The Increasingly Aggressive Approach To Costly Tax Audits - Multinationals Be Prepared
This need has resulted in heightened scrutiny of multinationals' tax affairs and a more aggressive as well as more sophisticated approach to tax audits by authorities. The burden of compliance is only going to rise. These global tax trends were discussed today at the Taxand global conference hosted by Alvarez & Marsal Taxand US in New York.
Frederic Donnedieu de Vabres, Chairman of Taxand, provides an overview of the session:
"The current trends in global taxation include a sweeping wave of compliance, regulatory requirements, the implementation of the OECD report on Base Erosion and Profits Sharing alongside a push for harmonisation. The development of FATCA legislation from the US, CFC reform and increases in information exchange agreements are also of major impact to multinationals and their tax departments.
Potentially of most concern for multinationals is the rise in audits. Dealing with increasing numbers of tax audits and proving substance puts a strain on any tax department. The latest trend to take a more sophisticated and targeted approach to audits, presents an even bigger challenge for multinationals. We're seeing authorities focusing more on specific taxpayers and specific types of transactions understanding in advance what they want to investigate, and delving deeper.
This trend was highlighted in a recent survey conducted by Taxand, where 78% of respondents agreed they had seen an increase in the number of tax audits in the last year. Moreover 76% confirmed that the requirement for more tax transparency and reporting measures ultimately causes a rise in the cost of compliance.
A tax audit typically involves managing a number of moving pieces but navigating tax audits in multiple jurisdictions is even more challenging. Multinationals must also be wary of inter-country competition for revenue from the same dispute as this increases the possibility of double taxation.
To mitigate this, companies should establish protocols for responding to requests and documenting the status of tax audits as well as ensuring all tax planning is fully substantive. Specific response mechanisms for each jurisdiction will ensure consistent information is provided to all authorities involved. This is especially important given that taxpayer data is routinely exchanged among tax authorities worldwide. Systems that account for changing legislation are imperative to ensure compliance
Multinationals around the world are being forced to operate amidst rapid changes to legislation and mounting scrutiny. This opaque landscape may appear hazardous at first, but with the right preparation and systems in place to capture relevant information, tax audits don't have to be taxing."
Robert N. Lowe, CEO, Alvarez & Marsal Taxand US and conference host said:
"Local governments worldwide are facing severe financial challenges, and as a means of combating further dire financial straits, they are ramping up their auditing processes to recover unidentified revenue sources. Having the appropriate accounting protocols in place is now more important than ever for tax executives. Increasingly our clients are seeing a greater need for tax infrastructure integration across the board - from migration planning to IT implementation."
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