Recent changes to the Organisation for Economic Co-operation and Development (OECD) guidelines, chapter 6, on intangibles and the international political focus on the tax paid by global companies mean that 2013 is shaping up to be a year of focus on the intangible assets of multinational corporations (MNCs), said tax advisory organisation Taxand.
It reports that its global research reveals that 63% of respondents are anticipating an increased focus by tax authorities on intangible assets such as patents, trademarks and copyrights. Its survey also found that 33% of MNCs have been subject to a tax audit related to intangibles and 40% of those audited have then suffered a pricing reassessment as a result. Seventy-six per cent of MNCs recognise an increased compliance burden and anticipate taking pre-emptive measures such as increased documentation.
Furthermore, as tax authorities around the world focus on intangibles as one of the few remaining areas to explore to generate revenue, a surprising 70% of MNCs don’t have a clear view of the intangibles in their business, highlighting the ambiguity surrounding these assets and the way in which they are treated from a tax perspective. According to the survey findings, 72% of the MNCs respondents are concerned that any tax planning around intangibles will have implications regarding their brand’s global reputation.
The G20 recently declared that they would work together to prevent MNCs from shifting their profits to
less taxed jurisdictions
. However, according to Taxand in an over-competitive environment, tax planning to comply with tax laws around the world is not just an option for MNCs. It is an obligation towards their shareholders and their employees, it is a necessity to remain competitive and for many of these companies tax planning is simply the means to avoid a double taxation scenario where MNCs face the levying of tax by two or more jurisdictions on the same declared income.
However, these criticisms of tax planning by politicians are often over simplistic assessing the local picture only and failing to take into account the spread of tax paid across a number of jurisdictions. MNCs have to deal with multiple tax systems across their global operations – it is not incumbent on them to make moral decisions over where they should be paying more tax, and which countries should benefit.
“Tax authorities are running out of ways to increase tax revenues but intangibles remain one of the few areas left to explore,” said Antoine Glaize, Taxand global TP and business restructuring leader. “Many MNCs are facing the perfect storm of rising public scrutiny, inevitable tax audits and a heavier compliance burden in the intangibles arena.
“This is coupled with the problems associated with increasingly fierce competition for inward investment between countries across the globe. Technology companies in particular have been targets for public criticism, having been attracted to tax regimes where their large numbers of intangible assets are taxed in a much more accommodating manner. In a complex international tax environment tax planning may only involve the simple avoidance of double taxation.
“Intangibles have been highlighted as a particular area of concern in the 2013 OECD guidance addressing base erosion and profit shifting (BEPS). This will inevitably impact legislation going forward and multinationals with valuable intangibles cannot assume that their transfer pricing policies and supporting analysis and documentation will comply with the new principles.”
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