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Uncertain, Shifting Global Tax Environment Causing Havoc In Multinational Boardrooms

Uncertain, Shifting Global Tax Environment Causing Havoc In Multinational Boardrooms
27 Apr 2011

The need for governments across the globe to plug gaps left by having to support financial sectors and other industries in recent years has caused the most rapid change in the international tax environment seen for decades. With economies finding it ever more difficult to grow their way out of the global financial crisis - as demonstrated by the recent GDP figures in the US and UK - raising tax revenues remains the only real way of paying down national debt.

This rapid change has resulted in uncertain and shifting tax environments, causing concern in Boardrooms across the world. The issue was debated by tax advisors from across Asia, Europe and the Americas at a global tax conference for multinational companies, held in Paris by Taxand, the world's largest independent global organisation of specialist tax advisors to multinational businesses.

Recently in India, there has been a fourfold rise in the government's total tax take despite a decrease in corporate tax rates. The higher revenue has largely been achieved through more aggressive tax collection and widening the corporate taxpayer base. The roll-out of new technology has been crucial in administering a more efficient system in a country consisting of 1.2 billion people, as has the successful phasing in of tax holidays, which has added to the attractiveness of India as a location for multinationals to do business.

But the success in India is not being seen around the world. The US tax climate is currently defined by a perpetual state of uncertainty, largely brought about by confusion in the government's continually shifting tax policy and proposals that deviate significantly from the current tax regime. Like India, proposals over the last few years have looked to broaden the corporate tax base, particularly with tax receipts only making up 15% of GDP, the lowest percentage for decades. We have seen the introduction of The Foreign Account Tax Compliance Act (FATCA), in the US in March 2010 (with which companies are required to comply by 2013) which is the culmination of the US government's crusade to prevent tax evasion, largely targeting the financial services industry. However, its reach is much greater as the legislation also presents a raft of concerns for non-financial multinational companies across the globe, who are bearing the cost of US tax policy and who now need to consider their tax positions more carefully.

To navigate this uncertainty, Boards of multinational companies need to decipher how these changes impact their operations, bringing tax to the forefront of Boardroom agendas. The role of many tax departments across the world is changing to deal with the changing tax environment. In forward thinking multinationals, tax departments are no longer only being asked to look at compliance, now they are being tasked by their Board to gaze through the looking glass to examine what the tax changes being openly proposed by politicians might mean for the structure and success of the business. Proactive tax departments, that align tax policy and substance with the operating model and overall strategy of the company, are now more important than ever.

Frederic Donnedieu de Vabres, Chairman of Taxand, the world's largest independent global organisation of specialist tax advisors to multinational businesses.

Your Taxand contact for further queries is:
Abigail Tarren, Global Operations Director
T. +44 (0)207715 5243
E. atarren@taxand.com

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