Tax predictability is key to driving investment
Deloitte survey highlights tax predictability as key to driving investment growth in Asia Pacific
New Zealand well placed against backdrop of increased uncertainty in Asia Pacific’s tax landscape
New Zealand’s tax policies are seen as relatively straight forward, consistent and predictable compared to other countries in the region, according to a Deloitte survey released yesterday.
The third edition of Deloitte’s Asia Pacific Tax Complexity Survey, entitled Shifting sands: risk and reform in uncertain times, highlights key tax trends facing businesses operating in the region. It surveyed 331 executives across Asia Pacific, including 87 whose companies have operations in New Zealand.
The 2017 findings show predictability, followed closely by consistency, of tax regimes is the most important factor for businesses when deciding to enter or exit a market in Asia Pacific.
The report concludes that in the current uncertain tax landscape, tax regimes in the region remain complex and predictability and consistency is elusive. This is especially the case in China and India, which 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 considered most important.
Deloitte Tax Partner Patrick McCalman says that this 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,” says Mr McCalman.
Mr McCalman adds that the results represent both an opportunity and a challenge for New Zealand.
“The survey clearly shows New Zealand has a stable tax system. And along with Australia and Singapore, we are perceived to have one of the fairest tax systems in the region with taxpayers enjoying generally good relationships with our tax authority,” says Mr McCalman.
“Being seen in the region as being a country that, from a tax perspective, is relatively easy to do business in certainly provides an opportunity to encourage more inward investment here. But at the same time the fact that tax regimes in Asia Pacific continue to be complex with varying levels of predictability and consistency adds risk and uncertainty to businesses in the region and will be a challenge to Kiwi companies looking to invest offshore.”
Mr McCalman adds one further note of caution for New Zealand.
“The survey also highlights that governments are competing for tax revenues. As we approach issues such as the OECD’s base erosion and profit shifting (BEPS) actions we need to be cognisant that our tax revenues may be also seen as fair game by foreign jurisdictions. Further, the survey highlights thatpredictability and consistency are key. As New Zealand starts to finalise and implement its BEPS measures it is important that we reflect on how our responses will be seen in terms of attracting and retaining the investment New Zealand needs.”
Other survey highlights include:
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 preparing for this by changing business models or adapting resources so they are able to comply with enhanced reporting requirements.
Mr McCalman says that how each jurisdiction approaches BEPS is of concern for finance and tax executives. And executives are keeping a close eye on the progression of current BEPS-related tax reforms being proposed here in New Zealand.
“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 modernise their tax regimes to ensure consistency of approaches, which will ultimately lead to greater tax predictability,” says Mr McCalman.
“In comparison our tax regime is relatively robust, which needs to be reflected in theproportionality of the BEPS response that New Zealand introduces.”
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.