Multinationals Face Tax Hike and Increased Regulation in 2011 and Beyond

Research undertaken by Taxand, a global organisation of tax advisors to multinational businesses, reveals that multinationals are facing larger tax bills coupled with a sizeable increase in regulation, further to tax changes introduced by governments in 2010.

The Taxand 2010 Tax Milestone Survey asked advisors from 31 countries to reveal the three most pertinent tax changes introduced in their countries in 2010.

The research shows that the vast majority of measures and policies introduced by governments and tax authorities across the globe over the last year will penalise multinationals by applying greater scrutiny on tax driven activities and structures and by increasing the number of taxes to be collected in 2011 and beyond.

Frédéric Donnedieu de Vabres, chairman of Taxand, said: “Our research reveals that governments are clearly looking to claw back lost revenue by imposing a raft of newly introduced or revoked taxes on the corporate sector. Governments are abolishing existing exemptions, bringing in new taxes or introducing new requirements affecting tax structures in order to obtain more funds from multinationals operating in their jurisdictions.”

The US, China, Spain, Austria, India, Thailand, Romania and Turkey are particularly notable within the Taxand 2010 Tax Milestone Survey as countries whose authorities have introduced measures designed to apply more scrutiny on multinationals’ tax driven activities and who are going down the route of collecting more taxes from multinationals.

The UK, Canada and Malaysia are among the few countries that stand out as regions where favourable tax policies have been introduced to stimulate economic recovery and in particular investment by multinationals.

Examples of measures introduced which will have a negative impact on multinationals include:

• An increase in the VAT rate, to be imposed by six countries from 2010 onwards, and an increase/expansion of VAT on certain goods in two further countries.
• A new Code of Good Tax Practice in Spain, along with an increase in tax inspections and anti-abuse measures.
• The abolition of exemptions/tax allowances (applicable in Ireland, Thailand and Austria).
• The introduction of new taxes (environment tax in Thailand, tax on financial transactions in Venezuela, and City Maintenance Tax for foreign enterprises in China).
• In the US, the Internal Revenue Service (IRS) is requiring corporations, including multinationals, with US$10m or more in assets, to identify uncertain tax positions for the next five years (this previously applied to corporations with US$100m or more in assets).

Examples of measures introduced that will have a positive impact on multinationals, encouraging global expansion and investment include:

• A reduction in the corporate income tax rate, to be introduced in five countries from 2011.
• Relaxation of Controlled Foreign Company (CFC) rules in the UK alongside Foreign Branch Reform, an elective regime to exempt tax of foreign branches.
• Tax incentives/reductions to be offered to various industry groups/sectors, for example:

1. Reduced corporate tax rate of 10% for pharma and clean technology sectors in the UK.
2. Assistance for small and medium-sized enterprises (SMEs) in Malta.
3. Incentives for oil and gas companies in Malaysia.
4. A tax write-off for the cost of energy efficient equipment in Ireland.

Donnedieu de Vabres added: “Global tax policy appears to be going down two very different routes: by applying more rigorous scrutiny of tax procedures and/or by increasing tax liabilities outright, the majority of tax authorities are looking to increase the share of tax collected from multinational companies. On the other hand, some authorities have introduced a range of favourable tax policies designed to encourage multinational companies to invest in and expand with them.

“Governments around the world are stepping up their drive to collect additional taxes from multinationals but there needs to be a balance between tax collection and the ability for multinationals to undertake efficient tax planning.”

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