing such qualification has become established and needed as a prerequisite for the implementation of credit rating advisory services, then partial thesis 2 is true.
If credit rating advisory services can be offered and practiced even without sanctioned education, then partial thesis 2 is false.
In order to verify partial thesis 3, proof needs to be supplied of a positive demand for credit rating advisory services. If there is such a demand, then partial thesis 3 is true providing the demand can be satisfied by tax consultants.
That means the actual gist of the hypothesis from partial thesis 3 is to provide evidence of the need for credit rating advisory services in order to be able to conclude on the respective income in fees and related turnover boost potential for tax consultants. This shall be examined separately from the general need of consultancy to clients in order to determine the actual potential and need for the rating services by tax consultants in an impartial approach. Partial thesis 3 advances the previous partial theses 1 and 2. Partial thesis 3 would be untrue if there is no demand for credit rating advisory services or the demand not satisfiable by tax consultants.
Assuming that partial thesis 3 is true, implementation by now of credit rating advisory services by tax consultants shall be examined. Partial thesis 4 would be true if to date, tax consultants were not offering and practicing the services, or to insufficient extent only. As an additional prerequisite for partial thesis 4 to be true, there must be still an unexplored potential for the services in case of insufficient implementation by tax consultants.
Partial thesis 4 would be untrue if tax consultants already provide credit rating advisory services to an ideal extent or no exploitable potential exists in the market for the services.
In order to enhance the income of self-employed tax consultants, the option is examined of extending the scope of consultancy services with credit rating advisory services and practical implementation thereof by tax consultants.
Through desk research and by exploring applicable professional guidelines and the law of tax advisors, existing provisions and restrictions are extracted applicable to credit rating advisory services and verification is implemented of hypothesis 1.
In the follow-up, the training and education options for credit rating advisory services are identified via market studies and desk research. For verifying hypothesis 2, the relevant qualification proofs specifically with regard to tax consultants and compatibility thereof with the law of tax advisors are explored.
In order for tax consultants to explore the particular area of credit rating advisory services and the additional potential the services entail and draw related benefits, evidence is needed of actual existence the potential.
The proof takes the form of an empirical survey among corporate customer consultants with banks in Germany. Surveys among clients of tax consultants have been consciously refrained from due to potential bias of the clients given the additional cost on their part of credit rating advisory services. The aim of this effort is to verify the need for the advisory services.
The extent of the implementation to date of credit rating advisory services in the market by tax consultants is explored by means of the second empirical survey.
For the purpose, self-employed tax consultants have been queried whether and to what extent they had been already offering and practicing credit rating advisory services. In this case also, the actual survey was preceded by an initial pretest in order to obtain relevant results.
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