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Corporate tax departments - can they handle more?
Also published in Global Tax Weekly, 24 December 2015
In the last decade and a half, the rate and volume of financial and tax regulation both at home and abroad have put corporate tax departments under constant strain. Taxand USA discusses why US corporate tax reform is looming on the horizon.
On the financial accounting front, the Financial Accounting Standards Board has been hard at work not only codifying existing standards but revamping some of its major components (e.g. business combinations, accounting for income tax contingencies, revenue recognition, etc.). The Treasury and the IRS, on their end, have been unrelenting in their efforts to increase transparency and shut down perceived tax loopholes. The environment abroad in which U.S. multinationals compete also experienced various changes. Some of these changes would have been difficult to predict prior to the financial recession of 2008, such as the collapse of bank secrecy in Switzerland, the decreased availability of favorable tax rulings in Luxembourg and other perceived taxpayer-friendly European jurisdictions, and the momentum that has gathered behind the OECD’s base erosion and profit shifting (BEPS) project and its focus on source-country taxation and transparency.
As foreign countries continue to face budgetary constraints as a result of the financial recession, it makes sense for them to seek out additional tax sources, and profitable U.S. multinationals are an invariable part of that analysis. However, at the same time, countries continue to take steps to entice the same foreign multinationals to set up shop in their respective countries, seeking local investment and jobs — for example, through the use of patent-box regimes and substantially lower corporate tax rates. Given these recent developments, it is difficult to ascertain if we are experiencing a paradigm shift in international taxation or if the pendulum is just swinging back toward taxing authorities.
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Corporate tax departments this day and age face more demands than ever before, and the best is yet to come. At home the US tax code is overdue for a major rewrite, and abroad countries are jumping at the opportunity that BEPS has provided to rewrite their own tax code and plug chronic budgetary deficits leftover from the 2008 financial recession. For corporate tax departments that lack a strategic plan, now is the time to engage in a conversation with your tax advisors.