Finance Pros Eager for Tax Planning Certainty

by FEI Daily Staff

Although they don't expect to see it soon, surveyed business leaders are hungry for certainty about acceptable global tax strategies.

According to Grant Thornton's International Business Report, three-quarters of business leaders believe international tax authorities should increase cooperation and provide clearer guidance on tax planning strategies.

"The vast majority [of respondents] would actually support paying more in tax in exchange for clearer guidance from tax authorities on what is acceptable tax planning," said Francesca Lagerberg, global leader for tax services at Grant Thornton, in a statement.

"The ball is very firmly in their court to provide the clear lines that businesses are requesting. The results provide more evidence that clarity is needed in the complex world of cross border tax transactions."

Asked if they would welcome more global co-operation and guidance from tax authorities on what is acceptable and unacceptable tax planning, even if this provided less opportunity to reduce tax liabilities across borders, 75 percent of business leaders said 'Yes', up from 53 percent a year ago.

Global Planning

The issue of international tax planning is gaining momentum thanks in part to a project by the Organization for Economic Cooperation and Development (OECD) known as its Action Plan on Base Erosion and Profit Shifting (BEPS).

Under BEPS, companies would report file detailed tax reports in each country in which they do business, and would provide tax authorities with operational and personnel information for specific countries.

For example, instead of being able to allocate profit in a low-tax jurisdiction such as Luxembourg, a retailer operating in Europe would file tax information in each country in the region.

While the plan is designed to help standardize international tax reporting, the fact that the OECD lack independent enforcement actions is likely to complicate its efforts.

Each country would have to adopt the OECD's BEPS guidelines on its own, but two countries -- the United Kingdom and Australia -- have adopted taxes on foreign companies operating within their borders that, in essence, preempt the OECD provisions.

Cooperation Confidence Low

In the Grant Thornton survey, respondents expressed doubt the OECD BEPS provisions would be enacted, with less than a quarter saying they thought the project would be implemented successfully.

A more popular approach among the business leaders surveyed was their host nation taking unilateral action to fight the loss of tax revenue in their jurisdiction, which was favored by 71 percent of the respondents (including 82 percent in the United States).

"International tax standards clearly need to be stripped down and rebuilt for the world we live in today, said Lagerberg. "The existing legislation is creaking at the seams in an increasingly interconnected, digital world in which the definition of a 'border' is looking archaic. The research is showing that businesses are asking for more help to enable them to navigate the new challenges of a digital economy.”