Our recently updated guide covers even more countries than before. Gain insight into each country's tax system as well as recent corporate tax developments.
Read the latest issue of Under the Spotlight (June 2013), our tax controversy and risk management magazine.
We look at both the issues and opportunities that multinational companies face in doing business in emerging and fast-growing economies. Get our insights.
How will detailed changes in indirect taxation affect your business operations? See updates in more than 100 countries worldwide.
The pace of tax policy, legislative and regulatory change continues to accelerate globally. See our six-point plan to help you manage these ongoing changes.
With the debate around ‘fair tax’ raising reporting expectations, we look at how Boards can prepare for first time tax transparency reporting.
5 challenges of the brand new order in consumer products & how CFOs can address them.
Read all the latest news, thought leadership and opinion on the Chancellor's Budget.
How will the detailed changes in indirect taxation affect your business operations? See updates in more than 100 countries worldwide.
2013 Worldwide corporate tax guide
Under the spotlight: June 2013
Managing indirect taxes in rapid-growth markets
Global indirect tax developments: the shift in 2013
The outlook for global tax policy in 2013
Tax Transparency: Seizing the initiative
CFO Disrupt or be distrupted: the CFO perspective
Indirect tax: with change comes complexity
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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:
Budget Alert 2013
The Budget Alert is based on the Budget Speech presented to the House of Commons by the Chancellor of the Exchequer, the Rt Hon George Osborne, on Wednesday 20 March 2013, and on related Government announcements.
Finance Bill Alert
Finance Bill 2013 (271K, April 2013) reflects two sides of the Government's tax policy – the need to encourage investment and entrepreneurs, and ensure taxation is paid in line with policy.
Infrastructure and Construction Alert
Looks at measures discussed in the Chancellor’s Budget of particular relevance to the infrastructure and construction sector 193K, March 2013.
Highlights key Budget measures of interest to those in the banking industry 226K, March 2013.
Asset Management Alert 235K, March 2013
Looks at measures discussed in the Chancellor’s Budget speech, as well as those detailed in supplementary documents released later.
HR and Tax Alert
Looks at measures discussed in the Chancellor’s Budget relevant to internationally mobile employees and their employers 151K, March 2013.
Ernst & Young ITEM Club Budget Reaction
The Budget should help lift the gloom of a very bleak economic backdrop, says the ITEM Club 105K, March 2013.
Tax avoidance and Government contracts
The Budget confirmed that, from 1 April 2013, new rules will require potential suppliers under Government contracts to certify non-involvement in certain tax avoidance arrangements 382K, March 2013.
Oil and Gas Alert
The Chancellor's Budget confirmed that in 2013 oil and gas companies (173K, March 2013) will be able to enter Government contracts for decommissioning relief at specific levels.
Keeping the UK open for business
Our thought leadership paper (534K, March 2013) considers the extent to which the Chancellor’s ‘Corporate Tax Roadmap’ is still on track, and how he could use the Budget to fix any potential bumps in the road.
Ernst & Young ITEM Club Budget Preview
In its Budget preview, ITEM says the UK will escape further austerity, but is calling for investment in infrastructure and housing to boost short term growth.
Budget Alert 2012
The Budget Alert is based on the Budget Speech presented to the House of Commons by the Chancellor of the Exchequer, the Rt Hon George Osborne, on Wednesday 21 March 2012 and on related Government announcements.
Budget web seminar, 22 March 2012
Ernst & Young tax partners Chris Sanger and Patrick Stevens, and the ITEM Club's Andrew Goodwin, provided their immediate insights on the changes and proposals which came out of the Budget.
View online | MP4 download | Presentation slides 320K, March 2012
Alternative Asset Management Alert 173K, March 2012
Asset Management Alert 170K, March 2012
Banking Alert 457K, March 2012
HR and Tax Alert 228K, March 2012
Infrastructure and PPP PFI161K, March 2012
Insurance Alert 163K, March 2012
Real Estate update 163K, March 2012
Worldwide Debt Cap 164K, March 2012
Finding the balance: Creating a broader roadmap for the UK tax system
With the 2012 Budget fast approaching, this paper considers what has worked so far and where there is more to be done 557K, March 2012
Listen to our podcasts: Ernst & Young tax partners Chris Sanger and Patrick Stevens provide their Budget 2012 predictions.
Corporate taxes: View online | MP4 download
Personal taxes: View online | MP4 download
For more information, please call our Budget hotline on +44 20 7951 5000
Read the latest thought leadership, news, and alerts relating to the Chancellor's Autumn Statement and the Draft Finance Bill 2013.
Updated 2012-13 tax tables
Download our 2012-13 tax tables (1.68 MB) which contain personal, corporate and indirect tax rates.
Publications and alerts
Read our Budget publications and industry alerts.
Midweek Tax News
A weekly update on tax matters to 18 June 2013
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 Ernst & Young contact.
G8 summit: Lough Erne communiqué
At the summit which closed on 18 June, the G8 leaders committed to agree to further transparency on the sharing of tax information. Their communiqué announced that they will move to establish the automatic exchange of information between tax authorities as the new global standard and will work with the OECD to develop a model for this. Other developments on information exchange are covered below.
The G8 leaders also stated their support for the OECD's work to tackle tax avoidance by multinational companies. In their communiqué, the G8 agree to work together to address base erosion and profit shifting, and to ensure that international and their own tax rules do not allow or encourage any multinational enterprises to reduce overall taxes paid by artificially shifting profits to low-tax jurisdictions.
The G8 called on the OECD to develop a common template for country-by-country reporting to tax authorities by major multinational enterprises, taking account of concerns regarding non-cooperative jurisdictions. This, it is believed, will improve the flow of information between multinational enterprises and tax authorities in the countries in which the multinationals operate to enhance transparency and improve risk assessment. In his closing statements, the Prime Minister expressed the view that this will give governments a new tool against tax avoidance by multinationals and will be particularly helpful to the governments of developing countries.
As part of a commitment that developing countries should have the information and capacity to collect the taxes owed them, the G8 stated that they would support the OECD's feasibility study for its ‘Tax Inspectors Without Borders’ proposal and asked the OECD to find ways to address the concerns expressed by developing countries on the quality and availability of the information on comparable transactions that is needed to administer transfer pricing.
On the specific issue of the extractives sector, the G8 will take action to raise global standards for extractives transparency and make progress towards common global reporting standards, both for countries with significant domestic extractive industries and the home countries of large multinational extractives corporations. Under such common standards companies would be required to report on extractives payments, governments would take steps to ensure disclosure compliance and those governments that wish to move towards the Extractives Industries Transparency Initiative standard will voluntarily report their revenues.
Tax transparency: Ownership proposals
Ahead of the G8 Summit of 17 June, the Government announced that it intends to introduce new rules requiring companies to obtain and hold information on ‘who owns and controls them’. This was subsequently followed by the publication of a ‘UK action plan’ to prevent misuse of companies and legal arrangements. This action plan fits with the G8's overall endorsement of a number of core principles in this area. The G8 sees these core principles as fundamental to providing the necessary transparency and essential to ensuring the integrity of beneficial ownership and basic company information and the timely access to such information by the relevant authorities.
The action plan commits the UK to ensuring that the Companies Act 2006 and UK money laundering regulations oblige companies to know who owns and controls them, by requiring that companies obtain and hold adequate, accurate and current information on their beneficial ownership. It also commits the UK to amending the Companies Act 2006 to require that this information is accurate and readily available to the authorities through a central registry of information on companies' beneficial ownership, maintained by Companies House. The UK will consult on whether information in the registry should be publicly accessible.
There are, as yet, no details as to how complete the information requirement will be, for example, where a company's shareholders include a nominee company, whether the requirement will extend to identifying the ultimate beneficiaries of that nominee company. A pre-consultation paper will be issued as part of a review of corporate transparency, including bearer shares and nominee directors. This review will be carried out by the Department for Business, Innovation and Skills and the paper issued before September 2013.
Tax transparency: Information exchange
On 12 June 2013, the European Commission proposed an extension to the types of information exchanged automatically between national tax administrations of the EU Member States, as part of the EU's fight against tax evasion. Under the proposal, dividends, capital gains, all other forms of financial income and account balances would be added to the list of categories which are subject to automatic information exchange within the EU. This would result in all EU Member States sharing as much information between them as a number of them have already committed to provide to the US under the Foreign Accounts Tax Compliance Act.
The proposal builds upon the Directive on Administrative Cooperation which entered into force on 1 January 2013. This directive included the automatic exchange of information (if available) on five categories of income and capital from 1 January 2015. These categories are income from employment, director's fees, life insurance products, pensions, and ownership of and income from immovable property.
Under European Union processes, the Commission will now submit its proposals to the Council and the European Parliament. For more information please see our Global Tax Alert.
Separately, HM Treasury also announced that all the British Overseas Territories and Crown Dependencies have now signed up to action plans in relation to tax transparency and exchange of information. Those territories have agreed to join the multilateral convention on the sharing of tax information.
Fair tax debate
On 13 June, the Public Accounts Committee (PAC) published its 9th report of its current session, entitled Tax avoidance - Google. The report is based on evidence from recent hearings and has attracted considerable media attention.
The PAC took the view that international tax rules are complex and have not kept pace with global internet businesses. It considers the UK should take a leading role in modernising international tax law and tackling aggressive avoidance, as well as pushing for international tax transparency to enable a fair share of tax to be collected on profits generated in each country. The PAC also believed that HMRC had not been sufficiently challenging of multinationals' ‘artificial’ arrangements.
The indications are that the PAC is intending to turn its attention next to the tax arrangements of those companies involved with Government contracts.
Separately the House of Lords Economic Affairs Committee took evidence on 18 June from officials from HM Treasury and HMRC as part of their inquiry into corporate taxation. The Committee enquired into the Chancellor's proposal to ‘name and shame’ promoters of tax avoidance schemes, statements from HMRC that it had recovered £23bn in additional tax from big business in the last three years and whether the distinction in the tax code between debt and equity should be reviewed.
Also on 13 June, the first report from the Fair Tax Campaign was published. The report scored 25 well known British retailers across three categories:
• Whether the group undertakes country by country reporting
• How close the current tax paid is to the official rate (no account is taken of deferred tax)
• Whether any use is made of tax havens for tax avoidance purposes
There are a number of assumptions open to challenge in the report's methodology. Although this report focuses on retailers, it is expected that the campaign will move on to other sectors.
Real estate investment trusts (REITs): Response to consultation
On 20 March, the Government launched a consultation to assess the potential appetite for including REITs as ‘institutional investors’ and the potential tax risk of such a measure. A number of specific questions were asked by the consultation document, including the impact on new investment (including foreign investment).
This is a change that we have been calling for over the last few years, and as such, we strongly support the proposal to include REITs within the definition of institutional investors. A copy of our response to the consultation is available from your usual Ernst & Young contact.
Real time information (RTI): Ongoing issues
Most employers have now been operating PAYE under RTI for a couple of months and many larger employers will do so over the next few months.
Our Employment Tax Alert highlights some of the recent issues we have seen. These include:
• PAYE codes: An issue has been identified with employees being issued with incorrect tax codes, such as benefits being omitted, due to procedural errors in the submission of RTI returns. HMRC is advising employers in some cases to ignore the codes issued.
• ‘On or before’ rule and payment dates: HMRC had issued guidance setting out a number of relaxations to the strict rule that RTI submissions should be made on or before the date that earnings are paid. Broadly, the guidance confirmed that an employer would not be penalised for a technically late full payment submission. However, the guidance does not address the question of whether there is any linked relaxation to the date when the related PAYE is paid.
• Software challenges: Some employers are also facing various software challenges when operating RTI. A particular example is employers not being able to take into account foreign tax credit in RTI submissions
Consideration of the case for extending the VAT exemption to commercial providers of higher education
HMRC has published the results of the public consultation (launched in September 2012) on the case for extending the VAT education exemption to commercial (ie for-profit) providers of higher education. At Budget 2012, the Government announced that it would review the VAT treatment of higher education, particularly at university degree level, to ensure that commercial bodies supplying courses similar to those supplied by universities are treated fairly. In this regard, the consultation outlined two options and sought views on whether commercial bodies considered the options to be workable.
In the summary report of the outcome of the consultation, HMRC advises that a total of 28 responses were received. Whilst commercial organisations favoured widening the scope of the exemption, they felt that HMRC's proposals did not go far enough. There was a general concern that, whilst efforts were being made to widen the choices for students at higher education level, the proposals did not actively address other equally important areas of education, such as vocational training and further education. In view of the lack of support for either of the options put forward, HMRC acknowledges that consideration needs to be given to alternative options and that further work is required before any changes can be made to VAT legislation. Whilst no decision has yet been made on whether to extend the VAT exemption to cover commercial providers, HMRC advises that there may be a further consultation later this year seeking further views on the case for change and how this might be implemented.
Any commercial providers of higher/further education or vocational training may wish to keep abreast of developments in the consultation process.
Other UK developments
Finance Bill 2013
Consideration of Finance Bill 2013 by the Public Bill Committee reached clause 178 (rates of alcoholic duties) at the close of 13 June. As of that date the following Government amendments/new clauses had been tabled but not yet discussed by the committee (although some of these will have been covered in the session of 18 June, a transcript of which should be available shortly).
• Measures to include a further specific stamp duty land tax avoidance scheme within the proposed avoidance legislation in section 192
• Amendments to the proposals for trusts with vulnerable beneficiaries
• Amendments to Schedule 43 (statutory residence test) and Schedule 44 (ordinary residence)
• Amendments to clause 219 on exchange of information
• A new provision in respect of contribution allowances covering plant and machinery
As a means to open a debate, an opposition amendment to clause 219 seeks a review of the effects on the Treasury's tax receipts of incorporating a global standard for public registration of ownership of companies and trusts via a convention on tax transparency. This includes a requirement on companies to publish a single easily comparable figure for the amount of corporation tax they pay in the UK. A similar amendment in respect of the impact of tax schemes on developing countries has been tabled to clause 220.
The Public Bill Committee sessions are due to complete on 20 June. There is, as yet, no indication as to when the third reading will take place.
Repair or improvement
In the First-tier Tribunal case of Hopegar Properties, the taxpayer successfully argued that a significant proportion of works undertaken to repair a small percentage of an access road, a car park and footpaths were revenue in nature. Key points covered in the Tribunal's judgment were:
• The identification of the entirety of the asset is important. HMRC has accepted in its guidance the concept of ‘entirety’ to distinguish revenue, repairs and capital expenditure. HMRC accepts that the replacement of an entire asset is capital but if less than the entire asset is replaced then it is likely to be revenue expenditure.
• The fact that repairs involve the replacement or renewal of some or part of the asset does not make the expenditure capital. This includes improvements with new materials. The fact that more modern materials were used did not influence the characterisation of the expenditure. On the basis that there was no increased functionality in the asset following the works, they were essentially done to repair the road etc and not to produce something entirely new.
• There were individual heads of repair relating to particular assets and accordingly, it was incorrect to import an overall purpose of improving the site as the reason why the work was undertaken. As such, there was no ‘scheme of works’ and the capital, non-allowable element of the expenditure could be identified and separated out from the amount qualifying as repairs.
• It was accepted that it is possible to have repairs which obviate the need for patching-up but that does not change the character of what was done. The Tribunal stated that it would be nonsensical if the tax system gave relief for patching-up but not for repairs which resulted in the taxpayer not having to do the patching up.
UK/Netherlands double tax treaties
A protocol to the 2008 double tax treaty between the UK and the Netherlands was signed in London on 12 June. The protocol brings Article 7 (Business Profits) into line with the OECD model convention. It will enter into force once both countries have completed their legislative procedures.
On the same day a Double Taxation Convention (Bank Taxes) was also signed by the two countries covering double taxation and fiscal evasion with respect to the UK bank levy and the Netherlands bank tax. It, too, will enter into force once both countries have completed their legislative procedures.
The UK – number one for European headquarters
A new brochure has been published by the UK Trade & Investment Department entitled The UK – number one for European Headquarters. The brochure is designed to stimulate investment in the UK and includes a number of tax references, including a section on competitive taxes.
Ernst & Young's recent UK attractiveness study confirmed that the UK remained Europe's top destination for foreign direct investment projects in 2012, and that the UK secured more investments and a higher market share than in 2011, demonstrating a clear improvement. The survey also showed that investors feel the UK has improved its environment for inward investment through:
• A more flexible financial system
• An effective policy framework to support businesses to set up operations
• Facilitating trade missions
• More investment incentives in key industries and promotional campaigns targeting high-employment sectors
The UK's tax treaty priorities
HMRC has provided details of its programme of work for the year ahead to 31 March 2014. It plans to begin negotiations on double tax treaties and protocols with Bulgaria, Sweden, Tajikistan and Tanzania. It also plans to take forward work on double tax agreements and protocols with Austria, Belgium, Canada, Croatia, Germany, Iceland, Japan, Kosovo, Malawi, Panama, Portugal, Russia, Senegal, Thailand, Turkmenistan, the USA and Zambia. On tax information exchange agreements it will move forward with discussions with Andorra, Macau and Monaco.
Other international developments
US: Discussion on base erosion and profit shifting
On 13 June, the House Ways and Means Committee hearing on ‘tax havens, base erosion, and profit shifting’ focused on whether base erosion options (as set out in the autumn 2011 international tax reform discussion draft, particularly Option C relating to the treatment of intangibles income) can mitigate concerns over profit shifting as part of a potential move towards a more territorial system of taxing foreign earnings. Other themes running through the hearing included the extent to which the current system encourages foreign profits of US companies to be kept offshore and how that situation would be affected by changes in the tax system, and the topic of ‘stateless income’ perceived to escape tax by both the country of residence and the source country.
During the hearing, Republican members tended to focus on the benefits a shift towards a more territorial system that includes an Option C type of approach for preventing base erosion would have on the economy and on the competitiveness of US companies, particularly if such a reform were accompanied by a lower US statutory tax rate. Many Democratic members, in contrast, continued the scrutiny of tax planning techniques utilised by US companies that were highlighted in last month's Senate Permanent Subcommittee hearing, and suggested that moving to a more territorial system, even with an Option C approach, could exacerbate rather than solve the problems of current law.
Spain: Measures to boost the Spanish economy, including changes to ‘patent box’
The Spanish Government published a draft bill, dated 24 May 2013, which contains a number of measures that aim to bolster the Spanish economy and to boost investments in small- and medium-size companies. This draft bill has only just been published, and may undergo changes throughout the approval process.
Included in the draft bill are changes to the ‘patent box’ regime which provides for a partial exemption for income derived from the licensing of certain qualifying intellectual property (IP) rights. An increase in the exemption percentage from 50% to 60% is proposed, but the exempt amount would then be calculated on the net income generated by the assets (currently the exemption is calculated by reference to gross revenue). The draft bill also proposes to extend the exemption to income from the licensing of IP assets acquired from third parties and to extend the exemption to capital gains deriving from the transfer of the IP assets to an unrelated party. Our Global Tax Alert has more details on this and the other proposals in the draft bill.
Russia: Guidance on the deductibility of loan interest
Russia's Ministry of Finance has long expressed the view that interest on loans taken out by Russian companies to finance contributions to the capital of subsidiaries or the acquisition of shares (including shares in foreign companies) is deductible for profits tax purposes.
However, in practice, the position has been open to doubt. While, generally, the courts have followed the position of the Ministry of Finance, there have been instances of the court ruling that the taxpayer cannot deduct such interest on the basis that such loans were not directly connected with the taxpayer's business activity and the taxpayer was unable to prove that such loans were aimed at receiving profit.
The Ministry of Finance has now issued another letter on this issue which confirms that the taxpayer has a right to deduct such interest subject to certain conditions being satisfied. Our Global Tax Alert considers those conditions and how to approach them in practice.
China/Netherlands double tax treaty
On 31 May 2013, a new tax treaty was signed between the Netherlands and the People's Republic of China. When it enters into force it will replace the current tax treaty, which was introduced in 1987.
The new treaty contains certain updated and improved provisions, including in respect of:
• Dividends: The new treaty provides for a reduced source country tax on dividends of 5% (currently 10%). This 5% applies in situations where the beneficial owner of the dividends is a resident company of one of the contracting states and directly holds at least 25% of the capital of the company paying the dividends in that other contracting state.
• Capital gains on shares: The new treaty contains provisions in relation to the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property and more generally on participations of at least 25% of the share capital.
• Permanent establishment: There are changes to the definition of a permanent establishment and to the determination of the profit of such a permanent establishment.
• Anti-abuse: The new treaty includes anti-abuse provisions for dividends, interest and royalties. In addition, article 23 of the new treaty, confirms that the treaty and its provisions shall not prejudice the right of each contracting state to apply its own domestic anti-abuse rules.
More detail is available in our Global Tax Alert.
Please speak to your usual Ernst & Young contact, or email us at email@example.com, if you would like to receive a copy of our regular indirect tax newsletter, or information about our other publications.
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 Ernst & Young contact.
G8 summit: Lough Erne communiqué
|+ 44 20 7951 0150|
Tax transparency: Ownership proposals
|+ 44 20 7951 4032|
Tax transparency: Information exchange
|+ 44 20 7951 3318|
Fair tax debate
|+ 44 20 7951 2486|
Real estate investment trusts: Response to consultation
|+ 44 20 795 15795|
Real time information: Ongoing issues
|+ 44 20 7951 0102|
Consideration of the case for extending the VAT exemption to commercial providers of higher education
|+ 44 20 795 16531|
For other queries or comments please email firstname.lastname@example.org.
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.
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 areworking 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 Ernst & Young'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.
2011 Tax policy outlook around the world
As tax authorities adapt their enforcement in response to changing business dynamics, so must taxpayers. One key is the knowledge of alternative dispute resolution tools.
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
Building tax effective supply chains
Today’s business environment for large, global companies is more fluid and complex than ever before. Companies are adapting their supply chains to respond to increasingly competitive market conditions and to deliver higher revenue and greater value to their shareholders and customers.
Now, more than ever, multinational companies are expanding their global footprint, to both seek new markets and to capture cost efficiencies. As part of this drive, they are increasingly expanding their supply chains.
With every development in the supply chain comes new costs and new risks to factor in
Alongside the advancement into new markets, leading companies are also further developing their existing supply chains to drive cost efficiencies and boost margins in their mature market operations.
Leading companies recognize the need for comprehensive, proactive planning
But whether it is to enter new markets or to drive efficiencies in existing markets, the new leading companies have one shared characteristic – they fully recognize that carrying out comprehensive, proactive planning across the new supply chain model can maximize the opportunities and mitigate the risks as much as possible.
Only with a truly holistic approach can all supply chain costs - including taxes - be assessed and managed.
The challenge of change
Every day companies face decisions about how to change their operations on a global basis.
The challenge in making such decisions is to look at the problem holistically, considering all facets of the problem. Tax consequences should be a part of the analysis because the tax impact of any business change may be very large and lead to a different result than an operations only analysis.
Often, companies will bring tax planning into the process only after the operational opportunities or alternatives have been narrowed and defined, limiting the effectiveness of the planning. Instead by integrating international tax planning at an earlier stage, different alternatives or operating models may emerge as the most effective overall.
With the integrated approach of our Tax Efficient Supply Chain (TESCM) practice, we can often unlock benefits that would not have been possible if such integration had not been present from the beginning.
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, Ernst & Young'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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