Companies say global tax landscape more volatile and contentious and expect more controversy in years to come
- Companies are facing more aggressive and more frequent audits.
- Rapid pace of legislative change creates more tax risk and uncertainty, raising the stakes for companies expanding into new emerging markets.
Wednesday, 16 November 2011— Business executives, tax administrators and tax policy-makers agree: the world has entered a period of elevated risk for tax controversy. Ernst & Young’s new 2011-2012 Tax risk and controversy survey: a new era of global risk and uncertainty, released today, reports the dramatic shift in the global economy is having a significant effect on tax policy,enforcement and businesses by forcing companies and governments into more clashes over tax laws and how they should be enforced.
The global survey is based on interviews with 541 senior tax and finance executives. It also incorporates interviews with audit committee members, tax administrators and tax policy-makers across 18 countries including Australia. The new report reveals deep concern among corporate executives over the current and future levels of tax risk and controversy. Among the findings:
- Audits are more frequent and aggressive, making them more costly to defend or litigate.
- Tax assessments and penalties have now entered the realm of billions of dollars.
- Companies face unprecedented scrutiny and reporting of their tax affairs by advocacy groups and the news media.
- The volume of tax information exchange agreements has increased by more than 1,000% while joint and simultaneous tax audits have gone from concept to reality.
- Yet, governments and companies are taking steps to improve their relationship.
Ernst & Young Tax Controversy Partner Howard Adams said Governments and businesses are facing increased challenges in the current uncertain economic environment.
“Tax directors increasingly have to become ‘tax diplomats’ as they respond to more scrutiny and Governments are increasingly working together to assess taxpayers transactions and filings, finding new ways to lay claim to cross border revenues.”
“Businesses are becoming more transparent with their tax positions and preparing for challenges before the traditional audit process even begins. Certainty and consistency is their clear priority,” Mr Adams said.
Tax administrations around the world become more aggressive and focused
Sixty per cent of Australian respondents in the survey say they have experienced a rise in the volume or aggressiveness of tax audits while 44% have experienced an increase in international focus by tax authorities over the last two years. Ninety two per cent of companies also believe disclosure and transparency requirements will increase over the next two years.
Insufficient internal communication (68%) and resources to cover tax function activities (60%) were listed as the reasons that companies might experience increased tax and tax controversy.
Eighty per cent of Australian respondents said they were pursuing a more open and collaborative relationship with one or more tax administration and 76% had experienced an increase in disclosure and transparency requirements made upon their company in the last two years.
“Tax administrators have plenty of new tools and unprecedented access to information. We’re now seeing evidence they will be scrutinizing taxpayers more closely for years to come,” Mr Adams said.
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