Political debate on tax causes uncertainty for CFOs
CFOs of multinationals face growing confusion because of mixed message on new tax rules around the world that threaten investment and the global recovery, a new study revealed on Wednesday.
A total of 74 percent of finance chiefs polled in the study by Taxand, a global tax adviser, said political debate on potential new tax measures was causing uncertainty in tax planning.
The absence of legislative stability and consistency is impacting executives’ confidence, the tax advisers claimed.
Frédéric Donnedieu de Vabres, chairman of Taxand, said the uncertainty around tax was “damaging multinationals’ confidence to invest and subsequently hindering the global recovery”.
The 2014 research – which surveyed multinationals across Europe, the Americas and Asia – pinpointed cross-border taxes plans such as the financial transaction tax, the OECD’s initiative on base erosion and profit shifting, as some of the main causes for concern.
Tax authorities around the world have stepped up collaboration in an effort to crack down on tax avoidance and boost tax revenues, especially since the global recession hit in 2007 and authorities have had to impose swingeing austerity measures that have hit households hard.
As many UK taxpayers lost their jobs or saw falling wages and rising inflation due to the financial crisis, household names like Amazon, Google and Starbucks hit the headlines for paying little or no UK tax on profits.
A significant 76 percent of those surveyed said media exposure of corporate tax planning had a detrimental impact on a company’s reputation, while 31 percent said intense media focus had made them change their approach to tax planning
The findings showed that transfer pricing – when two companies that are part of the same multinational trade with each other – was the “most challenging aspect” of global taxation.
Most respondents said they had seen a rise in the frequency of tax audits, while 78 percent of multinationals polled reported a rise in compliance costs over the past year.
De Vabres added: “Co-operation with other authorities around the world through data sharing and agreements, and the frequency of audits have increased. As governments and politicians have honed their focus on multinationals’ tax practices, dealing with the potential reputational risk arising from media and public scrutiny has remained a key issue for many companies. The need for multinationals to be confident in their tax planning has never been stronger.”
Chancellor George Osborne unveiled new measures for HM Revenue & Customs in his March Budget that will allow UK tax authorities to access bank accounts to collect tax debts.
Research published last December showed the number of companies and individuals avoiding tax was falling as a third fewer tax planning schemes were submitted to HMRC last year as a result of the tax office’s efforts to crack down on tax avoidance.
Credit: CFO World