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East heads West in the stumble towards international tax harmonisation

East heads West in the stumble towards international tax harmonisation
15 May 2014

As Asian markets react to international developments, future tax policy trends across the region are likely to reflect those seen in Western societies. How multinationals can prepare was discussed today at the Taxand Global Conference hosted by Taxand China in Shanghai today.

Frederic Donnedieu de Vabres, Chairman of Taxand, the world's largest global organisation of tax advisors to multinational businesses, provides an overview of the session presented by Veerinderjeet Singh, Taxand Malaysia , Gokul Chaudhri, Taxand India and Craig Milner, Taxand Australia:

“The global landscape is changing. Tax authorities are becoming more aggressive in their investigations, with some less inclined to negotiate with multinationals before seeking litigation action, as witnessed in India when Nokia’s plant in Chennai was seized over unpaid taxes. A greater emphasis on tax audits and participation in global tax information networks confirms that authorities have set higher tax revenue targets and are reaping the rewards of greater scrutiny of company tax structures and tax liabilities. China alone saw its amount of unpaid taxes by multinationals recovered jump from 460 million yuan in 2005 to 34.6 billion yuan in 2012.

The heightened scrutiny of multinationals’ tax contributions isn’t an issue just in the West. Corporate tax now plays a key role in news agendas across the world as the issue creeps from West to East. It’s therefore unsurprising that tax has become a crucial element of multinationals’ business strategy with reputations and profitability now at stake right across the world. Taxand’s global survey of multinational CFOs established that 70% see corporate tax on board agendas, with the year ahead promising to be as important as the last as legislative change is set to continue.

News this week that Australia is reducing its corporate tax rate isn’t an isolated incident. A growing trend is emerging as countries look to personal taxes, rather than corporate, to raise tax revenues. Some jurisdictions are likely to embark on a ‘race to the bottom’ to offer the lowest tax rate or incentive to compete for investment or boost their profile within particular industries.

As governments aim to use taxes to fill deficit holes, some may be confused by the growing trend to reduce corporate tax rates. From a national perspective, corporate tax rates aren’t static and therefore cannot be seen as a reliable source for revenue. VAT and GST are now the subject of focus as an easier and quicker way to fill government coffers.   

The world’s attention has now turned to the OECD’s BEPS initiative and whilst, substantial questions remain over its outcomes, those operating in the Asia Pacific region must pay greater attention to the OECD and the direction of BEPS, as their influence in the region grows. This coupled with the swing of the pendulum towards an intensive focus on tax planning by governments across the region and the world means that the rate of change is reaching ‘warp speed’. Multinationals must stay on top of this change and prepare for ever greater transparency in order to protect their brands for the future."

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Taxand's Take

“What we’re seeing is a global phenomenon taking place meaning multinationals need to take a global perspective of tax risk controversy and develop global resources and systems to manage it. Wherever possible multinationals need to anticipate and respond to global initiatives, regulatory and tax administration changes and ensure that tax is part of corporate governance policy.”

Taxand's Take Author