Transfer Pricing Associates

Reputation Drives Corporate Tax Strategies

post Thursday November 21, 2013

Tags: corporate reputation, tax strategy, transfer pricing

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Whatever the specific driver is—one well-known company’s CEO testification before Congress on the details of its global corporate tax strategies, or the widely disseminated Government Accountability Office (GAO) report on corporate tax rates that called out US corporations for paying an average 13% tax rate in 2010—the conclusion is one and clear: corporate reputation is becoming a factor that influences corporate tax strategy.

This issue has been recently touched at SYNERGY 2013 conference—an annual event for professional tax and accounting firms—to get some real-world insights into the challenges large companies are currently facing when it comes to managing their global tax planning. This process is heavily influenced by global supply chains and associated transfer pricing compliance. As KPMG’s Rema Serafi explained: “The transfer pricing environment is currently facing a perfect storm. Increased tax scrutiny combined with increased media attention around tax planning has magnified attention on transfer pricing. There is now increased focus on how pricing policies are implemented for accounting purposes. CFOs, legal departments, risk controllers and those responsible for regulatory matters are now just as concerned about transfer pricing as tax departments. As such, companies are looking for more efficient ways to implement accurately by looking at technology solutions, among other things.”

This is true, as Governments and NGOs around the world including OECD, G20, UN and World Bank are getting involved in the debate over global corporate tax strategies. It appears that evolving tax policies, with a huge enthusiasm supported by the OECD, push harder and harder to ensure that there is a substantive value creation assigned within countries where companies are reporting revenue, and therefore paying tax.

Subsequently, corporations begin to think more conservatively about their tax strategies. The way companies approach tax planning is nowadays highly driven by perception around issues of reputational and audit risk. As Hadley Leach, a partner at Ernst & Young, highlighted: “In 2010 66% of companies identified “risk management” as their highest priority for transfer pricing, which was a 32% increase over surveys conducted in 2007”.

Meanwhile, companies are facing increased tax complexity as they continue to expand in emerging markets. However, audits are on the rise indicating that the perception has become a serious factor driving corporate tax strategy. The current focus on international calls the notion of tax becoming less about limiting tax exposure and more about limiting reputational risk exposure.

Source: Forbes

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