The global tax landscape continues to change, with near-constant news hitting the headlines regarding shifting tax policy, increasing levels of enforcement and the growing potential of reputational risk.
Multinational companies now have to balance more competing priorities than ever before, ensuring they protect their business by monitoring and responding to changes, while maintaining the highest levels of compliance and continuing to add value from the tax function.
Amid this development, tax experts believe that technology and globalisation are rapidly having an impact on indirect taxes and mismatches in the application of Value Added Tax (VAT) to international trade can cause issues of double taxation and unintended non-taxation.
In their recent indirect tax briefing, tax experts at E&Y led by Philip Robinson, global director (Indirect Tax), noted that tax authorities need to respond to these changes to protect tax revenues and avoid double taxation and non-taxation, a point that has been recognised by the European Commission, the Organisation for Economic Co-operation and Development (OECD) and a number of country tax administrations, including South Africa’s.
“From a policy perspective, all governments want their country to be viewed as an attractive place to do business, to attract jobs and capital in a competitive globalized arena. At the same time, they want to increase the amount of revenue they bring in. Governments are treading a fine line, constantly assessing how to secure the tax revenues they see as rightly theirs, while at the same time being in direct competition with other nations, making sure they do not scare off mobile capital,” E&Y tax experts noted.
Tax administrations are adapting their enforcement strategies, focus and policies in response to the changing business dynamics. They are working to ensure resources are being applied to the right issues and taxpayers, and to share leading practices and taxpayer information with their foreign counterparts to help collect every dollar due.
The second OECD Global Forum on VAT held in Tokyo on 17 and 18 April 2014 and it endorsed the OECD International VAT/GST guidelines as a global standard to address issues of double taxation and unintended non taxation resulting from inconsistencies in how VAT is applied to international trade.
“The digital world is ever expanding, rapidly changing and increasingly complex. Some commentators estimate that more than 200 new users connect to the mobile web every minute, but we have so far reached only 1 percent of our connectivity potential. The definition of the “digital economy” is also shifting to encompass a far broader range of industries and sectors than ever before,” the experts noted.
They insist that the business and tax landscapes have changed dramatically, and the pace and complexity of change continues to increase. “Governments are tempering the need for revenue with increased competition for labour and capital. Tax authorities are adapting their enforcement strategies, focus and policies in response to the changing dynamics of business. Companies are balancing competing priorities, ensuring they maintain compliance while adding value.”
By implication, dealing with indirect tax data is the key to effective indirect tax management. “The variety of indirect tax data required by different jurisdictions and the sheer quantity of relevant data generated by large organisations can present a range of logistical issues,” the tax experts noted.
Iheanyi Nwachukwu
