The Brave New World of Accounting at Multinationals
Increased taxation, numerous regulations and a growing demand for transparency are changing the way business is done worldwide — and how multinational companies manage tax risk. In this first of a two-part series, CCH experts outline key trends
| February 2012
Finance, accounting and tax professionals at multinational corporations (MNCs) face unprecedented challenges in the years ahead on a variety of fronts.
“As financial reporting, tax policy and compliance become more and more inextricably connected, corporations will find the territories where they do business more demanding than they’ve been in the past,” says CCH’s Scott Gruchot, Vice President and General Manager, Corporate.
Important trends include:
Increased competition for tax revenues. “The economic downturn has led many global jurisdictions to look for additional revenue and more aggressively audit MNCs,” says David Lampert, Vice President, Segment, North America, Wolters Kluwer Tax & Accounting. “That’s not just happening at the national level. Provinces in China have increased tax rates independently.”
While corporate income and other direct tax rates have fallen in 16 of the largest economies, according to World Bank research, the opposite is true when it comes to indirect taxes such as VAT/GST/sales tax and other indirect tax rates. Japan levies 20 different taxes on corporations, according to the World Bank.
“I have just come back from Brazil where they mandated electronic filing and specifically targeted the intercompany ‘gray market’ to get a larger share of VAT taxes,” Lampert says. “That move alone has increased tax revenue 15 percent and cost MNCs billions.”
A complex and risky regulatory environment. “Even if companies are able to keep a lid on tax payments, the level of regulation has tripled in many countries,” says Chris Donie, Director of Product Management. “That adds to the paperwork required to comply with them.”
For example, the European Union has created a labyrinth of legislation and rules that are almost indecipherable — currently 14,500 rule sets. One reason emerging markets are attractive places to locate is the disparity between Asia-Pacific taxes and those levied by the West.
A growing demand for transparency. “There will be even more demand for increased transparency, and closer engagement with government and regulatory bodies,” says Gruchot. Companies will be required to share more information not only in financial reporting (through increased disclosure requirements), but also with tax authorities in tax returns.
Already, any MNC doing business in the U.S. must report Uncertain Tax Positions (UTP) to the IRS on Schedule UTP. The OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes membership has recently expanded to more than 100 jurisdictions, and many member countries have passed legislation to exchange tax information among jurisdictions. For example, since 2009, Belgium has signed 41 tax information exchange agreements with other countries and passed legislation ending bank secrecy.
To address these and other challenges, CCH has developed Integrator, a single solution for streamlining tax data collection, provision and compliance needs. Learn about it here.