The relationship between tax authorities and tax payers has become increasingly strained and intense over the past 5 years, noted Greg Wiebe in his opening address. Disputes have become more common, audits and investigations more frequent and penalties more severe.
Mr. Wiebe identified five specific trends emerging from tax authorities that are influencing today’s tax environment: increasing scrutiny in areas such as transfer pricing; greater collaboration with other jurisdictions to identify and pursue tax evasion; growing discomfort with aggressive corporate tax strategies; increasing tax burdens, particularly in deficit economies; and the increasing use of penalties as a source of revenue.
While the move towards greater transparency is certainly a welcome trend, noted Mr. Wiebe, higher regulatory burdens and increasing tax rates may ultimately have a negative effect on a state’s revenues as businesses start to relocate to jurisdictions where tax costs and complexity is more manageable.
In many markets, disputes have become both more common and more acrimonious, leading to increased costs and greater uncertainty for corporations. Mr. Wiebe suggested that tax directors will need to start paying close attention to their relationships with tax authorities around the world and, where disputes do occur, take a direct role in reviewing their dispute responses before they are submitted. Tax directors will also need to gain a clear understanding of their company’s risk appetite and ensure that this is reflected in their tax code of conduct.
In reality, corporations should be rather proud of the role their taxes play in society, added Mr. Wiebe. After all, it is companies that pay labor taxes, collect and remit sales taxes and submit corporate taxes, yet little is ever said about the positive force this contributes to the working of society.
Many of these ideas, trends and challenges were then picked up and expanded upon by the Hub panel. Massimo Ferrari noted that the tax legislation process had taken on a vigorous pace recently, often resulting in regulations being enacted without proper stakeholder consultations and – in some cases – without ensuring that the new regulations are consistent with EU directives. As a result, he noted, companies find themselves tangled up in lengthy disputes as they challenge the legitimacy of their tax findings.
One area where the panel noted increased activity was in the area of transfer pricing which, according to Hartmut Förster, has become a big topic for tax authorities around the world. And while he noted that the EU Commission is continuing to work on gaining consensus from member states on transfer pricing, there was still much work to be done in areas such as clarifying the arms-length principles and developing administrative frameworks for effective arbitration.
The panel also discussed whether the concept of Enhanced Relationships would improve communication and build trust between tax authorities and tax payers. But according to Michael Lang, Enhanced Relationships with tax authorities can only be successfully developed in markets that have a long history of cooperation between authorities and payers.
Ultimately, the panel agreed that tax has come under acute stress over the past few years. And, with many tax authorities becoming increasingly focused on collecting revenues and enforcing compliance, tax directors would need to place renewed emphasis on strengthening their relationship with tax authorities and assessing the reputational risks of their tax policies.