Tax audits, disputes seen rising globally

Companies around the world are seeing a significant rise in tax audits and disputes, and all signs point toward even more intense tax authority activity in the future.

One factor fuelling international disputes is the Organisation for Economic Cooperation and Development (OECD) work on curbing tax base erosion and profit shifting (BEPS), according to KPMG International.

It notes in its fourth global edition of Chief Tax Officer (CTO) Outlook titled “Top-of-mind issues for tax leaders”, that in light of swelling levels of tax disputes and the significant reputational and financial losses they can cause, some forward-thinking companies are investing in processes and resources to strengthen their tax dispute resolution functions.

Twenty percent of the survey respondents have a specific group that handles tax audits and disputes exclusively, which can ensure the companies tax disputes are managed by dedicated, adequately staffed teams of professionals with experience relevant to the company and its industry.

Under 10percent have a global head of controversy or equivalent who is responsible for the day-to-day management of tax disputes and who can help the dispute team to clarify accountabilities, centralize tax dispute monitoring and controls, provide strategic direction, and communicate with the board and senior management.

Two-thirds have an established internal process for managing and escalating tax disputes, which can ensure accountabilities, are clear and promote consistency, quality and efficiency in tax dispute management activities, locally and globally.

More than half have a budget dedicated to tax dispute management, which can ensure all of the company’s dispute management needs are covered and give the dispute management team some control over how the funds are deployed and invested.

KPMG International’s Global Tax Disputes Benchmarking Survey 2016 reveals steadily rising tax controversy as financially strained governments press for more revenue and media and public attitudes harden against perceived corporate tax avoidance.

As a result, audit activity is rising across the board, from direct taxes and indirect taxes to employment and domestic compliance issues — and international tax in particular.

“With the proposals complete, countries worldwide are now putting them in place. From broader requirements for tax transparency through more stringent transfer pricing policies to greater scrutiny of business substance, the changing rules open the door to considerably more tax disputes — especially given differences in interpretations and timing as countries translate them into domestic laws”, according to KPMG International.

International tax issues are by no means the tax authorities’ only focus. The majority of the survey respondents also report more audit scrutiny related to direct taxes, indirect taxes and domestic compliance issues (example income, expenses, reliefs).

The survey also confirms that behaviour is changing among tax authorities worldwide. Feedback from tax executives suggests tax authorities have changed and intensified their approach, making them increasingly difficult to deal with.

In this environment, it is not surprising that, over the past 3 years, survey respondents noted: more frequent requests for information, more audit queries from tax authorities, more aggressiveness in raising assessments, more difficulty resolving disputes, and harder lines being taken by tax authorities in negotiations.

 

Iheanyi Nwachukwu