If 2009 was the year of fiscal stimulus and 2010 was the year of recovery — however weak — then 2011 was arguably the year of the sovereign debt crisis, which has stretched into 2012. Learn what else 2012 may bring.
Governments worldwide have been enacting an ever-increasing number of complex changes to their tax laws and regulations. The pace of these changes is accelerating in 2012, adding to the sense of uncertainty being felt by tax executives everywhere.
This is especially true in the Eurozone where governments have rapidly shifted their fiscal policies from stimulus to the world of austerity: tax increases and spending restraint. In some cases, measures are well planned, but in others they are compelled with little notice by pressure from financial markets, external stakeholders or other countries themselves.
Like the stimulus measures before them, some austerity programs are intended to be temporary. Others are permanent and demonstrate alignment with wider tax trends.
Europe sneezes and the world catches a cold
In virtually every nation, irrespective of region or maturity of economy, wider fiscal buffers are being put in place in anticipation of potential contagion from the Eurozone crisis. Annual deficits are being actively narrowed, and any small surplus widened as much as possible.
Tax is at the heart of many of these strategies
But at the same time, as the Eurozone tries to extricate itself from a sovereign debt crisis (and other countries prepare for the worst), underlying, longer-term tax trends continue to play out, creating added difficulty for tax executives to manage.
Headline corporate tax rates continue to fall in many countries; the shift toward territorial taxation continues. Consumption taxes grow more and more attractive to governments seeking a policy tool that can be adjusted quickly to raise revenue but is widely thought to be the least damaging to economic growth.
And all over the world, tax authorities continue to ramp up their enforcement efforts in a race to keep up with the globalization of business itself.
Staying connected with tax change: what success might look like
- Monitoring is in place for all areas of potential legislative and regulatory tax changes, as well as for tax administration focus areas in key jurisdictions. Change is integrated into tax risk planning.
- The local dynamics of potential tax changes are understood, as are alternative policy designs and ways in which the changes link to global tax policy trends.
- The implications of potential change upon business operations are continuously assessed.
- Among all those responsible for monitoring and anticipating tax policy and legislative change, there are clear lines of authority and communication, and a good system of knowledge sharing is in place.
- The tax information and insights gained from outside providers is fully leveraged and shared within the organization.
- Active engagement with policy-makers is considered when confronting sources of business impediment or future controversy.
| Source: EY 2011-12 Tax risk and controversy survey |
With the tax landscape continually changing, companies tell us that effective planning has become more of a challenge and that complying accurately with the array of global tax and regulatory filing requirements is consuming more resources.
The trends and changes represent a flow of information of unprecedented magnitude that corporate tax executives must identify, understand, assess and communicate to their people around the world.
Yet many tell us that they worry they will fail to keep up with the pace of change or misinterpret one of the thousands of changes they must absorb.
67% of executives surveyed for EY 2011-12 Tax risk and controversy survey , report heightened risk or uncertainty around tax legislation.
This figure rises to 78% for BRIC-based companies and 83% for US-based companies.
Staying connected to change
Often, by knowing the direction of tax policy and understanding where and how tax authorities are focusing their efforts, it is possible to reduce the risk of being impacted by unexpected change.
Our suite of three regional tax policy and controversy outlooks for 2012 is designed to provide visibility over the changing tax landscape:
In each piece, we provide an overview of likely tax trends in 2012, plus detailed coverage of the possible direction of tax policy and potential tax enforcement issues in each country.