The rapidly evolving global tax landscape requires a critical examination of today’s tax function, according to Paying Taxes 2016, a joint report by PwC and the World Bank Group.
For many organisations, change may be needed to address capability gaps and better manage risk.
Now in its tenth edition, the report continues to be a unique study which investigates and compares tax regimes across 189 economies, ranking them according to the relative ease of paying taxes.
“It is unclear what legislation the United States will enact going forward relating to transparency and the broader Base Erosion and Profit Shifting (BEPS) initiatives. But companies should not undertake actions simply based on their home country laws. Other countries have broader and more divergent agenda and will continue to seek more disclosure from multinationals” said Dave Camp, former chairman of the House Committee on Ways and Means and now PwC Senior Policy Advisor.
Enhanced transparency and disclosure of tax-relevant information are the subject of much debate and becoming the new standards for business.
The demand for greater transparency is reflected in the agenda and action plans of the Organisation for Economic Cooperation and Development (OECD), the G20, the European Union, and the United Nations.
The report notes that companies are voicing concern over how disclosures of transfer pricing strategy, corporate taxes paid, operational structure, and financial information to tax authorities on a country-by-country basis will be interpreted and potentially misused.
Further, companies are concerned that such information may end up in the public domain with competitive and reputational implications.
“The most immediate and sweeping initiative faced by tax functions is the OECD’s Country-by-Country Report ing (CbCR) recommendation and template. CbCR will have a significant impact on the tax function and how it must engage with the wider organisation to be ready for initial compliance as well as meeting recurring annual obligations. Changes to the tax function also will be shaped by other pending initiatives under the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan as well as unilateral government actions that could upend existing international tax norms”, the report noted.
PwC and the World Bank Group expect base-line tax administration and other compliance burdens to expand, audits to increase, and there to be enhanced controversy creating the potential for increased and double taxation.
They believe that more pressure will be placed on tax functions to better manage tax and related risks by strengthening the control environment that governs reporting processes.
“Overall, the tax function will need to expand its core capabilities relating to data, people, and technology. In addition, due to the potential business and reputational risks associated with many transparency initiatives, the tax function will need to be more engaged with the C-suite stakeholders about such issues”, they noted.
The message is that companies should think creatively and strategically to address these risks while proactively engaging with their broader organisation and potentially the public.
