Multinationals Facing Tougher Challenges as Economic Instability Persists Worldwide
The economic instability witnessed across the globe over the past few years has resulted in a number of shifts in global tax systems, largely driven by the need of governments to drive revenues. Systemic changes are occurring for both governments and multinationals as authorities look to generate economic activity and then tax it to the full extent. These pertinent tax topics were discussed today at a global tax conference for multinational companies, held in Madrid by Taxand, the world’s largest independent global organisation of specialist tax advisors to multinational businesses.
Amongst these trends is a move towards using indirect taxes, such as VAT, as an efficient means to manage tax receipts and an effective fiscal tool. This move has been evident in Asia, illustrated by the adoption of GST in Malaysia and India, a major shift in the tax regimes of these jurisdictions.
Another trend has been the lowering of corporate tax rates, as countries look to attract business – though this is only half the story. Once investment has been achieved, governments are then ensuring the maximum amount of tax is being paid, creating a mounting challenge for multinationals. Governments are becoming more sophisticated in their approach, with more focused strategies to tax multinationals.
The drive for revenue by governments across the globe is also being characterised by shifting strategies on Permanent Establishment – the taxing of foreign revenues through a parent company - and Transfer Pricing. In some cases, this has been characterised by corporate revenues being taxed two, or even three, times. Information exchange and the raft of inter-country treaties that have been implemented have made these areas of tax even more complex for multinationals. This has been accompanied by rising compliance, regulatory burdens and tougher tax audits.
In Asia, tax systems are also evolving, with the region no longer seen as a corporate tax paradise. Tax ‘holidays’ are a decreasing trend, previously seen as a way to support employment and GDP growth. Asian governments have become much more selective in their implementation of these holidays, leading to some concerns around damage to the long term investment climate.
Although the future faces significant uncertainty, a number of predictions were made including the evolution of Europe to create a central approach to tax collections and the imposition of uniform tax compliance standards. Also, although tax authorities may reduce in size they will no doubt become more effective and exchange information across borders, radically changing the relationship between business and government. It’s clear that multinationals are facing unprecedented change at a truly rapid speed.
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