US Companies Facing Heightened Tax and Controversy Risks Compared to Companies in Other Jurisdictions

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The EY 2014 tax risk and controversy survey finds tax risks accelerating worldwide.

Ninety percent of companies headquartered in the United States expect already heightened tax risks to accelerate in the next two years, compared to 81% of companies globally who anticipate increased risk. This is according to a new global report by EY, Bridging the Divide, which also finds that companies view the potential lack of coordination by national governments around the Organization for Economic Cooperation & Development’s (OECD) Base Erosion and Profit Shifting (BEPS) project as one major new risk.

The EY survey of 830 tax and finance executives (including 120 chief financial officers) in 25 countries has tracked tax risk for 10 years, and now offers the first quantifiable global sample of how companies around the world view the OECD BEPS project and other types of tax risks companies are currently facing.

“The list of countries either deploying or planning significant tax reform continues to expand, and tax directors everywhere report that the pace, complexity and volume of new legislation is straining their already limited resources,” says Rob Hanson EY Global Director of Tax Controversy. “On top of BEPS and changing legislation, we’ve found that companies also need to develop plans to address reputation, enforcement, and operational issues if they’re to successfully manage their tax risk.”

Ninety percent of US-based companies report that they already experience more risk or uncertainty around tax legislation or regulation than they did just two years ago. When asked about reporting requirements, 69% of US-based executives said they have seen an increase in disclosure and transparency requirements over the same two-year period compared to 48% of respondents around the world.

Nearly one-third (31%) of all companies surveyed predict the BEPS roll-out will be characterized by relatively limited coordinated action and by increased unilateral action by countries. As a result, the majority (60%) of the largest companies (those with annual revenues in excess of $5 billion) fear that double taxation will increase in the next three years. Yet, only 45% of US companies agree. Three-quarters (74%) of these largest global companies say they believe some countries already see the very existence of the OECD’s BEPS project as a reason to change their enforcement approach before any recommendations have passed into national law.

“Although they expressed confidence in their tax planning stance, US-based executives in particular recognized that they would need additional resources to comply with new reporting requirements under the BEPS project plan,” says Hanson.

In addition to BEPS-related risks, the survey also reveals other sources of tax risks that US companies are currently experiencing and anticipating over the next several years. Though US survey respondents reported heightened challenges in response to the numerous tax changes, they are resolute to maintain their course:

  •     Companies headquartered in the US report a 90% greater risk or uncertainty around tax legislation or regulation during the last two years, a 28 percentage point (or 45%) increase over global respondents (62%) and 24% higher than the “largest companies” global respondents.
  •     Among US-based executives, 53% report greater complexity around effective tax rate management during the course of the last two years, a 22 % increase over all global respondents (31%) and 11% higher than the “largest companies” global respondents.
  •     Forty-eight percent report greater complexity in supply chains during the course of the last two years, a 19% increase over the global respondents (29%) and 11% higher than the “largest companies” global respondents.
  •     In terms of controversy, 79% of US-based companies report that tax audits have become more aggressive in the last two years, with 69% seeing an increase in disclosure and transparency requirements and 74% seeing an increased focus on cross-border transactions by tax authorities.
  •     APAs (Advance Pricing Agreements) have long been a means for tax authorities and taxpayers to mutually agree on a way to reduce risk and, therefore, the volume of disputes in relation to transfer pricing. Many respondents report that APAs are now becoming far more difficult to secure. Among US-based companies expressing an opinion, 63% found one or more tax authorities to be more difficult or challenging with respect to concluding an APA in the last two years.

As a result of these increased risks, 78% of the largest companies around the world agree or strongly agree that tax risk and controversy management will become more important in the next two years. Yet three-quarters of these companies feel they have insufficient resources to cover tax function activities, up from 57% in 2011. Forty-three percent of all companies use no technology or rely on local personnel to manage tax audits and incoming data requests from the tax authorities.

EY Global Tax Vice Chair, Dave Holtze adds: “Today’s global business environment presents a complex assortment of tax risks for multinationals, particularly when operating in markets that may be less familiar. Companies need to get actively engaged on this issue, from ensuring that they have open lines of communication within their own enterprises to making their views known and understood on issues such as BEPS.”

Report can be downloaded, with high resolution infographics, here:


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This news release has been issued by Ernst & Young LLP, a member firm of EY serving clients in the US.

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Lizzie McWilliams
Ernst & Young LLP
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