Global consultants identify top tax challenges for multinationals and offer advice

The global economic crisis affected not only borrowing costs and gross domestic products but also taxes, Taxand, a consortium of tax consultants, found when it polled multinational clients worldwide.

Governments facing widening budget deficits are zeroing in on enforcement, according to Taxand the CFO: Understanding Tax Changes as Economies Worldwide Drive Efficiency. Three-fourths of respondents reported a rise in the number of tax audits. In Europe, where several euro-zone countries are struggling with spiraling government debt, it was 83% of respondents.

“Authorities are focusing more on specific taxpayers and transactions, understanding in advance what they want to investigate, resulting in tougher, more technical challenges,” Manuel Tamez of Taxand Mexico said in the report of the survey results.
 
The multinational companies, of which more than half generated in excess of $1 billion in annual revenue, also identified other challenges that arise more and more often, but they also noticed developments that have made it easier to file taxes.

Here are some of the challenges facing respondents:

• Transfer pricing remains the most challenging area of tax globally (20% of respondents, compared to 23% in 2011), but changes in international tax legislation have begun to demand more attention (17% of respondents, compared to 12% in 2011).

• The learning curve of multinational companies had to be especially steep in emerging markets such as Asia, where transfer-pricing legislation has expanded by 50% in the past decade.

• A larger number of bilateral agreements have helped improve relations between multinational companies and tax authorities in the past year, especially in Asia where 73% of respondents noticed more cooperation compared to 27% in 2011. But the rapidly changing tax landscape in Europe prompted 71% of respondents to say cooperation has worsened in the past year.

• Multinational companies desire more global tax harmonisation, especially in Asia (91% of respondents), but governments competing for investments aren’t likely to give up their tax incentives.

The report of the survey results encourages multinational companies to keep up on the changes in tax legislation and enforcement and adjust operations when, for example, tax incentives benefit investment or new legislation threatens to raise executives’ personal tax rates.

The Taxand consortium also provides pointers on other issues raised in the survey:

• On transfer-pricing disputes: The outcome is often favourable provided the taxpayer’s position is sufficiently supported from the origin of the transfer-pricing policy implementation.

• On tax audits: Companies should establish protocols for responding to requests and documenting the status of tax audits.

• On bilateral agreements:  Given the increasing pace of information exchange, multinationals need to focus more than ever on adequate and accurate recordkeeping.

• On international tax: Companies need to reassess their structures to ensure they comply with Organisation for Economic Co-operation and Development best practice, particularly in high-profile jurisdictions.

—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.