2014 tax risk and controversy survey highlights
Our survey of 830 tax and finance executives in 25 jurisdictions, completed in January 2014, indicates that the tensions described in our previous reports pale compared with the tax risks that companies are experiencing and anticipating. Eighty-one percent of all companies surveyed agreed or strongly agreed that tax risk and tax controversy will become more important for their companies in the next two years.
The results of this survey offer a glimpse of the hazards that must be overcome in order to safely navigate the next steps of the journey. It is clear that many companies may wish to consider enhancing their preparations and their tools in order to bridge the divide between current and future risk management frameworks.
Our survey reveals four major sources of tax risk:
are somewhat or significantly concerned about the media coverage of the taxes some companies are paying or their seemingly low effective tax rates.
Our survey shows just how rapidly reputation risk has become a key concern. Companies need to act deliberately and assertively to manage this complex and sensitive issue rather than being put in a situation where they must react to reputational challenges from a defensive posture.
BEPS and legislative risk
Concern about the outcomes of the BEPS project pervaded our survey responses. To that end, much attention has focused on the OECD BEPS Action Plan. But unilateral actions by individual governments may be an even bigger source of risk, with the potential to create “global tax chaos” that both OECD and businesses want to avoid.
felt that tax administrators are now challenging existing structures due to changes in the law or changes in their enforcement approach.
felt that tax audits had become more aggressive and frequent in the last two years.
Our survey indicated more aggressive, focused tax enforcement and a sense that mutually constructive relationships between taxpayers and authorities may be becoming strained.
Our survey indicated that as pressures continue to build, many companies may lack the appropriate resources to effectively manage the first three issues. This growing operational risk spans people, processes and technology.
cited insufficient resources to cover tax function activities as their leading source of operational risk.
The divide between current and future tax risk management models will not be easy to bridge. Enterprises will need to flawlessly execute a well thought-out, well-resourced strategy, and at the same time remain flexible enough to deal with today’s changing weather conditions.
Some of these short-term actions may include:
- Assessing how the company will comply with new transparency demands, such as country-by-country reporting and transfer pricing documentation requirements, without inviting unwarranted challenges to previously taken positions and without consuming so many resources that oversight of other tax areas is sacrificed.
- Determining your tax function readiness in terms of the key components of the BEPS Action Plan.
- Assessing whether your company’s current and previous transactions will stand up to increased business purpose requirements — however arbitrary those requirements may seem to be.
- Making sure your company has the right tools in place — such as APAs, rulings or pre-filing agreements — to manage the impending weather changes.
- Making sure your company has better visibility and control of any active disputes or uncertain tax positions around the world.
- Making sure your company has the right resource levels in place to deal with all required tasks.