Key conference message
Today, the greatest uncertainty for multinationals stems from the impact of tax and legislative change. Now more than ever before multinationals need to keep up to speed with and anticipate this change. Achieving compliance at the same time as managing reputational risk and undertaking substantive tax planning are imperative to compete in a volatile, global economy.
Key conference pointers
- Current global tax trends include a sweeping wave of compliance, regulatory requirements, the implementation of the OECD report on Base Erosion and Profits Sharing alongside a push for harmonisation. The development of FATCA legislation from the US, CFC reform and increases in information exchange agreements are also of major impact to multinationals and your tax departments. Above all else tax audits are on the rise worldwide and collaboration by authorities across borders is on the increase. Multinationals need to have your house in order, with protocols, systems and documentation in place ready to respond to audits in every jurisdiction.
- Having a considered strategy in place with the right people, the right location, the right documents, at the right time is crucial to ensure multinationals can pass increasingly challenging substance requirements, globally. Letterbox and conduit companies are not viable. The potential of double taxation, severe retrospective tax claims, reputational risk and director liability are too severe a threat. Sufficient substance needs to be demonstrated throughout the entire structure of your business abiding strictly to shifting local legislation around residency, beneficial ownership and permanent establishment. Tax risk must be on your Board’s agenda.
- As the ‘virtual’ way we do business evolves the location of taxable profits is ever more complex. Cloud-based software poses the next big challenge to tax authorities as they struggle to classify whether a product or service, which is neither transferred on a tangible medium nor electronically deliverable, should be taxed as a service, taxed as tangible personal property or not subject to tax at all. Because of the varying approaches taken by different jurisdictions to this software, it makes determining whether a transaction is subject to tax much more difficult. Issues can arise over the source of income, tax deferral on foreign earnings, permanent establishment, withholding tax, VAT and transfer pricing. At the same time this technology provides readily available data that can be reviewed as part of a cross-border audit by the tax authorities. Multinationals operating online must review your structures, intangible assets portfolios, transfer pricing approach and procedures thoroughly or risk retrospective taxation.
- By attacking the reputation of multinationals we are in danger of curtailing investment, thwarting growth and compressing innovation. Commercial objectives and shareholder duty drive supply chain planning and any assessment of the tax obligations that accompany these strategic decisions must be realistic and fair. Activity which initially necessitated simple transfer pricing documentation now demands a long list of justifications around issues including substance, commercial rationale and permanent establishment. New business models require new solutions and the linkage between business restructuring and tax planning is more important than ever. Multinationals must be prepared to restructure to optimise tax efficiencies and shareholder profits as well as confront and defend against reputational risk.
- Tax controversy is expanding globally both in scope and ferocity. Multinationals need a clear strategy to manage tax controversy risk in addition to a sound understanding of where challenge lies, what form it will take and how to defend against it.
- VAT is collected in just under 150 countries worldwide. It is only going to get more burdensome in terms of rates and compliance. Applying common policies to VAT planning worldwide, investing in technology to get tax determination and reporting right and having a small team of very focused individuals managing your VAT well can add real value to your tax department and your organisation as a whole.
Taxand’s Take
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