Tax controversy is a global issue – is your company ready?

By

Rob Hanson

EY Global Tax Controversy Leader

Frequent lecturer on legislative and regulatory tax policy issues.

5 minute read 16 May 2018
Related topics Risk Tax Trust

Global connectivity means it’s easier today for companies to be faced with tax controversy. How can you manage the risk?

Governments worldwide are collecting and sharing taxpayer information at a rapid pace. At the same time, tax policy and legislative changes in one jurisdiction - like, for example, the United States’ enactment of tax reform - can trigger changes across the globe as countries seek to remain competitive and protect their tax base. Tax has become increasingly connected and companies must act so that their people, policies and systems are keeping pace.

95% of organizations expect their tax risk profile to rise

Tax controversy: a typical picture

How are companies experiencing this interconnectivity? Take, for example this increasingly common scenario. A multinational firm is confronting many tax controversy challenges around the globe including:

  • A transfer-pricing dispute with the German Federal Central Tax Office
  • Argentine authorities that are considering revoking an operating license
  • A Southeast Asian nation preparing to “name and shame” the company in the newspapers
  • Several ongoing contentious disputes in multiple jurisdictions where the company has operations

In addition, the company is about to undertake a corporate restructuring in Russia, adding another layer of tax exposure. By the end of the year, this organization is facing controversies with dozens of different tax authorities – and its leadership is looking to the vice president of tax for a strategy to manage and resolve existing controversies and to mitigate future controversies.

The company is experiencing first-hand how the tax information collection and sharing process has accelerated, triggering an increase in tax controversy. Governments worldwide are collecting more from corporations, and they are using a combination of multilateral transparency reforms, digitization, vast data collection, and enhanced data analysis to identify and act on tax issues.

There is cross-industry concern about inconsistent tax positions

Connectivity – amplified

This increased information sharing and interconnectivity means that tax controversy in one country can now quickly spread and intensify as tax authorities collaborate across borders. Collaboration is being aided by digitization and the volume of information gleaned from country-by-country reports and the master file that large companies must submit to all relevant tax authorities.

Enhanced tools are allowing tax authorities to develop a more comprehensive global picture of companies’ operations, employees, sales, intangibles and tax transactions. They are also marking the “slow death” of the annual cycle that once framed the tax function. While companies still file an annual tax return that is still viewed and evaluated only by a tax authority, making that tax data available to the public is under consideration in several jurisdictions, and the traditional tax return may eventually give way to real-time reporting.

The result is that tax controversy is rapidly evolving from two-sided disputes in specific countries into a multi-dimensional, multi-country dynamic. As noted by EY Global International Tax Services Leader Alex Postma: “In a world of increased information sharing among tax authorities, aggressive tax enforcement and associated reputational risks, maintaining a global perspective on all the jurisdictions in which your business operates is critical.”

Customs border

In this environment, companies need a holistic end-to-end approach to tax controversy that provides a line of sight into the issues at stake and the potential for future conflicts. They need a centralized strategy for managing tax controversy that includes deploying policies on a globally consistent basis. Should disputes arise, having resources that can act as a “bridge” between the tax authorities and the company is essential, helping them navigate complexities and resolve matters quickly and efficiently.

While executives increasingly indicate they understand this, the numbers show there is still more work to be done. In EY’s global 2017 Tax Risk and Controversy Survey, which gathers the views of tax and finance executives in 69 jurisdictions across more than 17 industries, 46% of respondents said they have no visibility over active tax disputes.[1]

Transparency and enforcement changes are making tax controversy management more important

*Figures do not sum due to rounding.

This need for visibility isn’t limited to the tax department. “Tax risk has become a primary concern for the C-suite and for boards. There is more interest than ever in preventing disputes, containing the ones that do arise and resolving issues quickly,” says Rob Hanson, EY Global Tax Controversy Leader.

Managing the risk: steps to take now

  1. Adopt a top-down, end-to-end global approach to tax controversy with policies and procedures that facilitate oversight and early identification of global tax controversies
  2. Determine whether you have the right people, with the right skills, in the right jurisdictions to prevent, manage and resolve tax controversy issues – these individuals must understand how addressing an issue in one jurisdiction can trigger controversy in  another
  3. Evaluate whether existing systems can provide a complete picture of tax controversies in all jurisdictions in which you operate
  4. Integrate tax with business planning to facilitate proactive management of tax controversy that takes into account a company’s entire tax footprint
  5. Stay connected with global legislative, regulatory and tax administration changes

As we continue to shift from a world of separate relationships to a connected one in which data is shared and authorities exchange information in real time, successful companies will be those that remain nimble and open to new ways of thinking about tax, tax data, and tax controversy management. Because companies cannot opt out of this increasingly interconnected tax environment, the time to act is now.

EY’s Connected Tax spotlights the rise of the tax function as a strategic boardroom partner. We help you link the broader business and its stakeholders, tax authorities and the data and information that are transforming business models. Learn more here.

At EY, we’re helping companies navigate this interconnected global tax environment. The EY Global Tax controversy Network spans 85 countries and is made up of over 1,300 tax controversy and transfer pricing professionals, many of whom are former government officials. This deep knowledge allows us to help bridge the gap between where tax authorities are moving and how companies have managed tax controversy in the past. Discover more here.

[1] EY 2017 Tax Risk and Controversy Survey. 

Summary

In an interconnected global tax environment, successful companies will be those that remain nimble and open to new ways of thinking about tax, tax data, and tax controversy management.

About this article

By

Rob Hanson

EY Global Tax Controversy Leader

Frequent lecturer on legislative and regulatory tax policy issues.

Related topics Risk Tax Trust