Multinationals are increasingly worried about the tax risks they face if national governments do not coordinate their responses to the OECD’s Base Erosion and Profit Sharing (BEPS) project, according to research by EY.
A global EY report, Bridging the Divide, surveyed 830 tax and finance executives in 25 countries and found 81% expect tax risks to accelerate in the next two years, with some predicting uncoordinated BEPs ‘tax chaos’.
The majority (61%) of the largest companies, with annual revenues of over $5bn ($3bn), fear that double taxation will increase in the next three years, as do 63% of all the UK-based executives
Nearly one-third (31%) of companies surveyed predict the BEPS roll-out will be characterised by relatively limited coordinated action and by increased unilateral action by countries. Threequarters (74%) of the largest companies say they believe some countries already see the OECD’s BEPS project as a reason to change their enforcement approach before any recommendations have passed into national law.
Chris Sanger, head of tax policy at EY, said: ‘International companies share the OECD’s concern that coordinated action by national governments is necessary to ensure any BEPS-related recommendations are productive. The OECD can play an invaluable role in preventing what it has called a “global tax chaos” that results in double taxation and increased controversy by pressing for common approaches and consistent standards.’
EY’s survey identified a number of other tax issues which are raising concerns. More (68%) of the largest companies are now reporting that tax audits have become more aggressive in the last two years, up from 57% in 2011 when the survey was last conducted. Companies are experiencing a harsher enforcement environment from tax authorities, particularly around transfer pricing, which they identify as the top tax risk, followed by indirect tax and permanent establishment challenges.
The majority (84%) of the largest companies believe that entering or operating in an emerging market significantly increases levels of tax risk and controversy risk, up from 67% in 2011, with China, India, and Brazil identified as the countries with the most potential for risk.
There has also been a significant increase in the number of large companies who are concerned about media coverage of taxes, up from 60% in 2011 to 89% currently.
Against this background, the research shows 78% of the largest companies and 100% of the UK respondents think that tax risk and controversy management will become more important in the next two years. However, 75% of global companies, and 85% in the UK, feel they have insufficient resources to cover tax function activities.
Sanger said: ‘Today’s global business environment presents a complex assortment of tax risks for multinationals, particularly when operating in markets that may be less familiar. Companies need to get actively engaged on this issue, from ensuring that they have open lines of communication within their own enterprises to making their views known and understood on issues such as BEPS.’