Predictability and consistency of tax regimes is the most important factor in business decision-making, according to Deloitte, who recently released the third edition of their Asia Pacific Tax Complexity Survey report.
However, the report shows that in the current uncertain tax landscape, tax regimes remain complex and predictability and consistency is elusive. This is especially the case in China and India, who have the most complicated requirements of all jurisdictions in Asia Pacific, according to survey respondents. In 2010, complexity was the most important factor for surveyed tax executives in the region, and in 2014, consistency was most important.
Alan Tsoi, Deputy Regional Managing Director and Tax & Legal Leader, Deloitte Asia Pacific commented, "the progression from complexity to consistency to predictability may be explained by tax regimes in the region maturing over the past 10 years.
"As tax regimes have matured, tax complexity has improved and corporates now seek tax predictability to ensure smooth tax management. There is currently a general climate of uncertainty where governments are trying to balance the tension between creating an environment that attracts investment whilst at the same time protecting their tax bases and raising needed tax revenues, which could also be contributing to a sense of unpredictability in regional tax regimes."
Tax regimes in larger countries have increased complexity
As the external environment becomes more unpredictable, companies may be acting more cautiously when managing tax affairs. Companies see that the largest developing economies -- China, India and Indonesia -- still have much progress to make before they can meet investors' expectations in this regard. Japan, Australia, Indonesia and South Korea also rank highly in terms of tax complexity.
In contrast, Hong Kong, Singapore, Macau and Mauritius have the simplest requirements, which is not surprising given their relatively straightforward tax regimes.
"Some of the reforms needed to improve tax predictability and consistency include improving the training of tax officials and increasing public consultation on tax policy," says Pauline Zhang, Vice Chairman, Tax Partner, Deloitte China.
However, Zhang noted, there is added complication with the implementation of OECD's Base Erosion Profit Shift (BEPS) Actions taking place at the moment, with governments in many countries updating existing rules and developing new rules.
"Companies that trade or invest in the countries along the "One Belt One Road" will need to pay extra attention in this regard," adds Zhang.
BEPS implementation is a top priority for governments and companies
It is widely accepted that BEPS will drive significant change in the global tax landscape as governments introduce new policies in line with global standards.
Multinationals are finding themselves preparing for this impending change by changing their business models or adapting their resources so they are able to comply with enhanced reporting requirements.
"BEPS implementation is becoming top of mind for tax professionals with regards to tax reform, and how each jurisdiction approaches BEPS is of concern for finance and tax executives," explains Tsoi.
"It is widely accepted that BEPS changes are a positive sign for tax development in the region, but many countries in Asia Pacific need to update and modernize their tax regimes to ensure consistency of approaches, which will ultimately lead to greater tax predictability, a current concern for businesses operating in the region."
Company tax strategies becoming increasingly conservative
In light of the uncertain tax landscape, companies are less likely to pursue aggressive tax strategies than in the past. Three-quarters of respondents indicated they would not enter into a tax planning strategy if perceived by some to be aggressive.
Only 40 percent of respondents in 2014 expressed the same sentiment. In the three years since the last Deloitte survey, the social responsibility of companies as taxpayers has come under close public scrutiny, particularly as some multinational enterprises have been embroiled in controversy in several larger jurisdictions.
The enormous potential for detrimental reputational risk has prompted company executives and boards of directors to acknowledge the need to consider such risk when determining the company's tax strategy.