A majority of CFOs at multinational corporations believe that publicity about their tax-planning strategies is having a negative impact on the reputation of their companies, according to a new poll.
The survey, by the tax advisory firm Taxand, found that 77 percent of the CFOs polled said that exposure to the public of corporate tax planning has a detrimental impact on reputation. In addition, 63 percent believe the regular political discussion around potential new tax measures is causing confusion and uncertainty amongst business decision makers.
However, scrutiny of corporate tax strategies has been on the increase, as companies such as Amazon, Apple, GE, Google and Starbucks felt fallout, especially in Europe, when news of their relatively low effective tax rates was reported.
Politics and public opinion are shaping the future of multinationals, the Taxand survey found, with 60 percent of the CFOs polled saying they have seen an increase in the number of audits undertaken by tax authorities in the past year. In addition, 40 percent of the survey respondents indicated that the increasing amount of tax scrutiny has made them change their corporate growth strategy in particular countries.
The Organization of Economic Cooperation and Development’s initiative on base erosion and profit shifting, or BEPS, has also shown that industrialized countries are concerned about the way that corporate tax revenues have been slipping away. With regard to the OECD’s BEPS initiative, 80 percent of the multinational CFOs polled said tax initiatives to fundamentally reform international tax architecture are desirable, while 83 percent believe increasing global tax transparency will increase the cost of compliance.
Eighty-three percent of the survey respondents feel tax competition will increase over next five years and 76 percent believe BEPS will make countries more competitive from a corporate tax rate perspective.
“We are in an interesting environment at present where, whilst increasing competition between countries to attract investment is driving lower corporate tax rates, political leaders also remain anxious to maintain revenues,” said Taxand chairman Frederic Donnedieu in a statement. “Often viewed as a popular target, this has culminated in the public naming and shaming of certain multinationals despite them remaining on the right side of the law. Our annual survey demonstrates that multinationals feel caught in the crossfire, as they prepare for the post BEPS world. Companies have changed their corporate growth strategies due to increasing scrutiny and over half have seen an increase in tax audits instigated by tax authorities in the past year. The survey also supports that tax authorities have continued to hone in on cross border taxation issues such as transfer pricing and inversions. As governments and politicians continue to, very publicly, shake up tax reform, multinationals remain an easy target. With this in mind, it has never been more important for multinationals to be confident in their tax planning and to demonstrate that their activities are founded on commercial and business substance.”
In addition, 67 percent of the CFOs polled said that tax issues are on their board agenda to a great extent or to some extent.
Cross-border taxation issues, such as transfer pricing, continue to be a major concern for multinationals. Transfer pricing is perceived as having the most significant increase in scrutiny over the past year. The issue of corporate inversions is also a concern, as U.S. companies merge with foreign companies to lower their tax rates, attracting criticism from U.S. lawmakers. Sixty-eight percent of the survey respondents said the increasing trend of corporate inversions will lead to increased competition between tax regimes.
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