1. Taxand Global Survey 2015 Caught in the crossfire: MNCs
prepare for the post-BEPS world Quality tax advice, globally
www.taxand.com
2. 2 Quality tax advice, globally Contents Foreword 2 BEPS: the
new frontier 3 Cross-border taxation issues continue to trouble
multinationals 5 Politics and public opinion are shaping the future
of multinationals 7 Reputation under fire: multinationals stuck in
a lose, lose situation 9 Increasing competition in a harmonised
environment 11 Methodology 13
3. www.taxand.com 2 Frederic Donnedieu de Vabres, Taxand
Chairman Foreword The Taxand Global Survey 2015 offers further
insights into how multinationals are reacting to a period of
significant change in global taxation. As we witness continued
efforts to redefine the global tax architecture, our survey
captures the mood of companies who are adapting to this changing
environment and also provides some helpful advice on how to prepare
for continued uncertainty. Reputation under fire: Multinationals
stuck in a lose, lose situation The scrutiny of multinational tax
practices has seen a further step-up over the last year, so it is
no surprise that 77% of respondents agreed that the exposure of
corporate tax planning, if percieved as aggressive, has a
detrimental impact on reputation. The coverage attributed to
corporate tax inversions, government tax deals, tax investigations,
to name a few, has all helped to ensure that tax remains high on
the public agenda. Perhaps most challenging are the conclusions
reached by many with only a casual knowledge of international tax
that a multinational that has achieved a low effective tax rate
must be up to no good. With the implementation of the OECD / G20s
BEPS initiative, the spotlight shows no signs of dimming, so
multinationals need to be prepared for calls for further
transparency in the coming months and years. Politics and public
opinion are shaping the future of multinationals With increased
public interest comes increased examination. 60% of multinational
respondents have reported an increase in tax authority audits over
the past year with 70% also seeing an increased focus on substance.
Unsurprisingly, this changing landscape is causing concern for
multinationals who are facing the prospect of various new
requirements, such as country by country reporting and increased
information sharing amongst tax authorities all of which are
accompanied by a heightened compliance burden. Governments must be
careful to maintain a balance or risk curtailing the growth
aspirations of multinationals who provide an important catalyst to
the global economy. BEPS: the new frontier The emergence of the
OECD / G20s Base Erosion and Profit Shifting or BEPS initiative has
been one of the most significant developments in global taxation
for some time and multinationals are just beginning to deal with
its implications. Respondents were mixed on whether it will create
a more sustainable tax system, although there is a clear appetite
for reform, with 80% stating that initiatives to fundamentally
reform the international tax architecture are desirable. Whilst the
OECD should be commended for the ambitious work done to date, it
remains unclear how the recommendations will be incorporated at a
national level, so multinationals need to watch this space
carefully. As well, many tax policy makers are suggesting that
constructive input from interested parties, particularly
multinationals that are most likely to be impacted by the BEPS
actions, would be welcome multinationals and representative
organisations should consider being proactive. Cross-border
taxation issues continue to trouble multinationals In an
increasingly global economy it is no surprise that cross-border
taxation issues remain an important consideration for
multinationals. Reflecting this, transfer pricing was again
identified as the most challenging area of tax and also the area
that has received the biggest increase in scrutiny. Cross-border
tax issues have been punctuated by the debates around corporate
inversions as well as companies offshore cash reserves. The focus
on these areas is here to stay, including as part of the BEPS
actions, so multinationals must ensure their systems are in order.
Increasing competition in a harmonised environment In many cases,
despite introducing increased scrutiny into multinational tax
practices, we are also seeing countries taking steps to ensure that
they remain attractive jurisdictions for inward investment. As
such, inter- country tax competition is rife. 83% of respondents
feel that tax competition will increase over the next five years
and, interestingly and perhaps counter-intuitively, 76% feel that
BEPS will increase competition in corporate tax rates. Tax still
high on Board agendas With the global tax environment in flux,
multinationals will closely monitor how international harmonisation
continues to evolve; its importance is highlighted by the fact that
67% of respondents to our survey see tax issues as being on their
Board agendas to a great extent or to some extent, in line with
last years results. We see no signs of this reducing, particularly
as the implementation of OECD initiatives continues to roll-out
during 2015.
4. 3 Quality tax advice, globally BEPS: the new frontier
Following the Organisation for Economic Co-operation and
Developments (OECD) release of the first seven action plan
responses, the Base Erosion and Profit Shifting (BEPS) initiative
continues to make headway through the fog of international
agreement. Whilst we have some idea of what the new environment may
look like, changes may in practice be anticipated in the short term
through direct application of BEPS principles in some
jurisdictions. Multinationals, are already witnessing the impact of
BEPS as governments and authorities drive an aggressive approach to
stamping out tax avoidance loopholes and exposing the tax affairs
of corporates through greater transparency and across the media.
Whilst the OECD aims to achieve more sustainable rules, the lack of
clarity on key issues will mean further confusion for
multinationals on how business operations should examine the impact
of BEPS. Multinationals were split 52/48% on whether BEPS will
create a more sustainable global tax system. Survey respondents
felt that it was likely to have a material operational impact, with
83% globally believing that enhancing global tax transparency will
increase the cost of compliance. Despite this there is clearly
appetite for reform, with 80% stating that initiatives to
fundamentally reform international tax architecture are desirable.
However, just 55% think reform is achievable. OECD tax chief Pascal
Saint-Amans said the organisations plan against BEPS would not
eliminate tax competition. Richard Syratt, Taxand UK commented:
While we have seen a number of measures adopted domestically in the
wake of the BEPS proposals, the full implementation of BEPS will
require close international co-operation, transparency, data and
reporting requirements from all countries and multinationals. The
aim of this action plan is to eliminate harmful tax competition.
This will be achieved by co-ordinating a closing of corporate tax
loopholes globally, and endorsing a common reporting standard to
increase company transparency. Instead, competition is expected to
increase, as governments compete on a more even playing field for
corporate investment and look for new ways of attracting MNCs.
Interestingly, despite the increase in administrative burden, lack
of clarity on who will have access to information and the potential
for misinterpretation of the data supplied, 57% of global
respondents were in favour of the BEPS proposal of reporting
country by country profits. 80%Desirable 55%Achievable RESPONDENTS
VIEWS ON REFORMING INTERNATIONAL TAX ARCHITECTURE Taxands Take
Review your business operations in light of BEPS and implement a
road map to ensure your business is able to meet the new
requirements, scheduled for September 2015 Pay special attention to
your transfer pricing policy, financing structure, no substance
companies/potential treaty shopping and lack of business purposes
for structuring Be prepared to be transparent
5. www.taxand.com 4 Angel Calleja, Taxand Spain commented: The
OECD should be congratulated for its work to date on the BEPS
initiative, it is no mean feat that they are progressing so much in
such a short period of time. Once the full recommendations have
been made, the hurdle will be homogeneous implementation as
countries try to build it into their existing national legislation
ensuring that no harmful asymmetries are produced. Who holds the
authority to implement was questioned in the global survey, with
52% of respondents believing tax authorities should be given
responsibility to enforce BEPS at country level, whereas 38%
thought the OECD would be a better option. Countries will need to
legislate swiftly and appropriately instruct audit bodies to show
their commitment to enforcing the new regulations within the rule
of law, thus providing a more transparent operating environment for
multinationals, that doesnt hinder growth. 57% 43% RESPONDENTS FOR
OR AGAINST COUNTRY-BY- COUNTRY' REPORTING www.taxand.com 4 GLOBALLY
BELIEVE ENHANCING GLOBAL TAX TRANSPARENCY WILL INCREASE THE COST OF
COMPLIANCE 83%
6. 5 Quality tax advice, globally5 Quality tax advice, globally
OF MULTINATIONALS CITED REPATRIATION AS THEIR STRATEGY FOR ANY
OFFSHORE CASH CURRENTLY HELD 26%
7. www.taxand.com 6 Cross-border taxation issues continue to
trouble multinationals 6% 8% 7% 9% 13% 15% 20% Transfer pricing
Compensation equity & employment tax Supply chain/business
restructuring Real estate tax Individual tax Indirect tax Corporate
tax rate Tax litigation/disputes M&A tax AREAS OF TAX WHICH
RESPONDENTS SAY HAVE BEEN THE MOST CHALLENGING IN THE LAST YEAR For
the fourth consecutive year, transfer pricing was viewed as the
most challenging area of tax by multinationals and also the area
that has received the most significant increase in scrutiny over
the past year. This is unsurprising given the prominence of
transfer pricing in both the OECDs BEPS initiative, as well as the
increasing number of companies completing, or attempting, corporate
inversions or dealing with intangibles or cross-border
restructuring. Cross-border taxation issues are now firmly centre
stage. The transfer pricing environment is evolving quickly. Global
issues around information sharing are causing great concern,
particularly the potential usage by unintended parties, such as
competitors. Meanwhile, legal remedies to eliminate double taxation
(eg MAPs), once initiated, do not appear to effectively accomplish
their goals. Corporate inversions have attracted particular
interest in the world of tax, not least the attention of the US
government, which is seeking to capture more revenue from the
profits of US multinationals. Multinationals, in contrast, are
increasingly considering a balance of their tax bases. This is not
simply to control their overall corporate tax rate, but to mitigate
the burden of complex, ever changing and far reaching US tax rules
that add to compliance costs. Inverting company headquarters is not
the only cross-border issue dominating tax. The debate around
offshore cash continues, although governments should perhaps not be
as concerned about losing these taxable cash piles overseas given
that, in this years survey, 26% of multinationals cited
repatriation as their strategy for any offshore cash currently
held. Just 13% intend to keep such cash on their balance sheet.
This is perhaps also a reflection of an improving global economy in
which companies are, after years of inertia, looking to deploy cash
piles through acquisitions and other corporate activity. Albert
Liguori, Taxand USA commented: Many see the scale of taxation in
the US as unsustainable in comparison to a number of other
jurisdictions. Other countries are taking steps to make their tax
environments more attractive to multinational companies,
recognising the investment and employment benefits they bring. Our
survey reinforces this point with 68% of respondents feeling that
the increasing trend of corporate inversions will lead to increased
competition between tax regimes. Whats increasingly clear is that
without a change in approach, the US is likely to lose out to those
jurisdictions who recognise the benefits of a forward looking tax
policy. Taxands Take Review your transfer pricing policies in light
of the new BEPS initiatives in this area: special attention to
intangibles and intragroup services Obligations and tax audits on
TP documentation are here to stay: Ensure quality and effectiveness
Evaluate internal tax reporting systems in light of ongoing focus
on cross-border activity by jurisdictions across the world Conduct
internal risk analyses of key transactions Prepare defence
positions in advance of potential tax authority challenges
8. 7 Quality tax advice, globally Politics and public opinion
are shaping the future of multinationals In an era where scrutiny
from governments, media, general public and tax authorities has
become commonplace, it is unsurprising that globally 60% of the
respondents to Taxands survey reported an increase in the number of
audits undertaken by tax authorities in the past year. 70% of
respondents also felt their tax authority had increased its focus
on substance over the last year. Political messages (from OECD, EU,
local governments, etc.) around multinational tax planning have
been legitimised by public sentiment. The vanguard of this is
substance, as it is driven to the fore of future reporting and
disclosure requirements. Multinationals are already facing
increasing pressure to improve the transparency of their operating
structures, and proof of substance will only prove to become more
onerous as enforcement and exposure increases around the world.
Over three quarters (77%) of global respondents confirmed they were
concerned about the potential exposure of information provided to
meet the proposed country-by- country reporting standards.
Country-by-country reporting remains the most widely contested area
of the BEPS initiative, with concerns around confidentiality being
of paramount concern. Many believe a uniform reporting approach to
such complex global information does not make sense as it raises
more questions than it provides answers. It is also likely that
these reporting requirements will, over time, be modified to
disclose more commercially sensitive information. This greater
transparency, however, is a double edged sword for politicians, who
need to be careful what they wish for, as deals struck with
multinationals will also be exposed. Antoine Glaize, Taxand global
TP & business restructuring service line leader commented:
Country-by-country reporting raises many concerns around
confidentiality of information, the potential for an increase in
disputes, and the huge annual compliance burden it will create for
multinationals. The three tiered approach recommended underlines
its burdensome nature and its still not clear whether this
reporting mechanism will be applied unilaterally across all
businesses, or only those above a specified size. Multinationals
will have to endure a period of uncertainty until late 2015 before
they know the true magnitude of the changes and the challenges that
will present. Taxands Take Building documentation into a proactive
and systematic approach to audits will help to curb demands on the
business. Documentation can be a burden, but it is also your best
defence Review your entire business structure to identify and
rectify any locations of contention when considering substance
requirements If you plan to expand business operations into new
markets, work with your tax advisor to ensure your company will be
compliant with national and supranational requirements 67%
SAID...... INTENSE MEDIA FOCUS ON CORPORATE TAX DIDNTMAKE THEM
CHANGE THEIR APPROACH TO TAX PLANNING
9. www.taxand.com 8 Conversely, the impending enhancements to
information disclosure, transparency and compliance could create a
more material impact on company structures altogether, with 40% of
respondent claiming that increasing tax scrutiny had made them
change their corporate growth strategy in particular countries.
Manuel Tamez, Taxand Mexico commented: The potential impact of this
could be hugely detrimental. Multinationals are a key catalyst in
driving the global economy, so countries need to tread a careful
path. If tax authorities pursue an aggressive approach,
multinationals could be deterred from operating there, creating a
limp financial environment filled with uncertainty and caution.
www.taxand.com 8 WERE CONCERNED ABOUT THE POTENTIAL EXPOSURE OF
INFORMATION PROVIDED TO MEET THE PROPOSED COUNTRY-BY-COUNTRY
REPORTING STANDARDS 77%
10. 9 Quality tax advice, globally Taxands Take Multinationals
shouldnt shy away from accountability or be afraid to discuss their
planning activities to demonstrate they are founded on commercial
and business substance Transparent communication on relevant tax
matters and operations between a companys internal tax function and
the Board and shareholders has never been more important
Multinationals should incorporate tax specialists to their Boards
and upgrade the tax function in their corporate charts
Multinationals should be prepared to respond quickly to adverse
public attention on their tax structures and consider publishing
their tax policy in annual reports and online achieve full
transparency 9 Quality tax advice, globally OF RESPONDENTS AGREED
THAT PUBLIC EXPOSURE OF CORPORATE TAX PLANNING HAS A DETRIMENTAL
IMPACT ON REPUTATION 77%
11. www.taxand.com 10 Reputation under fire: multinationals
stuck in a lose, lose situation Tax reputation continues to be a
major and growing issue for multinationals. 77% of survey
respondents globally agreed that exposure to the public of
corporate tax planning has a detrimental impact on reputation, up
from 72% in 2012. Reputation is everything for business in todays
world of social media and consumer activism. Multinationals cannot
take lightly any public criticism, or worse investigations into
their tax practices which could lead to disputes and litigation, as
established companies have all found. This media exposure is bad
for business and therefore, bad for everyone. Keith ODonnell,
Taxand global real estate tax service line leader commented: 2014
has seen a step up in public scrutiny over tax practices; what has
been bubbling under the surface has finally erupted. The US
government is cracking down on multinationals undertaking
inversions to prevent them from moving their tax domicile overseas,
whilst the European Commission is currently engaged in the public
exposure of businesses which have sweetheart tax deals with
governments. These developments, in conjunction with the gathering
momentum of global harmonisation, are indicative of the fact that
multinationals are under fire and embroiled in a battle which is
difficult to win. They are caught between the law and what the
public see as morally right. The irony is that it is governments
themselves which make these laws. We must avoid multinationals
becoming scapegoats for press and politicians for underlying fiscal
and legislative issues which governments have yet to solve. For
one, the US can blame itself for having one of the highest
effective corporate tax rates in the world. Politicians inability
to come to a conclusion on how to solve these problems is causing
more discomfort. 63% of survey respondents say the regular
political discussion around potential new tax measures is causing
confusion and uncertainty amongst business decision makers, thus
making it impossible to successfully plan for the future. In the
meantime, while discussions continue, the multinational can
seemingly do no right. Tim Wach, Taxand Global Managing Director
commented: Multinational corporations, as well international
investors, need to be prepared for increased scrutiny and
transparency in their cross-border structuring. They also need to
recognise that what may be perfectly acceptable cross-border tax
planning in the eyes of those who are experienced in this area may
not be viewed as such by the general public, particularly when
presented in a superficial manner by the media. The recent
experience of the Canadian Public Sector Pension Investment Board,
when its investment structures were revealed in television news
broadcasts by the Canadian Broadcasting Corporation, is evidence of
that. On the other hand, OECD and government tax policy makers need
to recognise that what may seem to them to be clear tax policy is
most often not that self-evident to taxpayers and their advisors,
particularly when tax policies in different jurisdictions conflict,
which can occur for any number of reasons including tax competition
between states. These policy makers need only look at the
differences of opinion being expressed by their colleagues within
the OECD / G20 BEPS initiatives for evidence of this. PUBLIC
EXPOSURE OF CORPORATE TAX PLANNING HAS A DETRIMENTAL IMPACT ON
REPUTATION 3/4NEARLY OF RESPONDENTS SAID...
12. 11 Quality tax advice, globally Increasing competition in a
harmonised environment The last twelve months have seen signs that
the global tax landscape is now finally shifting towards greater
harmonisation, as tax initiatives driven by the G20 meetings, EC
investigations and OECD have sought to curb tax evasion and
avoidance on a global scale. However, as our attention is
distracted by headline grabbing moves such as public naming and
shaming, politicians across the world have been hard at work
targeting multinationals. On one hand jurisdictions have
implemented a plethora of tax breaks and incentives at a national
level to attract multinationals to their shores. With the other
hand, they have given tax collectors increasingly aggressive powers
to ensure companies domiciled in their jurisdictions pay their
perceived fair share. The result of this, somewhat counter-
intuitively, is increasing competition in a harmonised environment.
This sentiment has been felt by multinationals with 83% of survey
respondents feeling that tax competition will increase over the
next 5 years and 76% thinking that BEPS will make countries more
competitive from a corporate tax rate perspective. This year
several countries announced a lowering of their global tax rates,
including Japan, Spain and the UK, with the latter set to reduce
its rate to 20% by 2015. With governments deciding whether to lower
tax rates or offer other tax incentives for businesses looking to
relocate, it is interesting to note that 68% of survey respondents
do not think a cut in corporate tax rates is more appealing than
other tax incentives. However, for governments looking to make
their corporate tax rate more competitive the benefits for
multinationals must be clear and meaningful to impact any business
decisions; 66% of respondents said they would need a 5% or more
change in a corporate tax rate to consider changing their business
headquarters. Despite the focus on governments to lower corporate
tax rates to be more competitive, 59% of respondents felt their
global tax rate had increased over the past year. This could be due
to the increased cost of compliance added to the tax burden faced
by multinationals, or the increase in other business related taxes
such as indirect tax which has seen an overall increase in rates
over the last few years, as well as to a more conservative approach
to the settlement of taxes in view of reputational pressure. Mukesh
Butani, Taxand India commented: Tax competitiveness is one of the
key issues for any business decision making process on location,
and companies have an obligation to contribute to shareholder
value. While it looks like transparency, exchange of tax
information and a requirement for common reporting standards will
open the playing field for fair competition, we must also remember
there are other drivers for companies to consider when choosing a
jurisdiction to locate in. RESPONDENTS WHO THINK TAX
COMPETITIVENESS WILL INCREASE OVER THE NEXT 5 YEARS Taxands Take In
compliance with the tax strategy of a group, multinationals should
undertake a deep review of their corporate governance, of any
procedures established to control tax risks and of the standard
operating procedure before the Tax Administration.
13. www.taxand.com 12www.taxand.com 1212www.taxand.com OF
RESPONDENTS THINK BEPS WILL MAKE COUNTRIES MORE COMPETITIVE FROM A
CORPORATE TAX RATE PERSPECTIVE 76%
15. www.taxand.com 14 Methodology Taxand has conducted its
annual global survey with an exclusive selection of large
multinational clients that operate across industry sectors. Survey
responses comprise interviews with CFOs, supported by tax/finance
directors views. The questions asked in the survey covered a range
of topics, including: a multinationals reputation under fire; the
impact of politics and public opinion on future planning; BEPS as a
new frontier for the global tax landscape; cross-border taxation
issues; increasing competition in a harmonised environment; and tax
on Board agendas. We received responses from CFOs and tax/finance
directors from across Asia, Europe and the Americas. The survey
provides a current picture of the global tax landscape and how
multinational companies interact with the legislation and tax
authorities that operate within it. The survey results are
supported by Taxands Take Taxands opinion on the findings and
actions for multinationals. Taxand provides high quality,
integrated tax advice worldwide. Our tax professionals, more than
400 tax partners and over 2,000 tax advisors in nearly 50 countries
- grasp both the fine points of tax and the broader strategic
implications, helping you mitigate risk, manage your tax burden and
drive the performance of your business. Were passionate about tax.
We collaborate and share knowledge, capitalising on our expertise
to provide you with high quality, tailored advice that helps
relieve the pressures associated with making complex tax decisions.
Were also independentensuring that you adhere both to best practice
and to tax law and that we remain free from time-consuming
audit-based conflict checks. This enables us to deliver practical
advice, responsively. Taxand has achieved worldwide market
recognition. Taxand ranked in the top tier in Chambers Global Guide
2014 global network rankings and in the International Tax Reviews
(ITR) World Tax 2015, 41 Taxand locations were commended and a
further 26 locations listed in ITRs World Transfer Pricing Guide
2015. 31 countries were voted top in the ITR Transaction Tax Survey
2014 and 29 in ITR Tax Planning Survey 2013. Taxand has received 65
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