Chief financial officers (CFOs) globally says that the publicising of tax practices remains be a major issue for multinationals with 77% of respondents to a Taxand survey saying it had a detrimental impact on reputation.
In its latest annual global survey, the tax advisory group reports that 2014 saw a substantial step up in international scrutiny on multinationals’ tax planning activity – not just through global initiatives such as base erosion and profit shifting (BEPS), but across international organisations and individual countries alike.
The G20 group of major economies via the Organisation for Economic Cooperation and Development (OECD) and European Commission (EC) in particular have placed tax reform high on the agenda.
Taxand comments that multinationals have increasingly found themselves thrust into the limelight, whether it be in relation to corporate inversions or for having ‘sweetheart’ deals with tax authorities. As shown by this year’s survey, the growing impetus for tax reform and scrutiny is having significant implications for multinationals.
The 2015 survey, conducted amongst multinational clients across Europe, the Americas and Asia, produced the following key findings:
Reputation under fire: multinationals stuck in a ‘lose, lose’ situation:
Seventy-seven per cent say that exposure to the public of corporate tax planning has a detrimental impact on reputation, while 63% say the regular political discussion around potential new tax measures is causing confusion and uncertainty amongst business decision makers.
Politics and public opinion are shaping the future of multinationals:
Sixty per cent have seen an increase in the number of audits undertaken by tax authorities in the past year, while 40% say increasing tax scrutiny has made them change their corporate growth strategy in particular countries.
BEPS – the new frontier:
Eighty per cent say tax initiatives to fundamentally reform international tax architecture are desirable, while 83% think increasing global tax transparency will increase the cost of compliance.
Cross border taxation issues continue to trouble multinationals:
Transfer pricing seen as having the most significant increase in scrutiny over the past year and 68% of respondents feel the increasing trend of corporate inversions will lead to increased competition between tax regimes.
Increasing competition in a harmonised environment:
Eighty-three per cent feel tax competition will increase over next five years and 76% think BEPS will make countries more competitive from a corporate tax rate perspective.
Tax still high on board agendas:
Sixty-seven per cent say that tax issues are on their board agenda to a great extent or to some extent.
“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 Frederic Donnedieu, chairman of Taxand.
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.”
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