Global companies struggling to manage tax risks

Three quarters of the largest global companies say their tax functions lack the resources to manage riskier environments, while many want to see more transparency in tax planning but doubt this will happen, according to two surveys released this week, ahead of publication of the first phase of the OECD’s Base Erosion and Profit Shifting (BEPS) action plan.

EY’s report, Managing operational risk, found that 75% of companies with more than $5bn in global revenues reported insufficient resources to cover tax function activities, while 64% said their internal communication is insufficient and 57% reported a lack of appropriate processes or technology.

EY’s survey of 962 tax and finance executives in 27 jurisdictions revealed that 49% of respondents had seen the overall size of their tax function increase, while just 8% reported it had decreased.

Two thirds of companies indicated they had either created or refreshed their tax risk policy during the course of the last two years (62%) or made changes to the way they approach the documentation of transactions for tax purposes over that time period (60%).

More than half of respondents (56%) said their failure to deal adequately with tax risk was due to a lack of effective technology, while 44% said they use no technology at all to respond to enquiries from the tax authority, or said they make it the sole responsibility of their local tax teams.

Separately, the Grant Thornton International Business Report (IBR), a survey of 2,500 senior executives in 34 economies, revealed the majority want more transparency on acceptable planning, together with updated tax rules for a modern, digital economy and the harmonisation of global corporation tax rates.

Wendy Nicholls, GT partner, said: ‘Business leaders want things in black and white. They have a responsibility to their investors and shareholders to keep costs down. In their words, simply telling them to pay their “fair share” is not proving to be a viable alternative to a clear set of rules or principles. The existing legislation is no longer fit for purpose in an increasingly interconnected, digital world in which the definition of a “border” is archaic and next to meaningless.’

The views of UK business leaders in the survey largely mirrored those of their wider European counterparts, with 77% asking for greater transparency in what is acceptable tax planning and 70% wanting to see updated tax rules for a modern, digital economy. Harmonising global tax rates was advocated by 57% of UK executives. 

Globally, 82% of business leaders cite tax policy and risk as a priority (79% in the UK) and 39% as a major priority (19% in the UK).

A further 44% believe G20 action on transparency and avoidance would help them grow their operations, but just 23% believe this is likely to get the required global agreement.

In the UK, only 26% believe G20 action on transparency and avoidance would help grow their operations, and just 8% believe this is likely to get the required global agreement.

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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