Multinationals See Reputations Eroding from Tax Planning

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More than three-quarters of multinational CFOs believe that exposure to the public of their corporate tax planning activity has a detrimental impact on a company’s reputation, according to a new survey.

The survey, by Taxand, a global organization of tax advisors to multinational businesses, also found that 100 percent of the multinational CFOs polled felt that their tax authority was focusing more on substance in the past year (for example, the location of taxable profits and permanent establishment).

In addition, 100 percent of the CFOs surveyed believe that global initiatives to reform international taxation, such as the Organization for Economic Cooperation and Development’s initiative on base erosion and profit shifting, are desirable.

However, the survey also indicated that multinationals believe they are suffering from increasingly confusing messages about tax legislation from regulators and governments worldwide, with 74 percent of the CFOs polled saying that regular political discussion about potential new tax measures is causing uncertainty among business decision makers.

Confusion seems to dominate the global tax arena, according to Taxand. Court cases, political and media scrutiny of multinationals’ tax planning, frequent amendments to legislation, retrospective taxes and the introduction of new cross-border tax measures such as the Financial Transaction Tax and new guidelines from the OECD on base erosion and profit shifting, or BEPS, have led to uncertainty among multinationals. The absence of legislative stability and consistency is also affecting the confidence of those with the power to fuel the global economy, Taxand contends.

“Worldwide, we have seen political leaders speak at length about the taxation of multinationals, proposing sweeping change on a national and international level, from the transaction tax in Europe, to the OECD’s initiative around base erosion and profit shifting, to retrospective tax litigation charges in parts of Asia,” said Taxand chairman Frédéric Donnedieu de Vabres in a statement. “This uncertainty around tax is damaging multinationals’ confidence to invest and subsequently hindering the global recovery.

“Our annual survey shows that tax authorities have focused on the issues of substance and transfer pricing reforms in the last year,” he added. “Cooperation with other authorities around the world through data sharing and agreements, and the frequency of audits have increased. As governments and politicians have honed their focus on multinationals’ tax practices, dealing with the potential reputational risk arising from media and public scrutiny has remained a key issue for many companies. The need for multinationals to be confident in their tax planning has never been stronger.”

The Taxand Global Survey was conducted among the firm’s multinational clients across Europe, the Americas and Asia, and also produced the following findings:

• 76 percent of the survey respondents globally said that the exposure in the media of corporate tax planning activity has a detrimental impact on a company’s reputation, with the proportion even higher, at 88 percent, for CFOs surveyed in the Americas;

• 31 percent said that the intense media focus on tax planning had made them change their approach to tax planning;

• 74 percent of respondents felt that their tax authority has been more focused on substance in the last year;

• 20 percent of respondents, the biggest proportion of responses by some margin, confirmed transfer pricing as the most challenging aspect of global taxation;

• 82 percent of global respondents felt that their tax authority had been co-operating more with other tax authorities around the world over the past year;

• Less than half of multinational respondents felt a global profit split approach to tax reform is a realistic solution for corporate taxation;

• 73 percent of respondents are seeing a rise in the frequency of tax audits as governments across the globe continue to scramble for tax revenues;

• Looking beyond corporate tax revenues is also an acknowledged trend, with value-added taxes, for example, becoming an increasingly pivotal revenue raiser for governments;

• 78 percent of multinationals have reported a rise in compliance costs over the past year; and,

• 70 percent of respondents see corporate tax as on their board’s agenda, with the year ahead promising to be as important as the last with legislative change set to continue.

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