LONDON, May 12, 2014 /CNW/ - More than four out of five (81%) companies surveyed expect already heightened tax risks to accelerate in the next two years. This is according to a new global report by EY, Bridging the Divide, which also finds companies view the potential lack of coordination by national governments around the Organisation for Economic Cooperation & Development's (OECD) Base Erosion and Profit Shifting (BEPS) project as a major risk.
The EY survey of 830 tax and finance executives (including 120 chief financial officers) in 25 countries offers the first quantifiable global sample of how companies around the world view the OECD BEPS project.
Nearly one-third (31%) of all companies surveyed predict the BEPS roll-out will be characterized by relatively limited coordinated action and by increased unilateral action by countries. Three-quarters (74%) of the largest companies surveyed (those with annual revenues in excess of US$5 billion) say they believe some countries already see the very existence of the OECD's BEPS project as a reason to change their enforcement approach before any recommendations have passed into national law. The majority of these largest companies (61%) as a result fear that double taxation will increase in the next three years.
"International companies share the OECD's concern that coordinated action by national governments is necessary to ensure any BEPS-related recommendations are productive," says EY's Global Tax Vice Chair, Dave Holtze. "The OECD can play an invaluable role in preventing what it has called a "global tax chaos" that results in double taxation and increased controversy by pressing for common approaches and consistent standards."
As well as risks relating to BEPS, the survey reveals other sources of tax risks that companies say they are currently experiencing and anticipate facing in years to come:
- The majority of the largest companies (68%) report that they feel tax audits have become more aggressive in the last two years, up from 57% in 2011 when the survey was last conducted.
- Companies are experiencing a harsher enforcement environment from tax authorities, particularly around transfer pricing, which they identify as the top tax risk. Companies ranked indirect tax and permanent establishment challenges as their second and third biggest sources of risk.
- The news media has been an even bigger driver of tax-related reputation risk. Eighty-nine percent of the largest companies are concerned about news media coverage of taxes, up from 60% in 2011.
- Eighty-four percent of the largest companies agree that entering into or operating in an emerging market significantly increases levels of tax risk and controversy risk, up from 67% in 2011.
- For all companies responding, China, India, and Brazil (in that order) are the top three emerging market countries identified as having the most significant potential for risk related to tax.
As a result of these increased risks, 78% of the largest companies agree or strongly agree that tax risk and controversy management will become more important in the next two years. Yet three-quarters of these companies feel they have insufficient resources to cover tax function activities, up from 57% in 2011. Forty-three percent of all companies use no technology or rely on local personnel to manage tax audits and incoming data requests from the tax authorities.
Holtze continues: "Today's global business environment presents a complex assortment of tax risks for multinationals, particularly when operating in markets that may be less familiar. Companies need to get actively engaged on this issue, from ensuring that they have open lines of communication within their own enterprises to making their views known and understood on issues such as BEPS."
Report can be downloaded, with high resolution infographics, here: www.ey.com/taxriskseries
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For further information:
Gregor Ridley, EY Global Media Relations, +44 (0)20 980 0597, [email protected]