How businesses can cope with rising tax controversy around the world

Podcast host Susannah Streeter welcomes Marlies de Ruiter, EY Global International Tax & Transactions Services Policy Leader, Luis Coronado, EY Global Tax Controversy Leader and Paul Dennis, UK Tax Partner, Ernst & Young LLP. Together, they discuss how the incidence of tax risk and controversy is growing post pandemic and what multinational companies can do about it.

Governments face the challenge of bridging a growing tax gap exacerbated by the need to recoup the cost of COVID-19 stimulus packages. Their options are three-fold: Applying current legislation more closely, interpreting tax legislation in new ways and creating new taxable events in an effort to increase tax revenues.

Whatever route individual jurisdictions take, multinational companies in particular must prepare themselves for a spike in tax risk and controversy. They can do this by ensuring they understand this fast-evolving tax landscape and developing the right approaches and tools to manage risks.

Reputational risk, for example, is an increasing factor, with tax payments becoming a mandatory requirement in ESG reporting standards and increasing media coverage of the subject. Some authorities (such as the Nordics and Mexico) are  publishing lists of non-compliant companies.

Proactivity should be a focus for tax teams, when dealing with reputational, regulatory, compliance and operational risk, with steps taken to establish a real-time dialogue with authorities before controversy can occur and the resolution cycle begins.

Adopting a decentralized, multi-hub business model, for example, can also help reduce complexity and controversy, especially in areas such as transfer pricing. 

Key takeaways:

• Multinational companies can manage risk by taking proactive action, such as entering into advance pricing agreements or taking part in the OECD’s International Compliance Assurance Program.
  
• A real-time proactive dialogue with tax authorities can be hugely beneficial, but it also pays to understand the favored approach of each individual tax authority and the approaches that elicit the best response.
  
• To achieve a fully aligned and coherent tax strategy, organizations should ensure that they have high-quality and unambiguous data as the foundation of their reporting. 
  

For your convenience, full text transcript of this podcast is also available. Read the transcript.