• Managing indirect tax in the digital age

    Multinational companies are handling large quantities of complex data about indirect taxes. We outline hands-on approaches that can help deal with all that information.

  • FATCA: Are you ready for 1 July?

    If you’re not prepared, you could suffer a 30% withholding tax on US-sourced payments. Know where you stand.

  • Budget 2014

    Read our analysis of Budget 2014, including Budget Alert, which gives insight on employment, personal, corporate and indirect tax measures, plus EY ITEM Club comment.

  • OECD provides update on the BEPS Action Plan

    On January 23, 2014, the Organization for Economic Cooperation and Development hosted a webcast on the base erosion and profit shifting project. Learn more.

  • Tax Policy and Controversy Briefing goes online

    The speed of change continues globally. Keep up-to-date on tax policy, legislative and regulatory developments with our new web-based Tax Policy and Controversy Briefing.

  • Tax Transparency

    The trust an organisation builds with its stakeholders is critical, and tax transparency is a key dimension in building that trust. Find out how we can help.

  • Indirect Tax Briefing: eighth edition

    Across the world, the shift from direct to indirect taxation continues. See which global indirect tax trends are transpiring right now.

  • Worldwide Cloud Computing Tax Guide (2013-2014)

    Our interactive country map will help you gain insights into the cloud computing corporate tax regimes across the globe.

  • 2013 Global Transfer Pricing Survey

    With transfer pricing issues under close scrutiny worldwide, here’s how companies are managing the risks.

Tax Services

We’ll help you navigate the global tax landscape

The business and tax landscapes have changed dramatically, and the pace and complexity of change continues to increase. We can help you navigate this shifting landscape. Governments are tempering the need for revenue with increased competition for labor and capital. Tax authorities are adapting their enforcement strategies, focus and policies in response to the changing dynamics of business. Companies are balancing competing priorities, ensuring they maintain compliance while adding value. We can assist you with these critical issues in today's tax environment, including:


  • Midweek Tax News

    Archives...

    A weekly update on tax matters to 15 April 2014

    Midweek Tax News provides you with a succinct overview of the key tax developments that have occurred each week, to allow you to stay up-to-date on tax issues that may have an impact on your business. If you would like to discuss an article in more detail, please do speak to the relevant contact listed at the end of this issue or to your usual EY contact.

    The UK Patent Box regime continues to be under review to determine whether it might be regarded as a ‘harmful’ tax measure under the EU Code of Conduct for business taxation (the Code). In parallel, the OECD Forum for Harmful Tax Practices is considering the need for real economic activity/substance to be generated in order to access preferential intellectual property regimes and how that substance should be demonstrated.

    We understand that three potential options for demonstrating substance are being considered by the Forum, and that these are also being considered by the Code group, being a:

    • Nexus approach, linking underlying expenditure to tax benefit

    • Transfer pricing approach, to identify where value added activity is taking place

    • Value creation approach, linking underlying substantial value creating activities to tax benefit

    EY attended an HMRC Patent Box Working Group meeting on 10 April 2014 during which the nexus and transfer pricing approaches were discussed in more detail. In relation to the nexus approach, concerns were raised as to whether such an approach is compatible with EU law, and that it may impose significant compliance burdens and distort commercial decision making, but it appears to be the favoured approach for the majority of OECD countries. By contrast, HMRC confirmed that if a transfer pricing approach is adopted it believes that no further change would be required to the existing UK Patent Box regime. HMRC is encouraging written submissions to be made providing thoughts and examples on the impact of a nexus approach to the Patent Box regime.

    HMRC has been keen to emphasise that if any changes to the Patent Box regime are required these would be contained in Finance Bill 2016 at the earliest and that they would be preceded by a full period of consultation.

    On 14 March, the OECD published a public discussion draft on Action 6 of the BEPS Action Plan Preventing the granting of treaty benefits in inappropriate circumstances. The OECD has now published the submissions received, which were from an extensive range of respondents, and from a variety of jurisdictions. EY submitted comments on the discussion draft as a whole with a particular focus on the proposals for the inclusions of a new limitation on benefits provision and a general anti-avoidance rule in all OECD tax treaties.

    The comments received were discussed at the OECD's Action 6 public consultation event on 14 and 15 April in Paris attended by EY. We continue to have a dialogue with the OECD on these and other elements of the Action Plan. If you would like to discuss our comments on the treaty abuse discussion draft or the issues discussed at the public consultation event in more detail, please speak to your usual EY contact or the contact listed below.

    Separately, on 9 April, HMRC and HM Treasury held a BEPS stakeholder meeting. The meeting principally covered the proposals relating to hybrids, transfer pricing and treaty abuse with round table discussions and presentations from HMRC, non-governmental organisations and businesses. We will continue to feed into these discussions and would be happy to discuss any matters which you would like to be raised with HMRC and/or HM Treasury.

    The Upper Tribunal decision in the case of Reed Employment plc and 11 others has now been released. The case was decided in HMRC's favour before the First-tier Tribunal and that decision has now been upheld by the Upper Tribunal.

    The case has potentially wide implications when considering whether (a) salary sacrifice arrangements have been effectively implemented, (b) travel expenses are tax-deductible and (c) P11D dispensation agreements are sufficiently robust.

    In a long and detailed judgment, the Upper Tribunal decided:

    • The First-tier findings of fact generally were not susceptible to challenge.

    • The arrangements resulted in "a mere re-labelling of part of an employee's contractually agreed salary [which was] insufficient to constitute an agreement that part of what was previously contractually paid as salary was now being paid as a reimbursement of expenses" – ie, the salary sacrifice was ineffective.

    • There was no overarching contract of employment, so the place of work for each assignment was a ‘permanent workplace’. The travel expenses were, therefore, not tax-deductible.

    • The limited level of disclosure made when applying for P11D dispensations was "plainly relevant to the issue of legitimate expectation", and permission to apply for judicial review was refused.

    Our tax alert considers the key points of the judgment and its implications.

    The consultation on reform of the loan relationships and derivative contract rules has been in progress since Budget 2013 and its outcome will be reflected in legislation in both Finance Bill 2014 and Finance Bill 2015.

    HMRC has now published a technical note which provides an update on the Government's developing thinking. In particular, it sets out priorities to be addressed by legislation to be included in Finance Bill 2015 or, in some cases, by way of secondary legislation. It is expected that these measures will generally have effect for accounting periods commencing on or after 1 January 2016, although some, particularly anti-avoidance measures, may apply earlier.

    Some key points include:

    • As expected, the idea of a general ‘non-specific override’ to the accounting treatment will not be taken forward because of concerns that it would give rise to too much uncertainty.

    • The Government sees a new regime-wide targeted anti-avoidance rule as a key part of its reform and this will be the subject of legislation in Finance Bill 2015. The change to the ‘unallowable purpose’ rule has been relegated to a lower priority item.

    • A new approach will be adopted under which amounts recognised in profit or loss will be the starting point for calculating taxable amounts on loan relationships and derivative contracts rather than amounts shown elsewhere in the accounts.

    • A new ‘corporate rescue’ exemption will be a top priority.

    • The Government has decided not to pursue the proposal to restrict taxation of foreign exchange movements to those arising on instruments held for trading or property business purposes.

    • Concern has been expressed about the consequences of abolishing the late paid interest rules and the Government is continuing to consider this issue.

    Working groups have been established to consider various strands of the reform and EY continues to be represented on all of these.

    On 14 April 2014, HMRC published an update to its document No Safe Havens, which summarises its strategy for dealing with offshore tax evasion. The document details the progress made by HMRC in tackling offshore tax evasion, the new actions being taken, and how HMRC intends to better exploit data sources and influence behaviour. One proposal within this updated document that has attracted significant interest is the possibility of a new strict liability criminal offence for failing to declare ‘taxable offshore income’. The Government will consult on the detail of this new offence, and the appropriate safeguards, later this year.

    Other specific actions include:

    • Introducing legislation to implement the new OECD standard for automatic exchange of information between tax authorities also known as the ‘Common Reporting Standard’.

    • Consulting on strengthening existing civil sanctions, including penalties for offshore tax evasion.

    • Paying ‘rewards’ to whistleblowers who, in HMRC's view, provide significant information that helps tackle offshore tax evasion.

    Two days of debate on the Finance Bill took place in the House of Commons before a Committee of the Whole House on 8 and 9 April.

    The first day of wide-ranging debate centred around the rates of corporation tax (Clauses 5-7 and Schedule 1) and income tax (Clause 1). The debate also covered a new opposition clause on childcare costs, which was not supported.

    The debate on the second day covered the proposed income tax allowances for parties to a marriage or civil partnership (Clause 11). The debate also covered new clauses relating to the Bill provisions on air passenger duty (Clauses 72-74) and bank levy rates (Clause 112).

    The remaining clauses of the Bill will be considered by a Public Bill Committee, starting on 29 April. Amendments to the Bill can be tabled during this stage. The only amendment tabled to date is a minor Government amendment to the video games development rules (Clause 34). The Public Bill Committee is scheduled to conclude by 17 June 2014.

    Court of Appeal to deliver judgment in share scheme cases

    The Court of Appeal judgment in the cases of UBS AG and DB Group Services (UK) Limited is due to be handed down this morning, Wednesday 16 April. The cases consider whether sums paid into a share scheme were earnings of the staff for whom they were paid. The issues before the Upper Tribunal included whether the employees become entitled to be paid their bonuses in money before the sums allocated to them were applied in acquiring scheme shares, the application of the ‘restricted securities’ legislation and the relevance of a ‘Ramsay’ analysis to the facts of the cases.

    Bank levy banding consultation

    The Government is consulting on the merits of a new charging mechanism for the bank levy under which banks are allocated to different bands according the size of their balance sheet and then charged bank levy at an amount set for that band.

    An HMRC open event on the bank levy consultation was held on 10 April and was attended by advisors (including EY) together with representatives of many of the banks currently subject to the levy. There was a robust discussion of the merits of the banding proposal. A particular area of concern was the risk of ‘cliff-edge’ effects where taking on a very small extra liability could cause a bank to incur a very large additional tax liability if it caused a bank to move to a higher band.

    Please contact your usual EY contact if you would like more details regarding the open event or to discuss the progress of the consultation more generally.

    Senior Accounting Officer (SAO) guidance updates

    HMRC Brief 15/14, published on 9 April, draws attention to recent updates to its SAO guidance to clarify its policies and reflect administrative changes to operational procedures. These updates include clarification regarding the treatment of dormant companies for the purpose of the SAO rules and updated guidance on the appeals process.

    Business rates

    In Autumn Statement 2013, the Government announced that it will discuss options with businesses for reform of business rates after 2017. On 10 April, the Government published its discussion paper setting out the terms of reference and outlining the review. The paper summarises how the business rates system in England works, and poses questions intended to open up a discussion with stakeholders on longer-term administrative reform. Responses are requested by 6 June 2014. Please speak to your usual EY contact if you would like to discuss the work we have been doing in this area.

    Employment-Related Securities Bulletin

    HMRC has issued its 15th bulletin, which provides an update on developments relating to employment-related securities, including the tax-advantaged employee share schemes. The bulletin contains a useful summary of the Finance Bill 2014 shares and securities changes including the provisions to simplify the tax rules and administrative processes for employee share schemes, specifically the self-certification by businesses of tax-favoured share plans and online filing requirements for all employment-related securities returns.

    Companies must notify and self-certify an ‘approved’ share incentive plan (SIP), save as you earn plan (SAYE) and company share option plan (CSOP) on or before 6 July 2015 if they wish these schemes to remain tax advantaged for 2014-15 and following years. If schemes are not registered by this date they will no longer be tax advantaged, although the interests of SIP and SAYE participants awarded shares or granted options before 6 April 2014 will be protected. There is no comparable protection for options granted to CSOP participants prior to 6 April 2014 where the 6 July 2015 deadline is missed.

    The bulletin also includes the text of a flyer sent to employers with company share schemes. This provides comprehensive guidance on how companies should register their share schemes and arrangements using the new online service for employment-related securities, this service went live after 6 April 2014. This is as a precursor to self-certification for CSOP, SAYE and SIP, notification of grants of enterprise management incentive options, and the online filing of employment-related securities returns for 2014-15.

    European Commission consultations and expert group on taxation of individuals

    The Commission has formed an expert group to gather ideas on how to tackle any tax obstacles that hinder the cross-border activity of individuals in the Single Market. Two public consultations have also been launched, one asks for information on tax problems faced by EU citizens when active across borders within the EU and the other asks for information on cross-border inheritance tax problems within the EU. These public consultations will be open until 3 July 2014 and the responses to these will be examined by the expert group.

    Compatibility of the VAT bad debt relief scheme with EU law

    On 11 April, the Court of Appeal released its judgment in the case of British Telecommunications plc concerning HMRC's refusal of the taxpayer's claim, made in 2009, for previously unclaimed VAT bad debt relief in respect of supplies made during the period 1 January 1978 to 31 March 1989. The domestic legislation required particular conditions to be satisfied before a claim could be made, including a condition that the customer was insolvent (which effectively excluded bad debt relief claims in respect of supplies to private individuals).

    The taxpayer contended that the insolvency condition was unlawful and that domestic legislation which precluded the submission of claims after March 1997 should be disapplied as being contrary to EU law, such that its claim was not time-barred. The Court of Appeal agreed that the insolvency condition was unlawful, but held that domestic legislation barring the taxpayer's claim was compatible with EU law. Unless this judgment is reversed on appeal to the Supreme Court, it would appear to rule out the possibility of other taxpayers making similar uncapped retrospective VAT bad debt relief claims.

    Entitlement to make a ‘Fleming’ claim for repayment of VAT

    In the separate cases of Standard Chartered plc and MG Rover Group Ltd, the Tribunal was faced with competing retrospective ‘Fleming’ VAT repayment claims (covering the period 1973 to 1996) from different parties for the same amounts. On the facts of each case, the Tribunal was required to consider which person was properly entitled to make the claim in circumstances where the company that carried out the relevant transactions had been a member of one or more VAT groups and the legal ownership of that company had changed hands. Any taxpayers involved in similar discussions with HMRC may wish to consider the implications of these decisions for their business.

    Whether landfill material producing methane gas subject to landfill tax

    In the case of Patersons of Greenoakhill Ltd, the First-tier Tribunal considered the taxpayer's liability to landfill tax. Some of the material sent to landfill, being biodegradable, decomposed and produced landfill gas which consisted mainly of methane and carbon dioxide. The taxpayer used the methane so obtained to power gas engines which generated electricity. The issue in this appeal was whether, as HMRC submitted, all the material sent to landfill was disposed of by the taxpayer with the intention of discarding it so that it was liable to landfill tax, or whether, as the taxpayer maintained, only part of it was disposed of with the intention of its being discarded, methane in the landfill gas from the remainder being intended to generate electricity, so that landfill tax was due only on the part discarded. The Tribunal decided this issue in HMRC's favour, although the taxpayer has since appealed the decision to the Upper Tribunal.

    Freedom of movement of capital: Effective fiscal supervision

    On 10 April, the Court of Justice of the European Union (CJEU) gave its decision in the case of Emerging Markets Series of DFA Investment Trust Company. The CJEU considered the exclusion of a non-EU investment fund (in this case in the US) from a tax exemption on Polish source dividends, which was given to domestic and EU investment funds.

    The CJEU concluded that a Member State may not exclude from a tax exemption dividends paid by nationally established companies to an investment fund established in a non-Member State if there exists between the two States an obligation of mutual administrative assistance. It found that the Polish rules, which restrict the benefit of the tax exemption to Polish/EU/EEA investment funds, were contrary to the prohibition of restrictions on the freedom of movement of capital and could not be legally justified by the need for effective fiscal supervision where an obligation of mutual administrative assistance exists.

    It is now for the referring Polish court to examine whether the obligations under such bilateral agreements are in fact capable of enabling the Polish tax authorities to verify and determine whether the US investment funds operate within a regulatory framework equivalent to that of the EU.

    Our international tax alert provides more detail on the judgment and the implications for Poland and more generally for regimes which discriminate against foreign EU and non-EU investment funds, either in law or in administrative practice.

    Research and Development (R&D) incentive report issued by OECD

    The OECD has issued a new report which provides an update on some of the available R&D tax incentive schemes in OECD countries and selected economies. Specifically, the report contains information on the design, scope and approval processes of R&D tax incentive relief.

    In particular the report highlights the continuing need for companies to make a thorough assessment of both national and supranational incentives (such as the European Commission's newly introduced Horizon 2020 programme which is intended to bring together all of the EU's previous research and innovation funding under a single common strategic framework).

    Additional information on available R&D incentive programmes can be viewed in EY's 2013-14 Worldwide R&D incentives reference guide.

    Pending EU case law could allow for horizontal tax consolidation in France

    A recent opinion issued by Advocate General (AG) Kokott on a case pending before the CJEU SCA Group Holding BV1 and others, considered the Dutch fiscal unity regime, under which sister companies established in the Netherlands may combine to form a tax entity only where the parent company is also established in the Netherlands or maintains a permanent establishment there but not where the parent company is established in another EU Member State. The opinion took the view that the regime infringes upon the EU principle of freedom of establishment.

    The French tax consolidation regime currently prohibits ‘horizontal tax consolidation’ ie, the tax consolidation of French subsidiaries held by a foreign company. If the AG's opinion is followed by the CJEU, there may be implications for groups operating in France as well as the Netherlands.

    Our international tax alert provides further details.

    Other international tax alerts

    Please see a selection of our international tax alerts in respect of the following developments. Additional articles are available in our Global tax alert library.

    France: The newly nominated Prime Minister has announced a series of measures to reduce unemployment and the public deficit including a tax and payroll tax stimulus package which would be implemented gradually over the coming years.

    Chile: The Government has proposed a Tax Reform Bill which would introduces a number of important amendments to the current tax laws, including increases in the corporate tax rate and changes to international tax regulations proposing the introduction of general anti-avoidance rules and a controlled foreign company regime.

    Belgium: The tax authority has released a circular to clarify the application of the fairness tax which is a separate corporate tax assessment of 5.15% on distributed profits which have not been effectively taxed as a result of the notional interest deduction or the deduction of tax losses carried forward.

    Other publications

    The March 2014 issue of Trade Watch, our global customs and international trade quarterly newsletter, is now available.

    Please speak to your usual EY contact, or email us at eytaxnews@uk.ey.com, if you would like to receive a copy of our regular indirect tax newsletter, or information about our other publications.

    Further information

    If you would like to discuss any of the articles in this week's edition of Midweek Tax News, please contact the individuals listed below, Claire Hooper (+ 44 20 7951 2486), or your usual EY contact.

    UK Patent Box update

    Email Kate Alexander

    + 44 20 7951 8196

    OECD Base Erosion and Profit Shifting Action Plan update

    Email Claire Hooper

    + 44 20 7951 2486

    Upper Tribunal upholds salary sacrifice decision

    Email Ian Thomas

    + 44 1582 643331

    Reform of the loan relationships and derivative contract rules

    Email Jonathan Richards

    + 44 20 7951 6428

    HMRC publishes updated offshore evasion strategy document

    Email Jim Wilson

    + 44 20 7951 5912

    Finance Bill progress

    Email Mike Gibson

    + 44 20 7951 0568

    For other queries or comments please email eytaxnews@uk.ey.com.

    Back to the top

  • Operating in a shifting tax landscape

    The global tax landscape continues to change in a dramatic fashion, with near-constant news hitting the headlines regarding shifting tax policy, increasing levels of enforcement and the growing potential of reputational risk.

    Competing priorities

    Multinational companies now have to balance more competing priorities than ever before, ensuring they protect their business by monitoring and responding to changes in policy, legislation and tax enforcement, while at the same time ensuring they not only maintain the highest levels of compliance but also add value from the tax function.

    Governments work to secure each tax dollar they're due

    From a policy perspective, all governments want their country to be viewed as an attractive place to do business, to attract jobs and capital in an increasingly competitive globalized arena.

    At the same time, they want to increase the amount of revenue they bring in. Governments are treading a fine line, constantly assessing how to secure the tax revenues they see as rightly theirs, while at the same time being in direct competition with other nations, making sure they do not scare off mobile capital.

    Tax administrations for their part are adapting their enforcement strategies, focus and policies in response to the changing dynamics of business. They are working to ensure that their resources are being applied to the right issues and taxpayers. They share more leading practices and taxpayer information with their foreign counterparts, to help them collect every dollar due.

    Disputes are on the rise

    The result has been more  frequent, complex and higher value disputes between taxpayers and taxing authorities — a trend that is only increasing as countries collaborate together and as emerging markets gain in stature and influence, taking a more sophisticated approach to taxation. Penalties are becoming more stringent and the threat of reputational risk has risen significantly in recent months.

    We can help you to navigate a route through this complex landscape.

    We can help you monitor and react to quickly-changing tax policy and assess the economic and fiscal impact.

    Where tax policies might create an impediment to your business that is unintended by policy makers, we can help you to collaborate – either solely, or as part of a broader grouping of companies who share a common objective – with government to:

    • Explain the impediment
    • Develop alternative policy choices which are logical and well thought out
    • Model the potential outcomes
    • Deliver an alternative choice to the government in a form with which policy makers can comfortably work

    We also help you address your global tax controversy, enforcement and disclosure needs.

    We focus on pre-filing controversy management to help you properly and consistently file your returns and prepare the relevant back-up documentation.

    Where a controversy has already occurred, our professionals leverage the network's collective knowledge of how tax authorities operate, and increasingly work together, to help resolve difficult or sensitive tax disputes. To ensure that continuous performance improvements are instigated after a controversy, we work with EY's other tax professionals to ensure that similar events are less likely to occur.

    Below you can access our views and analysis of some of the substantial policy and enforcement trends and issues at play today.

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  • Seizing the opportunity in Global Compliance and Reporting

    Global Compliance and Reporting (GCR) is at a tipping point. Many companies distribute responsibility for GCR processes throughout their organization creating a patchwork. The results are suboptimal. Our recent survey shows a need for a new approach.

    Due to the combination of evolving business models, transforming finance functions and an increasingly complex regulatory landscape. There are new opportunities to better optimize efficiency, control and value, to help mitigate risk and improve performance.

    What is Global Compliance and Reporting?

    GCR comprises the key elements of a company's finance and tax processes that prepare statutory financial and tax filings as required in countries around the world. These duties include:

    • Statutory accounting and reporting
    • Tax accounting and provisions
    • Income tax compliance
    • Indirect tax compliance
    • Governance and control of the above processes

    GCR activities reside in the middle of a broader set of so-called record-to-report (R2R) processes. R2R is the intersection between any company's finance and tax departments and is used to capture, process and store information that is essential to statutory accounting, tax compliance and reporting. Any change to R2R processes, information, finance systems, roles and responsibilities will have a direct impact on GCR processes.

    Risk on the rise

    GCR risks are on the rise. Local jurisdictions are rewriting regulations, focusing more intently on the collection of tax revenues and sharing more taxpayer information across borders. At the same time, the global financial crisis has driven companies to redesign their finance operating models to remain competitive and to take advantage of opportunities for growth.

    Our new report Seizing the opportunity in Global Compliance and Reporting investigates the significant developments taking place as multinational companies determine the best way to meet financial reporting and tax obligations worldwide.

    Our case study highlights how we helped leverage an array of external providers

    Helping you achieve meet the new GCR demands

    Fast changing compliance and reporting requirements are more demanding on tax and finance functions today than ever before. So how do you improve control and quality, manage risk, create efficiency and drive value?

    Our market-leading approach combines standard and efficient processes, highly effective tools and an extensive network of local tax and accounting subject matter professionals.

    See more on how we can help you meet the demands of today's tax landscape

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  • Building effective supply chains

    As multinational companies seek to reach new markets and compete more effectively in mature markets, they are adapting and differentiating their supply chains. Companies’ operating models need to cater for efficiency and scale in mature markets, while having the flexibility and local ability to support growth in emerging markets. Consequently, driving true shareholder value requires an operating model that combines global and regionally differentiated processes, and integrates these with local striking power and operational excellence.

    Leading companies recognize the need for integrating tax in their business planning and decision processes

    Whether companies seek to enter new markets or drive efficiencies in mature markets, leading companies understand the complexities of the international tax systems. The impact of both direct taxes and indirect taxes needs to be carefully considered and integrated to drive the effectiveness of the operating model while complying with all applicable local and international tax laws and effectively manage all tax risks. Operating model effectiveness is becoming one of the cornerstones of successful competition and differentiation.

    Our approach

    The EY TESCM offering helps ensure you do just that. Our advisory and tax professionals operate as one team to assist our clients with developing and implementing operating model optimization where business needs and requirements are the driver while making sure that tax is an integrated part of the design of the operating model architecture.

  • Managing mobile workforce risk

    In today's globally integrated, tightly regulated and increasingly competitive business environment, one critical success factor stands out: people. People represent an organization's most significant investment and offer a tremendous opportunity to gain a competitive advantage.

    Where the leading companies are focusing their efforts

    • Attracting and retaining the right people
    • Global talent deployment and mobility
    • HR and payroll effectiveness
    • Risk, governance and compliance

    Managing the risks of mobile employees

    While optimizing the competitive advantage of your people has long been a core objective, a more recent set of trends in the tax landscape means that large companies with an internationally mobile workforce are at a higher risk of tax noncompliance and resulting controversy than ever before.

    The business and tax landscapes that have changed so much over the last few years continue to shift. The pace of globalization is increasing, and the global financial crisis has acted as a catalyst to both globalization and business transformation, with many emerging markets now seeing faster growth than before the crisis.

    Alongside these megatrends, a variety of underlying issues are converging, resulting in a growing set of risks for multinationals who have globally mobile employees. While companies may closely define and execute their formal expatriate assignment policies, business travelers outside the scope of such formal policies are widely accepted to be creating a new set of risks for companies to manage.

    Unintended tax compliance obligations

    These travelers are increasingly creating unintended tax compliance obligations, and the resulting risks are not just personal. They are increasingly felt at the corporate level, with the corporate tax function often unaware of the extent of the spreading problem. Tax administrations are becoming increasingly aware of the issue, however, and are very effectively using new technology to identify where a tax obligation has arisen. In a rising tax enforcement landscape, this issue has significant potential to grow.

    Managing these risks should be a burning platform issue for multinational companies.

    A burning platform?

    What may start as a relatively simple personal income tax compliance issue can quickly create a ripple effect, with risks such as the creation of a permanent establishment, an employment tax audit or the payment of a significant related penalty all occurring at the corporate level.

    At the same time, the pace of legislative change (such as the increasing enforcement of permanent establishment) is actually speeding up. Countries are using this type of legislation to increase overall levels of tax revenue.

    As governments continue to look for ways to widen the tax base, they are likely to learn from one another in fora such as the OECD's Forum on Tax Administration, CIAT, CIOT and SGATAR and quickly replicate the processes and technologies used. As they do so, we will likely see penetration of this issue into a broader number of companies of smaller size.

    Companies, recognizing the spectrum of reputational, personal and financial risks related to tax, are making strong efforts to be compliant. There is an increasing acceptance that such issues are becoming increasingly urgent from both a reputational and a financial perspective.

    How we are helping companies

    Our Human Capital network embeds processes and technology that will help companies to identify and manage STBT-related risks before they occur. Where controversy has already arisen, EY's global Tax Controversy network can use our insights into the culture and processes and relationships with each key tax administration to remediate issues. With prior year issues being rapidly unearthed, and with tax administrations focusing on this issue more than ever before, the time to act is now.

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