The economic instability witnessed across the globe over the past few years has resulted in a number of shifts in global tax systems, largely driven by the need of governments to drive revenues. This need has resulted in heightened scrutiny of multinationals’ tax affairs and a more aggressive as well as more sophisticated approach to tax audits by authorities. The burden of compliance is only going to rise.
These global tax trends were revealed at the Taxand Global Conference in New York.
"The current trends in global taxation include a sweeping wave of compliance, regulatory requirements, the implementation of the OECD report on Base Erosion and Profits Sharing alongside a push for harmonisation," says Frédéric Donnedieu de Vabres, Chairman of Taxand. "The development of FATCA legislation from the US, CFC reform and increases in information exchange agreements are also of major impact to multinationals and their tax departments.
Potentially of most concern for multinationals is the rise in audits. Dealing with increasing numbers of tax audits and proving substance puts a strain on any tax department. The latest trend to take a more sophisticated and targeted approach to audits, presents an even bigger challenge for multinationals.
"We’re seeing authorities focusing more on specific taxpayers and specific types of transactions understanding in advance what they want to investigate, and delving
deeper," says Donnedieu de Vabres.
This trend was highlighted in a recent survey conducted by Taxand, where 78% of respondents agreed they had seen an increase in the number of tax audits in the last year. Moreover 76% confirmed that the requirement for more tax transparency and reporting measures ultimately causes a rise in the cost of compliance.
A tax audit typically involves managing a number of moving pieces but navigating tax audits in multiple jurisdictions is even more challenging.
"Multinationals must also be wary of inter-country competition for revenue from the same dispute as this increases the possibility of double taxation," notes Donnedieu de Vabres. "To mitigate this, companies should establish protocols for responding to requests and documenting the status of tax audits as well as ensuring all tax planning is fully substantive."
Donnedieu de Vabres notes that specific response mechanisms for each jurisdiction will ensure consistent information is provided to all authorities involved. This is especially important given that taxpayer data is routinely exchanged among tax authorities worldwide. Systems that account for changing legislation are imperative to ensure compliance.
"Multinationals around the world are being forced to operate amidst rapid changes to legislation and mounting scrutiny. This opaque landscape may appear hazardous at first, but with the right preparation and systems in place to capture relevant information, tax audits don’t have to be taxing,” says Donnedieu de Vabres.