Can thinking big keep your tax controversy small?

Increased global interconnectivity means that tax controversy can spread rapidly among countries, writes EY Global. Tax has become increasingly connected — governments are collecting and sharing taxpayer information, and tax changes in one jurisdiction can now trigger changes across the globe.

The result is that tax controversy is evolving from two-sided disagreement in specific countries into a multidimensional, multi-country dynamic.

Governments are collecting more information than ever before and are using enhanced data analysis to identify and act on tax issues. Governments are also sharing this information at a record-setting pace.

Calafia Franco, EY Latin American Business Center Controversy Leader said, “Governments are sharing information, and tax authorities are collaborating across the border”.

“Now that tax authorities have more information, they are getting more aggressive. They have better position to challenge some tax issues,” Franco said.

Jeffrey Michalak, EY Global International Tax and Transaction Services Co-leader said, “Historically, global companies treated audits as discrete events. They would settle an audit issue, a cross-border issue, with one or perhaps both sides of a cross-border transaction. That audit issue may come up in a very similar transaction somewhere around the globe, and that also would be a discrete settlement.”

“Today, with information sharing,” Jeffrey says, “when I settle the one audit, the first audit, other countries around the world where I am doing similar types of transactions in my business see that audit settlement. That influences the conversations I have with other governments around the world”.

Adds Rob Hanson, EY Global Tax Controversy Leader, “We have developed frameworks for companies to track and manage controversy globally. We’ve helped them develop globally integrated structures and policies around managing tax controversy.”

“The result,” Rob says, “is that these companies now have centralized repositories of audits. This allows them to have better oversight and control of their audits around the globe. It also allows them to share issues and best practices internally.”

The implication is that businesses must act so that their people, policies and systems keep pace with this development. They need a line of sight into the issues and the potential for future tax controversy as well as a centralised global strategy.