Reputational Attack Has Potential To Curtail Growth And Compress Innovation
The tax contribution of multinational companies to local economies around the globe has become extremely politically charged, with the focus shifting from 'fiscal' to 'moral' responsibility. The effect of this sentiment on business restructuring was discussed today at the Taxand global conference 2013 hosted by Alvarez & Marsal Taxand US in New York.
Frederic Donnedieu de Vabres, Chairman of Taxand, provides an overview of the session:
"The ongoing debate into multinational tax planning is showing few signs of subsiding. Media focus remains high and governments and the general public continue to deem tax planning as 'immoral'. This has led some people to believe that any sort of supply chain planning is now a thing of the past, particularly given the tarnishing of certain corporate reputations that has already taken place.
However, there is a careful line to be trodden here. These waves of attack on any supply chain planning could potentially backfire, by curtailing investment, thwarting growth and compressing innovation across the globe.
In a global economic environment as fluid as it is at present, bona fide commercial business restructuring should be endorsed and even embraced, as a means of navigating the stagnant business landscape. The roles of finance and tax departments are in fact to contribute to shareholder value, alongside the need to manage their tax responsibilities across a number of jurisdictions.
Arguably, it is the issue of competitiveness that has driven us to the current situation, with a number of countries in direct battles with one another to attract investment to increase their coffers. As a result we have seen significant changes in the global tax landscape as jurisdictions look to attract new investment on the one hand and to deter multinationals from exiting on the other. Governments continue to face challenging budget deficits so they are torn between helping multinationals and bridging their tax gaps.
Moreover public perception of any business restructuring as being a potential tax 'avoidance' initiative has resulted in a considerable increase in scrutiny over recent years and the challenges to productive supply chain planning have grown in the extreme. Activity which initially necessitated simple transfer pricing documentation now demands a long list of justifications around issues including substance, commercial rationale and permanent establishment. This in turn, brings a lack of clarity for multinationals on what is likely to stir up a challenge from the authorities.
Robert N. Lowe, CEO, Alvarez & Marsal Taxand US & Conference Host, said:
"Multinationals are continuing to re-evaluate their supply chain processes from a tax perspective to keep pace with rising government scrutiny. As companies ease out of the financial crisis and restart procurement, production and inventory-building, there is an opportunity to rationalise, coordinate and integrate with the end goal being to promote efficiency, slash costs and boost profits. Senior tax professionals bring the necessary financial expertise from which to evaluate the effect of system-wide changes on the bottom line and plan accordingly."
This article is based on The Evolution of Business Restructuring to Combat Reputational Attack Plenary session at the Taxand Global Conference 2013: view the plenary presentation and film here.
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"It is not over for business restructuring - it is an area which brings both heat and opportunity. The duty to shareholders to maximise profits remains and restructuring continues to be essential to maintain competitiveness, as well as provide benefits to the customer. Multinationals must be prepared to confront reputational risks head on and defend against them. Commercial objectives drive business restructurings and any assessment of the tax obligations that accompany these strategic decisions must be realistic and fair."