How governments approach tax collection is changing

Organizations need a global perspective and policies that cover all jurisdictions in which they do business.

Tax controversy is not a new issue. At any given time, an organization’s tax team may be dealing with disputes in a number of countries around the world. What has changed is how governments approach tax collection.

Until recently, tax administrations had little or no information about an organization’s operations outside of their own jurisdiction. A local tax dispute stayed local.

But tax administrations are going digital, moving to a system in which businesses file data electronically on a regular or even real-time basis, giving governments additional insight into an organization’s tax affairs.

At the same time, governments around the world are adopting tax reforms through which businesses must share more details about their operations, including country-by-country (CbC) reports that list revenue, profits, income tax paid, taxes accrued and employees for each tax jurisdiction in which the organization does business.

The Organisation for Economic Co-operation and Development anticipates that countries will eventually automatically exchange “key indicators” (such as profits, taxes paid, employees and assets of each entity) with each other.

These developments are changing the nature of tax controversy itself, transforming disagreements between a business and its local tax authority into a multi-territory inquiry.

Businesses should prepare now for greater tax controversy going forward. Get ready.

Many businesses are uncertain about their level of knowledge concerning their organization’s tax disputes around the world. In our 2017 Tax Risk and Controversy Survey, almost half of respondents said they have no visibility over active tax disputes.

The chart below shows that most businesses are somewhat, very or extremely concerned that tax transparency initiatives and information sharing could lead to a higher level of tax inquiries.

Percentage of multinational enterprises that are concerned government transparency initiatives and information sharing could lead to a higher level of tax inquiries.